Fine Wine Fund Alleged To Be $16 Million Ponzi Scheme

A British venture that purported to buy and sell cases of vintage wine is now facing allegations that it was a Ponzi scheme that may have duped investors out of at least $16 million.  Bordeaux Fine Wines Ltd. ("BFW") was placed into receivership by a British court in December 2013, and a professional liquidator was subsequently appointed to investigate creditor claims that millions of Euros were unaccounted for.  According to reports, British police have also begun an investigation.

Formed in 2008 by 24-year old Kenneth Gundlach, BFW was touted as a wine investment firm that promised investors substantial returns through the company's expertise in "carefully selected portfolios" of vintage wines.   The firm listed its address at Portman Square, a prestigious location in central London, and used high-pressure sales tactics, such as cold-calling, to reach potential investors.  Investors were also assured that their wines were being stored at the prestigious London City Bond.  By its own accounts, the operation was highly successful - taking in over $25 million per year in 2011 and 2012.

However, the price quoted for BFW's wines was allegedly 80% - 100% higher than an identical bottle at a normal dealer.  Nor did BFW operate out of the prestitious Portman Square address - rather, the address was a mail drop rented for $50 per month, and its operations were located elsewhere.  Additionally, Gundlach pocketed enormous sums as "dividends" from the company, receiving over $5 million on 2011 and 2012.  Large amounts are also alleged to have been paid as commissions to salespeople and as fictitious returns to existing investors.

After an investigation by the British Insolvency Service, BFW was put into liquidation in December 2013 and a professional liquidator was appointed.  Last month, a compulsory winding up order was issued by a British Court.

Zeek Rewards Receiver Files Clawbacks Against Principals, Net Winners

The court appointed receiver tasked with recovering assets for the $600 million ZeekRewards Ponzi scheme has fired off the first salvo of clawback lawsuits seeking the return of nearly $300 million from company officers and investors fortunate enough to profit from the scheme.  The Receiver, Kenneth D. Bell, filed two lawsuits in North Carolina federal court on Friday, February 28, 2014 - one lawsuit seeks  the return of tens of millions of dollars from company insiders, such as Paul R. Burks and Dawn Wright-Olivares, while the second lawsuit asserts fraudulent transfer claims against not only the ten largest scheme "net winners," but also against a class of approximately 9,000 victims that received at least $1,000 from the scheme.

Insider Lawsuit

The first lawsuit names several key Zeek officers, including Paul R. Burks, Dawn Wright-Olivares, Danny Olivares, Roger Plyler, and Darryle Douglas.  According to the complaint, each of the officers received at least $1 million from Zeek:

• Paul R. Burks - At least $10 million
• Dawn Wright-Olivares - $7.8 million
• Danny Olivares - $3.1 million
• Roger Plyler - $2.3 million
• Darryle Douglas - $1.975 million

The 40-page complaint goes into excruciating detail and paints a picture of an intricate conspiracy between the defendants to perpetuate the appearance that Zeek Rewards was a highly-successful operation.  While the operation was known for its consistent 1.6% - 1.8% daily returns, the complaint alleges that these percentages were nothing more than figures selected by company insiders with the goal of portraying a consistently profitable venture.  Recognizing the crucial fact that the company needed to maintain its payment structure and schedule to avoid unwanted attention, Paragraph 83 recounts a text message from Dawn Wright-Olivares to her son, Danny, that

“[t]he fastest way to get charge [sic] as a Ponzi scheme is for distributors to claim they are not getting paid.”

The complaint asserts several counts, including fraudulent transfer claims, breach of fiduciary duty, conversion, unjust enrichment, and constructive trust.  Additionally, the complaint seeks entry of an injunction preventing the defendants from dissipating their assets prior to entry of any judgment.  

"Net Winners" Lawsuit

The second lawsuit brings "clawback" claims against not only the ten investors receiving the largest amount of profits, but also seeks establishment of a defendant class that each received at least $1,000 from the scheme.  The lawsuit names the following individuals and entities as the top ten "net winners":

• Todd Disner, in his individual capacity and as trustee for Kestrel Spendthrift Trust - $1.875 million;
• Trudy Gilmond and Trudy Gilmond, LLC - $1.75 million;
• Jerry Napier - $1.745 million;
• Durant Brockett - $1.720 million;
• Darren Miller - $1.635 million;
• Rhonda Gates - $1.425 million;
• Michael Van Leeuwen - $1.4 million;
• David Sorrells - $1 million;
• T. Le Mont Silver Sr and Global Internet Formula, Inc. - $1.717 million;
• Aaron and Shara Andrews - At least $1 million;
• Karen Silver - $600,000;
• David and Mary Kettner - At least $930,000; and
• Lori Jean Weber - $1.94 million.

As some will notice, several of the individually named "net winners" were involved with initial efforts to challenge the Receiver and SEC's authority in shutting down Zeek, claiming that "the SEC mislead (sic) the judge" in securing an emergency asset freeze, and even claiming that the SEC had admitted problems with the case (which were subsequently refuted here). Despite reportedly raising tens or even hundreds of thousands of dollars in victim donations, Zteambiz sent out a "final posting" in November 2013 clarifying that "As you know the goal was to assist the people of Zeek Rewards, and provide relevant information relating to the Zeek Receivership."

In addition, the complaint seeks to bring a class action lawsuit against a class of net winners that allegedly received more than $1,000 in false profits from the scheme.  According to Bell, this class consists of at least 9,000 individuals living in the United States.   Because the proceeding is a receivership, exclusive jurisdiction is vested in the North Carolina district where Zeek was located, and a class action against the net winners, rather than instituting 9,000 separate lawsuits, would not only be cost-effective but would also significantly lessen the strain of thousands of lawsuits being filed in the Court's docket.  The class action would also prevent the possibility of competing determinations that could result in the case of separate actions.

The two complaints are below:

Insiders

Third Party

New York Woman Pleads Guilty To $6.9 Million Ponzi Scheme

A New York woman entered a guilty plea to charges that she masterminded two Ponzi schemes - one purporting to dabble in overseas machinery and another touting real estate - that collectively scammed investors out of nearly $7 million.  Laurie Schneider pleaded guilty to a single charge of wire fraud before U.S. District Judge Dennis R. Hurley.  As part of the plea agreement with prosecutors, Schneider also agreed to the entry of a $1 million judgment against her.  Schneider was indicted in February 2012 on three counts of wire fraud.

Beginning in September 2006, Schneider began soliciting investors for Janitorial Close-Out City Corporation.  ("Janitorial Close-Out").  Investors were told that Janitorial Close-Out invested in industrial equipment and machinery produced by Chinese companies, and that the company was able to purchase and re-sell janitorial equipment and machinery at a profit margin of 15% to 60% over a short-time period.  It was these high profits margins, according to Schneider, that allowed her to pay annual interest payments to investors of up to 60%.  In total, authorities estimate that Schneider solicited investments in Janitorial Close-Out of over $4 million from over 25 individuals.  

In another venture, Schneider operated Eager Beaver Realty LLC ("Eager Beaver"), which purported to buy and re-sell real estate on Long Island at a discount or that were on the verge of foreclosure.  Potential investors were promised annual returns of up to 20%, and received written paperwork indicating that all of their investment would be used to buy and sell real estate.  Investors entrusted nearly $5 million to Schneider and Eager Beaver.

In reality, the healthy returns promised by Schneider were made possible through the operation of a classic Ponzi scheme in which incoming investor funds were used to pay returns to existing investors.  Schneider also formed the Eager Beaver scheme to establish a new source of funds to pay returns to investors in Janitorial Close-Out.  Investor funds were also diverted for Schneider's personal expenses, which included  luxury car purchases and country club dues.

A sentencing date has not yet been scheduled.  Wire fraud carries a potential sentence of up to twenty years in prison.

Victims of $300 Million Ponzi Scheme File Suit Against Banks

Victims of a massive $300 million Ponzi scheme masterminded by a Cincinnati businessman have filed a lawsuit against three prominent financial institutions, accusing the banks of improperly assisting in the diversion of their investments to third-party accounts presumably controlled by the schemer.  The lawsuit names U.S. Bank, PNC Bank, and Fifth Third Bank (collectively, the "Banks") as defendants, alleging multiple violations of Ohio's Uniform Commercial Code and negligence related to their association with Cincinnati businessman Glen Galemmo, who recently pleaded guilty to wire fraud and money laundering charges.  

Galemmo operated Queen City Investment Fund ("Queen City"), along with a dozen other investment entities.  Touting himself as an experienced trader, Galemmo promised lucrative returns to potential investors through investments in stocks, bonds, futures, and commodities.  Investors were provided with promotional materials indicating Queen City had enjoyed a streak of consistently above-average returns, including a return of nearly 20% in 2008 when the S&P 500 experienced a -38.49% loss. Potential investors were assured that Galemmo obtained annual audits of Queen City, and were provided with monthly statements showing steady returns.  In total, Galemmo raised at least $100 million from individuals, trusts, and even charitable organizations.

According to the lawsuit, the plaintiffs are various individuals and entities that invested with various Galemmo entities, including Queen City Investments ("QCI") and QFC LLC ("QFC").  Each of the plaintiffs attempted to make an investment in QCI or QCF, making a check out to the respective entity drawn on one of the three banks.  However, the complaint contends that each check was not deposited in the intended account for the indicated entity, but rather to a third-party account not disclosed to plaintiffs.  In total, more than $450,000 of checks were "improperly" deposited according to Plaintiffs.  

Plaintiffs contend that they were not informed of the banks' decision to tender payment to the third-party entities, and would not have invested in the entities had they been informed of the situation.  Plaintiffs bring several claims based on violations of Ohio's Uniform Commercial Code, including the failure to act with ordinary care and the breach of duty to act in good faith.  Additionally, the Banks are accused of negligence for their failure to comply with "Know Your Customer" obligations and to further inquire into and report suspicious banking activities that should have been triggered by the activities.  

A copy of the complaint is below:

Murray Law v. Fifth Third-Complaint

Former NFL Punter Gets 7.5 Year Prison Sentence For $2 Million Ponzi Scheme

A former first round draft choice for the New Orleans Saints learned he will spend the next 90 months in federal prison for masterminding a $2 million Ponzi scheme.  Russell Erxleben, 57 - the current NCAA record-holder for the longest field goal in history - received the sentence after pleading guilty to a single count of wire fraud and money laundering in December 2013.  The prison term will not be Erxleben's first foray in federal prison - he previously served a 10-year sentence for a $30 million foreign currency trading scheme in 1999.

Erxleben was a college All-American while attending the University of Texas in the late 1970s, and later had the distinction of being only one of three kickers drafted in the first round of the NFL draft.  However, after playing six seasons in the NFL, Erxleben turned to investing.  He was later arrested and charged with securities fraud after authorities accused him of masterminding a foreign currency trading scheme in which investors lost tens of millions of dollars.  In 1999, he received a ten-year prison sentence and was ordered to pay $28 million in restitution to defrauded investors.

However, after being released from federal prison in 2005, Erxleben again became involved in the investment business, forming several companies under a main entity Erxleben Entities that promoted various investment opportunities including the ability to profit from post-World War I German government gold bearer bonds.  Investors were solicited to purchase the bonds for $1,000 apiece, after which Erxleben would place the bonds in trust and create securities that would then purportedly be in high demand by outside investors.  While the scheme lasted several years, investors ultimately never received the bonds or any associated returns.

After the German bond venture fizzled out, Erxleben began soliciting investors in 2009 for another venture, Gauguin Partners LLC ("Gauguin").  According to Erxleben, he had in his possession a rare painting commissioned by Paul Gauguin, a 1800's French artist.  Investors were told that if the painting could be certified as authentic - a process that cost $75,000 - the painting could then be sold for nearly $60 million.  Again, investors saw no returns, and instead their funds were diverted by Erxleben for the payment of personal expenses.

Erxleben was arrested in January 2013 and charged with five counts of wire fraud, two counts of money laundering and one count of securities fraud.  Prosecutors then successfully argued for Erxleben to remain in custody pending trial on the basis that he was a flight risk.  A federal magistrate judge later issued an order concluding the absence of any conditions for Erxleben's pre-trial release, citing Erxleben's propensity for posing a financial danger to others, as well as testimony by a former inmate that Erxleben had attempted to hire him to intimidate a key witness.  

A copy of the indictment is below:

US v. Russell Erxleben Indictment by jmaglich1