Jury: Vegas Casino Must Return $1.5 Million Gambled By Ponzi Schemer

A Nevada federal jury has ruled that a Las Vegas casino must return approximately $1.5 million wagered at its sportsbook by a former college baseball player sentenced to a five-year prison term for masterminding a massive $32 million real estate Ponzi scheme.  Rio Casino, owned by gaming behemoth Caesars Entertainment Corp., was found liable under federal bankruptcy law for $1,480,000 it received from convicted Ponzi schemer Salvatore Favata.  

Favata operated National Consumer Mortgage ("NCM"), a California company that raised more than $30 million from hundreds of investors under the guise of loaning funds to homeowners that could not qualify for traditional mortgages.  Favata represented the venture as expremely profitable, promising annual interest payments ranging from 30% to 60% and assuring investors that their funds would be safe and secured by real property.  To entice investors and add an aura of legitimacy to the scheme, Favata even hired former Los Angeles Dodgers baseball great Steve Garvey as NCM's President.  

The scheme crashed down in 2006 in the face of mounting criminal and civil investigations.  In October 2006, the Securities and Exchange Commission ("SEC") announced civil fraud charges against NCM.  Additionally, criminal authorities announced that Favata had agreed to plead guilty to a single count of mail fraud, to pay restitution in excess of $20 million, and to forfeit his house.  Favata was later sentenced to a five-year prison term in July 2007.  

NCM filed bankruptcy in April 2006.  A bankruptcy trustee, John P. Brincko, was appointed to unravel Favata's scheme and recover assets for investors.  Brincko soon discovered that Favata had a particular affinity for gambling, and the investigation showed that over $10 million of investor funds were pilfered by Favata to purchase cashier's checks that were in turn transferred to Rio Casino to be used at the casino's sportsbook.  The checks, ranging from $15,000 to $325,000, began in September 2003 and the last check was cashed in March 2006.  

Brincko sued Rio Casino to recover the approximately $10 million it received from Favata, arguing that the transfers constituted avoidable preferences under federal bankruptcy laws and that Rio Casino, as a subsequent transferee, was obligated to return those funds to be used to compensate Favata's victims.  The claims asserted by Brincko included fraudulent conveyance counts under Section 548 and 550 of the Bankruptcy Code based on actual and constructive fraud, as well as fraudulent transfer claims based on California state law.  

A federal jury returned a verdict today finding that, in the one-year period preceding NCM's bankruptcy filing, Rio Casino received $8,320,000 in transfers from Favata.  Of that amount, the jury found that Rio Casino had demonstrated its defenses that it had received $6,840,000 of that amount in good faith and without knowledge the funds were derived from Favata's fraudulent scheme.  Thus, because Rio Casino could not demonstrate it acted in good faith in receiving $1,480,000 from Favata, it was not entitled to defeat the trustee's claims.  

The jury's verdict form is below:

Verdict

 

Rothstein Set To Testify Against Former Colleague

Scott Rothstein, the infamous south Florida ex-lawyer serving a 50-year prison sentence for a $1.4 billion Ponzi scheme, is scheduled to make his first public appearance this week since his 2011 sentencing as a witness at the trial of a former colleague accused of assisting his scheme.  The trial of Christina M. Kitterman, a former attorney in Rothstein's now-defunct law firm, Rothstein Rosenfeldt Adler ("RRA"), began today as prosecutors sought to empanel a jury that was unfamiliar with Rothstein's perpetration of the fourth-largest Ponzi scheme in history.  Kitterman is facing three counts of conspiracy to commit wire fraud, each of which carries up to a 20-year prison term and a $250,000 fine.

Rothstein began cooperating with prosecutors after his arrest in December 2009, and has provided an undisclosed amount of cooperation since his 50-year sentence was handed down in June 2010.  At a civil deposition, Rothstein readily singled out those who he felt were complicit in his scheme, including former RRA lawyers Kitterman and Douglas L. Bates. According to Rothstein, Kitterman agreed to pose as the head of the Ft. Lauderdale office of the Florida Bar Association during an April 2009 meeting with certain investors who were searching for an explanation as to why Rothstein had fallen behind on payments.  Kitterman, alleged Rothstein, falsely stated to those investors that Rothstein's RRA accounts had been frozen in connection with a pending bar investigation of Rothstein.  

Kitterman's lawyer has denied the charges, claiming that Kitterman received no compensation from Rothstein for participating in the alleged meeting.  Additionally, Rothstein supposedly named another lawyer - not Kitterman - as the one that participated in the investor meeting.  Citing these reasons, defense lawyers successfully argued that introducing Rothstein's testimony via deposition alone - as sought by prosecutors - was not sufficient, and District Judge Daniel T. Hurley issued an order in November 2013 allowing Rothstein's live testimony provided the defense agreed to be responsible for the estimated $40,000+ cost.  After questions were raised about the constitutionality of that order, it was recently reported that a subsequent verbal order mandated that the taxpayers foot the bill for Rothstein's appearance.

Part of the hesitancy to produce Rothstein as a live witness is due to his rumored membership in the federal witness protection program resulting from his cooperation that lead to criminal charges against a member of the Italian mafia.  Indeed, a search for "Scott Rothstein" in the Bureau of Prison's Inmate Locator yields zero results.  Additionally, Justice Department prosecutors were present at Rothstein's prior civil depositions and instructed Rothstein not to answer some questions.  

Ponzi Associate Jailed For "Mind-Boggling" Money Laundering Scheme

A New York man accused of playing a role in the $425 million Ponzi scheme perpetrated by Nicholas Cosmo had his bail revoked by a New York federal judge who called "mind-boggling" his efforts to hide over $1.7 million in illicit scheme proceeds.  Anthony Ciccone, 39, was ordered into custody by Magistrate Judge A. Kathleen Tomlinson after prosecutors detailed a multi-year scheme by Ciccone to hide nearly $2 million that he gained from Cosmo's Ponzi scheme.  Ciccone had previously pleaded not guilty to criminal charges resulting from the scheme.

Ciccone was one of the top brokers in Cosmo's Agape World, which promised investors huge returns in short-term investment contracts.  Ciccone was one of Cosmo's many brokers who were paid handsome commissions in return for steering investors into Agape World despite the existence of numerous red flags surrounding the investments.  Ciccone, who was formerly a postal worker in Manhattan, ended up receiving approximately $15 million from Cosmo in commissions.  

Cosmo was indicted on thirty-two counts of wire fraud and mail fraud, and later pleaded guilty in October 2010 to one count each of wire fraud and mail fraud. Cosmo was subsequently sentenced to a twenty-five year prison term in October 2011.  While Cosmo was originally the only one facing criminal charges, authorites later unveiled civil charges against more than a dozen brokers in June 2012, with four brokers, including Ciccone, also facing parallel criminal charges.

After Ciccone was arraigned on a superseding indictment earlier this month, Magistrate Judge Tomlinson agreed to allow him to remain free on the original $1 million bail.  However, prosecutors subsequently alleged that Ciccone had been involved in an intricate plot to conceal nearly $2 million realized from Cosmo's scheme.  According to prosecutors, Ciccone overpaid approximately $1.7 million in federal and state income taxes beginning in 2008 that was comprised of Ponzi scheme proceeds.  Several years later, the funds were returned to Ciccone in the form of tax refunds, and Ciccone subsequently had his wife and mother-in-law launder the refund money through their bank accounts.  Once back in Ciccone's possession, the funds were then used for expenses, to pay for two Florida businesses, and even for $350,000 in gold coins.  

To date, authorities have only been able to recover approximately $10 million for Cosmo's victims - representing approximately 5% of the $179 million estimated to be lost.

Ponzi Schemer Who Fled To Greece Gets 17.5 Year Prison Sentence

A Texas man who fled to Greece after pleading guilty to a $8.6 million Ponzi scheme only to be recaptured and returned to the United States was sentenced to serve more than seventeen years in prison.  Christopher Blackwell, 34, received a 210-month sentence from United States District Judge Terry R. Means.  Blackwell was also ordered to pay $8.6 million in restitution to his defrauded victims.

Prosecutors allege that Blackwell, through his companies AV Bar Reg Inc. and Millers A Game LLC, claimed to have an established trading program that could guarantee investors monthly returns ranging from 25% to 30%.  In attempting to bolster his credibility and reputation, Blackwell made a variety of representations concerning his academic and professional background.  These claims included masters and doctoral degrees from a Spanish university and previous employment at Goldman Sachs and the Bank of Madrid.  All of these claims were false.  

When federal authorities began investigating, Blackwell arranged several meetings at Hooters with an undercover agent posing as a potential investor.  There, Blackwell promised that an investment with him would be risk-free, and that he was able to generate such lucrative profits through “buddies that I went to school with” that worked at prestigious financial firms such as Goldman Sachs.  

Blackwell was arrested in June 2011 and charged with two counts of wire fraud.   After subsequently pleading guilty in July 2011, Blackwell made the decision to flee before his sentencing.  He ended up at the Greek island of Carfu, where he remained until he was arrested by U.S. Homeland Security agents in April 2013.  Blackwell was extradited back to the United States and was returned to Texas in November.  

The sentence is notable in that it is towards the high-range of sentences for the amount of losses at issue.  Indeed, of the nearly 400 sentences handed down to Ponzi schemers from 2008 to 2013 as featured in the Ponzi Database, the average and median sentence for all Ponzi schemes was 114 months and 110 months, respectively.  It is likely that Blackwell's decision to flee may have played a part in the increased sentence.  

"Habitual Fraudster" Gets 9-Year Sentence For $9.2 Million Ponzi Scheme

A Colorado man dubbed a "habitual fraudster" by the Securities and Exchange Commission learned he will spend the next nine years in prison for masterminding a $9.2 million Ponzi scheme.  Larry Michael Parrish, aka Michael Parrish, received the sentence after previously pleading guilty to a single count of wire fraud last May.  In addition to the prison sentence, Parrish was also ordered to pay $4 million in restitution to his defrauded victims.

Parrish operated IV Capital Ltd. ("IV Capital") from November 2005 to October 2009.  Parrish held out IV Capital as an investment and trading company, telling potential victims that the company had more than $20 million under management, guaranteed monthly profits of at least 2.5%, and that professional third parties would evaluate the company's accounts.  Based on these and other representations, Parrish and IV Capital raised more than $9.2 million from investors.

However, of the funds raised, less than $3 million were actually used for trading by Parrish.  Contrary to the consistent track record painted by Parrish, nearly all of those funds were lost in risky trading.  More than $5 million was used to make "profit" payments to investors, with the remainder being used by Parrish for a plethora of unauthorized personal expenses that included luxury vacations, entertainment and travel, golf outings, and a Harley Davidson motorcycle.  

Of note, Parrish had previously been the subject of an enforcement action by the Securities and Exchange Commission in which he was subject to a bar order prohibiting him from future violations of securities laws.  Some investors even found out about this after an internet search, but were convinced by Parrish that he was not the same Larry Michael Parrish named in the previous action.