Former Sheriff Gets 30-Month Sentence For $1.2 Million Ponzi Scheme

A former sheriff's deputy will spend the next thirty months in federal prison for orchestrating a Ponzi scheme that raised more than $1.2 million from victims that included fellow law enforcement personnel.  David N. Hawkins, 46, received the sentence from U.S District Judge Robert E. Blackburn, who also ordered Hawkins to serve three years of supervised release following completion of the sentence.  Hawkins pleaded guilty last year to one count of wire fraud and one count of money laundering.

Hawkins was hired by the El Paso Sheriff's Office in 2001, and soon thereafter was sworn in as a sheriff's deputy.  In or around 2006, Hawkins began attending training courses on how to trade foreign currencies ("forex").  Beginning in 2009, Hawkins used this knowledge to hold himself out as a sophisticated currency trader, telling colleagues, family, and friends that he had several years of experience in achieving consistent gains - sometimes as high as 62% - from forex trading.  Unbeknownst to his employer, Hawkins told potential investors that an investment in his PD Hawk Investment Fund would yield consistent 10% monthly returns - an annual return of over 100%.  Based on these representations, Hawkins raised more than $1 million from over 70 investors.

However, according to the FBI, "at no time were [Hawkins'] investments ever profitable."  Instead, Hawkins ran the classic Ponzi scheme, using investor funds to repay earlier investors and to make purported interest payments.  Hawkins used investor funds as his personal piggy bank, purchasing multiple automobiles, paying personal expenses, and even buying two semi-professional indoor football franchises in Illinois and Texas.  These teams never became operational, and authorities began investigating after Hawkins abruptly cancelled the 2012 season.  Authorities estimate that total losses to investors exceeded $200,000.  

Hawkins was also ordered to pay restitution of $204,348.91 to the remaining victims.

FBI Charges Two With $110 Million Real Estate Ponzi Scheme

Authorities unveiled criminal charges against two men on charges they masterminded a real estate Ponzi scheme that swindled victims out of more than $110 million.  Michael Stewart, 66, of Phoenix, and John Packard, 63, of Long Beach, California, were arrested earlier this week after a grand jury returned a 16-count indictment charging each of the men with 11 counts of mail fraud, three counts of bank fraud, and two counts of bankruptcy fraud.  If convicted of all charges, the men face hundreds of years in prison and millions of dollars in criminal penalties.  

The men owned and operated Pacific Property Assets ("PPA"), a company they formed in 1999.  The two used PPA to purchase, refurbish, and eventually resell apartment complexes in Southern California and Arizona, financing the acquisitions through mortgages and raising money from potential investors to fund property renovations.  While the operation generally was not profitable, PPA was able to benefit from a booming real estate market and skyrocketing property values to raise cash by constantly refinancing the properties.  From 1999 to 2009, PPA acquired more than 100 properties and raised tens of millions of dollars from investors. 

As property values began slowdown and eventual collapse in 2007, PPA was facing large debt payments to its mortgage lenders and private investors.  The men allegedly misrepresented PPA's financial condition, and continued to raise tens of millions of dollars from investors that were used to make payments to lenders and investors, and even Steward and Packard themselves.  Eventually, PPA and several other related companies filed bankruptcy in June 2009, indicating that it owed approximately $90 million to hundreds of investors and approximately $100 million to various banks.  After going through the bankruptcy process, private investors received nothing, while banks lost at least $24 million.  

The charges also accuse Steward and Packard of bankruptcy fraud for their alleged transfer of hundreds of thousands of dollars in PPA funds to the mens' personal bank accounts for their use and to pay their personal attorneys, and thus out of the reach of their creditors.

The Securities and Exchange Commission previously brought civil fraud charges against the pair in May 2012. 

A copy of the SEC's complaint is below:

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Rothstein Testifies About Office Relationships, Political Influence

"I don't deserve to die in prison for what I've done.”

- Scott Rothstein

Having been conspicuously absent from the South Florida scene for several years while serving his 50-year sentence for orchestrating a massive $1.4 billion Ponzi scheme, Scott Rothstein certainly made a splash as he re-emerged to testify at the trial of one of his former colleagues facing charges she assisted his fraud.  Rothstein, sporting handcuffs and leg irons and looking noticeably thinner after having dropped 70 pounds from his pre-incarceration weight of 230 pounds, took the stand in a West Palm Beach federal courtroom Wednesday morning - this time as a witness, not a defendant.  Rothstein was called by attorneys for former colleague Christina M. Kitterman, who is facing three counts of conspiracy to commit wire fraud for her alleged role in his scheme.  

While his figure was noticeably thinner, Rothstein wasted no time in reverting back to his former larger-than-life persona, testifying with considerable latitude about his scheme that rocked the Fort Lauderdale community and resulted in the bankruptcy of his former powerhouse firm, Rothstein Rosenfeldt Adler ("RRA").  While at RRA, Rothstein hired Kitterman after meeting her during his stint as an adjunct professor at a local law school.  It was during her tenure at RRA that prosecutors allege she agreed to assume the identity of a Florida Bar Association official during a meeting with investors who were concerned about Rothstein's failure to make timely interest payments.  According to Rothstein, Kitterman told those investors that Rothstein's RRA accounts had been frozen in connection with a pending bar investigation.

But the allegations over Kitterman's status as a co-conspirator soon took a back seat as Rothstein willingly began providing other details about his scheme that were previously unknown.  For example, Rothstein volunteered that he and Kitterman had a "friends with benefits" relationship that even featured an instance out of work where Kitterman "pulled me into a bathroom stall to make out with me."  

Rothstein also regaled jurors with tales of the considerable influence he had amassed from his rising stature.  This included his claim that the Sheriff's office made an unlawful arrest of the ex-wife of his friend, Douglas L. Bates, at his request.  Bates was charged alongside Kitterman and is awaiting trial.  Additionally, Rothstein bragged of his close friendships with well-known politicians, including former Florida governor Charlie Crist and Senator John McCain.  By making large contributions to their campaigns and hosting numerous fundraisers, Rothstein was able to add to his aura of legitimacy by appearing close with those politicians.  This also earned Rothstein a coveted appointment by Crist on a local judicial nominating commission.  

Rothstein was also not shy about the true motivation for his cooperation, and readily listed off his contributions that he hopes will one day result in a reduction in his 50-year prison sentence.  This cooperation included testimony that has resulted in convictions of former friends and associates, including his wife, as well as his claim that he helped the government recover $350 million for his victims. 

Rothstein is not currently scheduled to be released until approximately 2053 - when he will be nearly 90 years old.

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.