New Jersey Man Receives 22-Year Sentence For $215 Million Ponzi Scheme

A New Jersey man was sentenced to a 22-year prison term for orchestrating a $215 million real estate Ponzi scheme.  Eliyahu “Eli” Weinstein, 38, of Lakewood, New Jersey, received the sentence from U.S. District Judge Joel A. Pisano after previously pleading guilty to two counts of conspiracy to commit wire fraud and one count of money laundering.  Weinstein was also ordered to pay $215.4 million in restitution to his victims, and was found to be capable of paying $1,000 per month towards that amount.  Notably, Weinstein still faces sentencing in a separate scheme in which he and others fleeced an investor our of nearly $7 million on promises of access to pre-IPO shares of Facebook.

Weinstein operated a multitude of corporate entities (the "Weinstein Entities") along with co-defendant Vladimir Siforov.  Starting in at least June 2004 and continuing through August 2011, Weinstein solicited funds from potential investors by representing that he was investing in specific real estate transactions.  Investors were told that Weinstein had unique access to certain real estate opportunities due to his connections at a bank in the Orthodox Jewish community, which allowed him to purchase certain properties at below-market prices.  Investor funds would be used to "flip" these properties, and would be safely held in escrow during the pendency of the transaction.  In order to convince investors of the legitimacy of the scheme, Weinstein and others created numerous fictitious documents including forged checks, operating agreements, leases, and mortgages.  

In a transaction described in the indictment, a victim denoted as S.W. was informed by Weinstein that he could purchase an interest in a particular parcel of property for $630,000.  S.W. was also told that Weinstein had a buyer and contract in place for an immediate "flip" of the property for $1.5 million which could only be accomplished by providing the money immediately.  However, as alleged in the indictment, Weinstein never had a contract lined up to purchase the property, nor did he arrange for S.W. to obtain an ownership interest. Another investor, H.D.W., committed $70 million to buy property through Weinstein, including $5.4 million to purchase property in Trotwood, Georgia.  However, there is no town of Trotwood in the state of Georgia.  Instead, investor funds were misappropriated by Weinstein and the Weinstein Entities, and were used for a variety of purposes including the payment of prior victims and to fund his own lavish spending.  

In an increasingly common theme, Weinstein used his standing and knowledge in the Orthodox Jewish community to both meet new victims and elevate his reputation with existing victims.  Among the tactics used by Weinstein include the donation of a portion of investor funds to charitable and religious causes, as well as convincing rabbies and community members to introduce him and serve as references to new victims.  After the scheme imploded in mid-2010 and Weinstein's reputation in the community was tarnished, Weinstein and others went outside of the Orthodox Jewish community to solicit victims who were unaware of the scheme's fraudulent nature.  

Weinstein faces hundreds of years in federal prison if convicted of all charges, along with millions of dollars in criminal monetary penalties.  He may also be ordered to pay restitution to victims.  According to his attorney, he intends to plead not guilty.

A copy of the indictment is below:

Weinstein, Eliyahu Indictment

Former Merrill Lynch Financial Adviser Gets 10-Year Sentence For $2.7 Million Ponzi Scheme

A Nevada man who operated a $2.7 million Ponzi scheme while employed as a financial advisor at Merrill Lynch learned he will spend the next 10 years in federal prison. Gary H. Lane, 60, received the sentence from U.S. District Judge Robert C. Jones after previously pleading guilty in September 2013 to twelve counts of mail fraud and seventeen counts of attempted tax evasion.  Lane's attorney has indicated he plans to appeal the sentence.

Lane was a long-time financial advisor at Bank of America Investment Services, which later merged with Merrill Lynch.  There, beginning in at least May 2002, Lane targeted inexperienced elderly investors with the promise of steady annual returns of six percent through investments in United States treasury bonds with maturities of two years or less.  Based on these representations, Lane convinced at least eleven elderly investors to entrust him with over $2 million.  After he received the money, Lane would then send each investor written documentation purportedly confirming the purchase of the promised treasury bond(s). 

However, according to authorities, a treasury bond with a maturity of two years or less never had an annual return of anywhere close to six percent during the relevant time period.  Additionally, there was no record of Lane purchasing the investments through his employer.  Instead, Lane is alleged to have diverted investor funds to his wife, who would then in turn deposit the funds into an E*Trade owned by her.  Lane never purchased any treasury bonds as promised, said authorities; instead, the purported "confirmations" were fictitious and investor funds were used for Lane's personal expenses or to make Ponzi-style payments to existing investors. 

Lane was fired from Merrill Lynch after the firm learned of his outside business activities, which presumably were never disclosed to the firm despite strict disclsure obligations.  Lane was subsequently barred by the Financial Industry Regulatory Authority from associating with any member firms.  Merrill Lynch has since paid restitution to the defrauded investors, who were also permitted to keep the fictitious interest payments made by Lane.  

Another Ponzi Schemer's Wife Charged With Hiding Assets

The wife of a Tennessee tax preparer that confessed to operating a $10 million Ponzi schemer shortly before his death now faces charges of lying under oath and hiding assets when she failed to disclose the existence of $25,000 in jewelry to a Bankruptcy Court.  Janet Brown, husband of now-deceased Soddy Daisy, Tennessee businessman Jack Brown, has agreed to plead guilty to a single count of bankruptcy fraud in connection with the ensuing investigation of her husband's massive Ponzi scheme.  Under her plea agreement with prosecutors, Ms. Brown faces up to five years in federal prison as well as a fine of up to $250,000.  

Brown's Tax Service and the Resulting Investigation

Jack Brown was a former Sunday school teacher who operated Brown's Tax Service ("BTS").  Using his relationship with BTS clients, as well as his connections through his Sunday School teaching position, Brown began promising annual returns of up to 15% that were purportedly attainable as a result of his God-given gift as a successful stock day trader.  The scheme quickened pace in 2003, and by 2012 Brown and BTS had raised more than $10 million from investors.  

In late 2012, concerns began to mount over the solvency of BTS, and these concerns came to a head when a local attorney alleged that Brown had been operating a Ponzi scheme and filed a petition to have BTS placed in bankruptcy.  Brown was accused of misappropriating millions of dollars in investor funds for his own personal use, including the purchase of a lavish lakefront property, several vintage automobiles, and even the authentic floor from the Boston Garden sports arena.  In bankruptcy filings, Brown claimed only $1.4 million in assets while representing a yearly income of less than $30,000.  

After the appointment of a bankruptcy trustee, Jerry Farinash, Brown initially refused to cooperate.  According to the trustee, Brown "refused to answer questions which would not be protected under the Fifth Amendment" while also claiming that his health has deteriorated to the point where he is movable only by ambulance.  This lack of cooperation soon changed in March 2013, when Brown, appearing at a creditor's meeting telephonically from his hospital bed, confessed to operating the scheme.  Brown maintained through his attorney that there was no money to return, and hinted that some victims had profited handsomely.  Brown later passed away.

Questions Arise Over Asset Turnover

During subsequent proceedings initiated by the trustee, Brown's wife faced repeated questioning about whether she had turned over all of her assets.  This included certain pieces of jewelry that Trustee Farinash indicated had not been turned over, even showing her pictures where she was wearing a diamond-encrusted earring and a necklace.  Shortly after the questioning, Brown's wife turned over a large bag of jewelry to her lawyer - who subsequently turned the stash over to the trustee.  

As part of the agreement, Brown's wife agreed to turn over all remaining assets to the trustee, as well as allow access to her finances to confirm that all proceeds of her husband's scheme had been relinquished.  In return, prosecutors agreed not to prosecute Brown's wife for other non-tax criminal offenses that may later be discovered.  Of course, the deal is off if either party violates the agreement.

A Familiar Scenario?

Ironically, this is not the first instance of a Ponzi schemer's wife facing criminal charges over the failure to turn over assets.  In a much more well-known case, Florida Ponzi schemer Scott Rothstein's wife, Kim Rothstein, was charged and subsequently pleaded guilty to following instructions from her husband to conceal jewelry from authorities following the discovery of her husband's $1.3 billion Ponzi scheme.  Kim Rothstein was later sentenced to an 18-month prison term.

Rothstein Ex-Associate Changes Plea, Will Plead Guilty

Just one week after another former colleague of convicted Ponzi schemer Scott Rothstein was convicted of fraud charges, another colleague filed court papers indicating he planned to enter a guilty plea to similar charges.  Douglas L. Bates, 54, had been scheduled to stand trial next week based on his role in Rothstein's $1.4 billion scheme.  

Bates was indicted along with former Rothstein associate Christina Kitterman back in August 2013.  The two were former attorneys at Rothstein's Ft Lauderdale law firm, Rothstein Rosenfeldt Adler ("RRA"), which at one point had over seventy attorneys and was a prominent South Florida law firm.  Both were accused of providing assistance to Rothstein as he purported to offer hefty returns to investors by brokering secret lawsuit settlements.  While Kitterman was accused of impersonating a Florida Bar official in a meeting with investors, authorities accused Bates of assisting Rothstein in inflating legal bills and signing a false letter.  

Both Kitterman and Bates maintained their innocence, and Kitterman was the first to stand trial.  In a controversial decision, Kitterman elected to call Scott Rothstein himself to the witness stand and also decided to testify in her own defense.  Both moves were widely questioned, with Rothstein providing testimony that incriminated Kitterman while the veracity of Kitterman's testimony was later questioned by the presiding judge who warned that a perjury charge was possible.

It is likely Bates' attorneys were regarding Kitterman's trial as a test case to gauge how Bates might later fare at his trial.  U.S. District Judge Donald Middlebrooks has scheduled a change-of-plea hearing for 10 a.m. Thursday, and prosecutors have filed a superseding indictment charging Bates with a single count of conspiracy to commit wire fraud.  The charge carries a maximum prison sentence of five years, and it remains to be seen whether the plea agreement will contain a lower recommendation.

North Carolina Men Charged For $2.3 Million Forex Ponzi Scheme

The Commodity Futures Trading Commission ("CFTC") charged two North Carolina man with operating a foreign exchange Ponzi scheme that raised at least $2.3 million from investors.  Ron Earl McCullough and David Christopher Mayhew, both of Raleigh, North Carolina, were charged with multiple violations of the Commodity Exchange Act.  The CFTC is seeking injunctive relief, disgorgement of all ill-gotten gains, restitution, civil monetary penalties, and the appointment of a receiver if necessary.  

According to the CFTC, McCullough and Mayhew began soliciting funds from investors to engage in purported foreign exchange trading.  For example, this included promises to a North Carolina couple that if they were to invest $300,000, the men would return $300,000 within 30 days and pay a trading profit of at least $400,000 in 60 days.  Promises were also made to other investors to return at least twice the amount of their investments.  In total, the men raised or solicited more than $2 million from investors.

Unsurprisingly, the promises of exponential short-term returns by the men were not the results of savvy trading, but rather what the CFTC alleged was a Ponzi scheme that used incoming investor funds to pay fictitious returns to investors.  According to the CFTC, the men suffered trading losses of hundreds of thousands of dollars.  Additionally, over $800,000 was misappropriated by the two men for personal expenses that included travel expenses, online forex trading courses, and even liposuction for Mayhew.  

The CFTC's complaint is below:

Enf Mccullough Complaint 021814