Over Prosecutor's Objection, Judge Strikes Deal With Accused Ponzi Schemer

In an unusual twist of events, a Sonoma County man accused of masterminding a $20 million Ponzi scheme has accepted a deal offered by a California state judge - and opposed by prosecutors - that calls for him to plead no contest to 140 felony counts in exchange for a maximum 20-year prison term.  Aldo Baccala, 73, accepted the offer from Judge Gary Medvigy on the eve of his scheduled trial in which he had faced a prison term of up to 160 years if convicted.  According to prosecutor Robin Hammond, the State Attorney General's office opposed the 20-year sentence, as a similar offer had previously been rejected by Baccala, and instead was seeking a sentence of 64 to 68 years.  

According to authorities, Baccala owned and operated Baccala Realty, Inc.  From 2003 to 2008, Baccala solicited potential investors, many of whom were elderly and family friends of Baccala, by promising annual returns exceeding twelve percent in return for investment in one of Baccala's ventures that included assisted living facilities, a car wash, and other businesses.  Potential investors were assured that each project was secured by a first or second deed of trust on the property.  However, in reality, no deed of trust was ever recorded.  Instead, Baccala used the more than $20 million raised to make speculative bets in the stock market, which yielded losses of at least $8 million from 2003 to 2008.  Additionally, investor funds were used to make purported interest payments to existing investors.  As Baccala's losses grew, he continued to solicit new investors, offering increased rates of return of up to 27.5%.  

At a hearing on Monday, Judge Medvigy offered to limit Baccala's sentence to no more than twenty years if he would plead no contest, citing Baccala's elderly age and “blameless life” and gave him until Wednesday morning to mull the deal.  While the deal would limit the maximum sentence to a twenty-year term, Judge Medvigy declined to set a minimum sentence, indicating that he wanted to first hear from victims.  

Sentencing is scheduled for June 3, 2014.  If Baccala receives the maximum twenty-year sentence, he could be released in under a decade due to parole and time served.  

A copy of the criminal complaint is below:

Baccala Complaint

Rothstein Law Partner Faces Criminal Charges

A former name partner in convicted Ponzi schemer Scott Rothstein's now-defunct massive law firm has been criminally charged for his role in funneling illegal campaign contributions to prominent politicians including Senator John McCain and Florida gubernatorial candidate Charlie Crist.  Russell Adler, 52, was charged with a single count of conspiracy to violate the Federal Election Campaign Act in a criminal information filed last week.  The use of a criminal information suggests that a plea deal has been reached between Adler and the authorities.  While the charge carries a maximum five-year sentence, federal sentencing guidelines mean that Adler could serve from 1.5 years to 3 years in prison.

Adler was a prominent trial attorney in Fort Lauderdale, and was a name partner in Rothstein Rosenfeldt Adler until Rothstein's scheme collapsed in 2009.  According to authorities, Adler assisted Rothstein in making hundreds of thousands of dollars in campaign contributions to John McCain and Charlie Crist in 2009 and 2009.  Rothstein made the contributions in an effort to increase his influence in South Florida politics - including his appointment to a prestigious judicial nominating commission.  In an effort to funnel the maximum amount to his selected candidates, Rothstein enlisted various RRA employees, including administrative staff, lawyers, and Adler, to contribute to the McCain and Crist campaigns by promising to provide reimbursement for the contributions.  In total, Rothstein reimbursed Adler nearly $300,000 - including at least $239,000 in contributions to Crist's failed 2010 Senate campaign that placed RRA as the second-largest contributor.  

According to Adler's attorney, Fred Haddad, the recent convictions of former Rothstein lawyers Christina Kitterman and Douglas Bates played a role in the decision to approach the government and negotiate a plea agreement.  Importantly, Haddad expects that the campaign finance conspiracy will resolve all of Adler's potential criminal liability - meaning that no charges are expected for any allegations that Adler knew of or assisted Rothstein's fraud.  While Adler is currently serving a 91-day suspension from practicing law, his subsequent guilty plea to a felony could result in his permanent disbarment.

A copy of the Indictment is below (h/t to Ponzi Clawbacks)

US v. Russell Adler Information

Backstreet Boys, Bankruptcy Trustee Set For Trial Over $3 Million Claim

A trial date has been set for a $3 million dispute between former boy band the Backstreet Boys (the "Band") and the bankruptcy trustee for the Band's former manager, Lou Pearlman, who is currently serving a 25-year prison sentence for operating a $300 million Ponzi scheme.  The Band, which enjoyed a meteoric rise to success in the 1990's after being hand-picked by Pearlman, filed a claim in Pearlman's bankruptcy claiming their former manager still owed them at least $3.4 million under their contract.  After the trustee objected to the claim, the bankruptcy court has scheduled the dispute for an evidentiary hearing.

In July 2007, the Band filed a claim in both Pearlman's personal bankruptcy and the bankruptcy proceeding of one of Pearlman's failed companies, Trans Continental Records, Inc., claiming that they were owed nearly $3.5 million for " indemnification pursuant to a contractual indemnification provision for defending claims litigated in the Supreme Court of the State of New York "  This included costs for defendant and litigating claims against Pearlman from 2000 to 2005, including fraud claims relating to the misappropriation and concealment of revenues allegedly rightfully owed to the Band.`Including a separate claim for approximately $87,000, the Band's filed claims in each of the bankruptcies totaled more than $3.5 million.

Following the Band's submission of the claims, the court-appointed bankruptcy trustee filed an objection, alleging that the claims were not only duplicative since identical claims were filed in separate bankruptcy proceedings, but also because the claims lacked sufficient documentation for purposes of verification by the trustee.  Claiming that the lack of any evidentiary basis resulted in the Trustee being "in no position to examine the validity of the claims," the trustee moved for an order denying the claims.

While a final evidentiary hearing was scheduled for March 24, 2014 for resolution of the disputed claims, a recently filed motion suggests that the hearing is to be continued for 90 days.  The motion also indicated that the parties have been working towards reaching an amicable resolution of the claims.

The Trustee's objection to the claim and the Band's response is below:

Objection

Response:

Response

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