Agape World Broker Pleads Guilty To Role In $400 Million Ponzi Scheme, Faces Deportation

A former sales agent that received more than $9 million in commissions from pitching investments in Nicholas Cosmo's $400 million Ponzi scheme has entered into a plea agreement with prosecutors, and may face deportation as a result.  Hugo Arias, 44, pleaded guilty to an unspecified number of securities fraud charges before United States District Judge Kathleen Tomlinson, where he admitted that Cosmo's scheme "was a Ponzi scheme."  Securities fraud carries a maximum twenty-year sentence for each count, although federal sentencing guidelines will likely result in a reduced sentencing recommendation.  

Agape was a nationwide Ponzi scheme orchestrated by Cosmo, whose exploits earned him the nickname as the "New York Mini-Madoff".  After being indicted in April 2009, Cosmo pled guilty to one count of wire fraud and one count of mail fraud, and was sentenced to twenty-five years in federal prison in October 2011.  According to prosecutors, Agape solicited over 5,000 investors nationwide, offering exorbitant short-term returns that were the equivalent of eighty percent annually.  Cosmo told potential investors that these returns were achieved by making profitable short-term bridge loans.  As a result, Cosmo and Agape took in approximately $413 million from thousands of investors nationwide.  However, in reality only $30 million was used to make bridge loans, while approximately $80 million was lost as the result of unauthorized trading in commodities and futures positions. Approximately $232 million was paid to investors in the form of fictitious interest payments.

After Cosmo was sentenced to prison, authorities began investigating the scheme's use of commissioned agents to attract investors.  The Securities and Exchange Commission filed civil fraud charges against fourteen brokers, including Hugo Arias, in June 2012, alleging the agents used an assortment of false claims made to lure investors, including the safety of an investment, the intended use of investor funds, and the attractive rate of return. Authorities focused on alleged misrepresentations and omissions made by agents in 2008 despite learning that previous bridge loans made in 2007 were either in default or on extension.  Cosmo's sales agents were richly rewarded for their efforts; more than $60 million was paid out to agents in commissions during the scheme's existence.  

Additionally, in light of the short-term nature of the investments, the agents urged investors to "roll-over" their principal and accrued interest to continue to perpetuate the scheme and ignored numerous red flags of fraud, including Cosmo's prior criminal convictions for fraud, the promised exorbitant returns, and representation that only 1% of an investor's principal was at risk.  

Criminal authorities have charged eight people, including Cosmo and Arias, since the scheme collapsed in 2009.  This includes:

• Richard Barry, who pleaded guilty in August 2010 and awaits sentencing;
• Jason Keryc, Anthony Ciccone, Diane Kaylor, and Anthony Massaro, 41, who were arrested in April 2012; and
• Bryan Arias, Hugo Arias's brother, and Shamika Luciano, who were arrested in December 2013.

According to LIBN.com, six former Agape brokers remain free on bail pending trial.  

After serving his sentence, Arias could be deported back to his native country, Colombia.  He remains free on $50,000 bond pending sentencing.  

Previous Ponzitracker coverage of the Agape World Ponzi scheme is here.

South Carolina Couple Charged With $3.2 Million Forex Ponzi Scheme

The Commodity Futures Trading Commission ("CFTC") has filed an emergency enforcement action charging a South Carolina couple with operating a foreign exchange Ponzi scheme that raised over $3 million from victims.  Robert and Amy Leben (the "Lebens"), of Columbia, South Carolina, were charged with multiple violations of the Commodity Exchange Act in a sealed complaint that was filed last week.  The complaint, which was unsealed today, seeks permanent injunctive relief, disgorgement of ill-gotten gains, civil monetary penalties, and other relief.

According to the CFTC, the Lebens owned and operated Structured Financial Group, LLC ("SFG") since its formation in 2006.  SFG was marketed as a commodity pool to investors, who were told that SFG invested in "treasury strips" and futures markets.  At least one investor was told that Robert Leben had previously been a successful bond trader.  In exchange for their investment, SFG promised investors quarterly payouts of 3.5%, which equated to an annual return of 14%.  Upon deciding to invest in SFG, investors were directed to wire their investment to an unidentified attorney serving as SFG's agent in Baltimore, Maryland.  In total, at least $3.2 million was raised from at least a dozen investors.

However, rather than carrying out the investment program represented to investors, the Lebens instead held less than $500,000 in "treasury strips."  Additionally, while the Lebens did engage in forex trading using investor funds, the accounts experienced net losses in four of the six relevant years.  The remainder of funds were deposited in a money market account held by SFG.  According to the CFTC, Amy Leben then arranged for an undocumented $5 million line of credit from the money market account - which allegedly remains unpaid.  The Lebens are also accused of using debit cards to spend nearly $1 million of investor funds on a variety of unauthorized expenses, including a $500,000 house, a $150,000 swimming pool, and more than $200,000 in cash gifts to their children.  

A copy of the complaint is below:

Sc Complaint

Prosecutors Levy Burglary Charges Against Accused ATM Ponzi Schemer

In a novel approach employed by prosecutors, a California man accused of operating an ATM Ponzi scheme that allegedly duped victims out of over $10 million has been charged not only with securities fraud and grand theft charges, but also faces a burglary charge. Michael Brendan Ferguson, 44, was recently charged with nine felony counts in connection with what prosecutors allege was a nationwide Ponzi scheme that promised steady returns through a collection of privately owned ATMs. While prosecutors charged Ferguson with securities fraud and grand theft, they also included a burglary charge - reasoning that while Ferguson did not break into any houses, he did enter one investor's home with the intent to commit a felony, grand theft. Ferguson recently entered a plea of not guilty to the charges.

According to authorities, Ferguson solicited investors by promising steady returns through the generation of hefty transaction fees from a nationwide network of private ATMs. In exchange for purchasing the rights to user fees generated by a collection of ATMs located in shopping centers, investors were promised annual returns of up to 15%. To maintain an appearance of legitimacy, Ferguson maintained an office staffed by several employees, and even provided financial statements to investors that purportedly showed the steady growth of the ATM operation. In total, at least 100 investors may have invested more than $10 million with Ferguson.

While investors initially received their monthly interest payments as promised, the payments recently stopped. When some investors began making inquiries to the shopping malls where some of the ATMs were purportedly located, they learned that none of those shopping centers had heard of Ferguson. Ferguson subsequently declared bankruptcy in January.

The burglary charge appears to be favored by prosecutors due to the California Penal Code's definition of burglary as the entry into a structure with the intent to commit a felony - in this case, grand theft. While the theory is certainly a novel one, surprisingly it is not the first time that an accused Ponzi schemer has faced burglary charges. In a case also out of California, James Koenig was charged in 2009 with 40 counts of securities fraud and 37 counts of residential burglary in connection with what prosecutors alleged was a $200 million Ponzi scheme. Koenig chose to fight the charges at trial, and was actually convicted on two of the burglary counts in May 2013. The choice by California authorities to levy burglary charges in white collar crimes may also be partially due to its categorization as a serious "strike" crime under California's Three Strikes Law, which may allow for a stricter sentence.

Florida Man Receives 5-Year Sentence For Exotic Car and Motorcycle Ponzi Scheme

A St. Augustine man has been sentenced to serve the next five years in a Florida prison for operating a multi-million dollar Ponzi scheme that purportedly dealt in exotic cars and motorcycles.  Anthony Robert Fregenti Jr., 42, received the sentence last week from Judge J. David Walsh, and could have faced up to a 15-year sentence had he failed to comply with a provision of his plea agreement that called for him to make $300,000 in restitution payments to investors during the period between his guilty plea and sentencing.    After his release from prison, Fregenti must not only serve twenty years of probation, but also is required to pay $100,000 per year towards $3 million in court-ordered restitution.

Fregenti operated several businesses in Flagler County, Florida, including Dark Hawk Enterprises LLC ("Dark Hawk").  According to authorities, Fregenti solicited individuals to invest in Dark Hawk, which purportedly specialized in the purchase and re-sale of exotic cars and motorcycles.  Potential investors were told that Fregenti could realize outsized returns by shipping luxurious vehicles to foreign buyers, including a Saudi Arabian Prince.  

However, while investor contracts included vehicle identification numbers ("VIN") purportedly representing their investment, authorities alleged that not only did Fregenti fail to purchase these vehicles, but also used the same VINs multiple times.  Fregenti was accused of using new investor funds to pay returns to existing investors - a classic hallmark of a Ponzi scheme.  After being charged with 33 felony charges in 2012, Fregenti pleaded guilty to 20 charges in September 2013.

Former Bank of America Banker Sentenced to Prison For $2.1 Million Ponzi Scheme

A New Jersey woman who formerly worked as a personal banker at Bank of America was sentenced to serve at least three years in state prison by a Massachusetts state judge.  Elaina Patterson, 54, was sentenced to serve between three years and five years in prison by Massachusetts Superior Court Judge Peter Lauriat after pleading guilty to thirty-one counts of larceny.  Patterson was criminally charged in June 2013 by Massachusetts authorities.

According to authorities, Patterson began working at Bank of America in 1999 at a branch in Reading, Massachusetts.  After gaining the trust of family and friends, she began pitching investments that she represented were reserved only for corporate and high-level clients due to their lucrative annual returns ranging from 10% to 15%.  Customers were given fake depository receipts and tax forms to add an air of legitimacy, and Patterson took in a total of more than $6 million from over 30 investors.

However, Patterson allegedly did not use the funds as intended, instead setting up a series of shadow accounts that she used to funnel investors funds both to herself and to other investors under the guise of interest payments.  In total, nearly $4 million was paid back to investors, leaving investors with more than $2 million in losses.  When the scheme began to falter in 2009, Patterson allegedly stole money from the accounts of older investors to disguise the theft.

Bank of America became aware of the fraud after doing its own initial investigation, and subsequently notified authorities.