Chicago Fund Manager Charged With $11 Million Ponzi Scheme

Civil and criminal authorities filed charges against a Chicago fund manager alleging that he ran a Ponzi scheme that took in more than $11 million from investors.  Neal V. Goyal, 33, was the subject of an emergency civil enforcement action filed yesterday brought by the Securities and Exchange Commission.  In a parallel criminal action, federal authorities charged Goyal with a single count of wire fraud.  The Commission's action is seeking injunctive relief, disgorgement of ill-gotten gains, and civil penalties, while Goyal could face up to twenty years in prison on the criminal charge.

Goyal owned and managed two investment advisors: Blue Horizon Asset Management ("Blue Horizon") and Caldera Advisors, LLC ("Caldera").  Blue Horizon and Caldera, neither of which is registered with the Commission, act as investment advisers to four investment funds created by Goyal (collectively, the "Funds").  Beginning in 2006,  while he was attending law school at the Thomas Jefferson School of Law, Goyal began raising funds from friends and family members.  Potential investors were told that the Funds primarily invested in equities, and employed a "long-short" strategy that involved holding both long and short positions.  According to account statements provided to investors from 2011 to 2013, the Funds returned at least 17% per year.  In total, Goyal raised more than $11 million from at least 35 investors.

However, Goyal was not the savvy trader investors were led to believe.  Indeed, his initial trading resulted in substantial losses, and he ceased trading completely by January 2009.  Instead, Goyal used investor funds to pay returns to existing investors - a classic hallmark of a Ponzi scheme.  Additionally, Goyal misappropriated investor funds to sustain his lavish lifestyle, including more than $1 million for two homes, more than $200,000 in investments in a Chicago tavern, luxury vacations and custom-tailored suits, and $100,000 for a children's clothing boutique operated by his wife.  Indeed, despite the fact that his wife's children's clothing boutique was losing money, Goyal used investor funds to help the business expand to a second location.  

The Commission's complaint is below:

Comp 23008

Zeek Receiver Seeks Approval For 40% Distribution

Nearly two years after his appointment, the court-appointed receiver for the $600 million Zeek Rewards Ponzi scheme has asked a North Carolina federal court for approval to make an initial 40% distribution to over 100,000 victims.  The Receiver, Kenneth D. Bell, filed his Motion to Authorize First Interim Distribution, Establish Record Dates, and Set First Interim Distribution Date (the "Distribution Motion") yesterday.  In the Distribution Motion, the Receiver seeks to begin making distributions to victims as soon as September 30, 2014.

The Securities and Exchange Commission filed an emergency enforcement action against Zeek Rewards in August 2012, alleging that the wildly popular online penny-auction site was, in reality, a massive pyramid and Ponzi scheme that was on the verge of collapse.  After a claims process was initiated last year, Bell ultimately received approximately 175,000 claims asserting cumulative losses of over $650 million.  

Given the sheer number of claims received, which is believed to be (by far) the largest number ever involved in a Ponzi scheme receivership, Bell's team was forced to adopt several unique procedures to timely and efficiently process each claim.  This included the appointment of a special master to resolve disputes between claimants and Bell, as well as the discretion to utilize Bell's discretion to approve claim discrepancies that did not exceed the amount contained in the company's database by more than $10,000.

As of the filing of the Distribution Motion, Bell's team had issued more than 150,000 Claim Determinations to victims.  Claimants that subsequently returned the required Release and OFAC Certification had their claim converted to an Allowed Claim - and thus eligible for a distribution.  To date, more than 80,000 claims are considered Allowed Claims by Bell's team.  According to the Distribution Motion, those approximately 67,000 claimants that have received a claim determination but have not yet returned the required Release will have until August 15, 2014 to do so to be considered eligible to receive a distribution on September 30, 2014.  

Previous Ponzitracker coverage of ZeekRewards is here.

The Distribution Motion is below:

Zeek Receiver's Motion

Once Presumed Dead, Captured Fugitive Details Life On Lam After Collapse Of $21 Million Ponzi Scheme

With losses mounting daily in my investors’ accounts, I did the unthinkable. I deceitfully devised a plan to use the bank’s securities account, and began trading those funds with hopes of making bigger returns to build the bank’s capital account back up and pay investors back. It was the worst decision of my entire life, and I take responsibility for it. There is no one else to blame for this except me. 

Aubrey Lee Price

An Atlanta magazine has published an intimate look into a Georgia man's 18-month life on the lam after he purportedly committed suicide amid reports his investment venture was a $21 million Ponzi scheme, including revelations that he spent time in an unnamed Latin American country and was involved in a mid-sized cocaine trafficking operation before his arrest this past New Years Eve.  Aubrey Lee Price, 47, disappeared in 2012 after his last whereabouts were traced to a Key West ferry.  After staying on the lam for approximately 18 months, he was arrested following a routine traffic stop earlier this year.  Despite facing two sets of federal criminal charges from Georgia and New York prosecutors, Price recently gave a series of interviews to an Atlanta Magazine journalist.  While lacking a basis for independent verification, Price paints quite a tale with his story.

The Scheme

Price formed PFG, LLC, and Montgomery Asset Management, LLC f/k/a PFG Asset Management, LLC, in 2009.  Potential investors were told that the fund sought "positive total returns with low volatility" through investing in low-risk securities such as equity securities traded on the U.S. markets.  Price would later use investor funds to purchase an equity ownership interest in a South Georgia bank on the brink of failure.

Investor funds were kept in a Goldman Sachs bank account where, despite statements showing consistent trading gains, Price is alleged to have suffered massive trading losses of at least $20 million.  Price also used investor funds to acquire Montgomery Bank & Trust ("MB&T"), a failing South Georgia bank, in order to gain control of millions of dollars of the bank's cash assets and reserves.  According to the Securities and Exchange Commission, Price transferred at least $10 million from the bank to a trading account at Goldman Sachs, and attempted to conceal the fraudulent nature of his activity by providing fictitious account statements and representation letters to bank regulators.  In total, Price is accused of embezzling at least $21 million from MB&T.

In June 2012, Price boarded a ferry terminal in Key West, Florida.  He left behind a rambling suicide note in which he indicated that he was "incapable of continuing in this life," and that he "created fales statements, covered up my losses and deceived and hurt the very people I was trying to help."  Price repeatedly alluded that he planned to kill himself, and he had not been seen since boarding the ferry. 

The Capture

A routine traffic stop based on suspicion of illegally-tinted windows landed Price in jail after authorities became suspicious of his story.  Authorities discovered that Price fit the description of a "Jason" that rented a house in Ocala, Florida, and a subsequent raid of that house turned up more than 200 marijuana plants.  Price was returned to a Statesboro, Georgia jail to await trial on bank fraud charges filed by Georgia federal prosecutors.

The Story

In a series of interviews with Atlanta Magazine reporter Charles Bethea, Price first disclosed that he had penned a reflective memoir entitled The Inglorious Fugitive.  (Price further revealed that he had been talking to a book and film agent).   The article covers Price's beginnings, glossing over his former position as a preacher that was later shelved for a new career as a financial planner.  Eventually, Price set off on his own with PFG and, owing partly to his former calling and a client list he had amassed during his association with Smith Barney and Banc of America, was able to quickly convince investors to trust him with tens of millions of dollars.

After disappearing from a Ft Myers-bound ferry, Price disappeared to an unnamed Latin American country, where he recounted his association with a shadowy figure named "Pedro" who, on at least one occasion, allegedly threatened Price that his children's lives were at stake if he did not cooperate.  "Pedro" then offered Price a job overseeing his cocaine operation, where Price claimed he became an expert "cocaine taster."  After he moved back to North Florida, he soon took over marijuana operations and purported to have spent time in more than twenty "grow houses."  

Price assumed the identity of "Jason," recently-divorced man with a past drug addiction.  In return for doing gardening and other yard work, an elder couple let him stay in a small shed on their land.  In that shed, Price began growing marijuana plans - and told acquaintances that his sick uncle lived in the shed and would shoot any intruders.  

After the traffic stop on New Years Eve landed Price in a Glynn County jail, he allegedly called his father with one request - call a telephone number Price had memorized and deliver the code "666."  According to Price, this was the code for "Pedro's" people that he had been compromised.  Price's father refused.

Authorities Charge Former Rothstein Law Partner With Conspiracy

Authorities have announced criminal charges against the remaining name partner in Rothstein Rosenfeldt Adler yet to be charged in connection with Scott Rothstein's $1.2 billion Ponzi scheme.  Stuart Rosenfeldt has been charged with one charge of conspiracy to commit campaign finance fraud, bank fraud, and violate a person's civil rights.  Notably, the charge does not suggest that Rosenfeldt was involved in or aware of his partner's massive Ponzi scheme; rather, Rosenfeldt is accused of making illegal campaign contributions to well-known politicians as well as using influence of police officers from the Broward Sheriff's office to coerce an escort into leaving Florida.  It appears that the charge was the result of extensive negotiations and cooperation with authorities, as Rosenfeldt is expected to turn himself in next week and plead guilty to the charge.

Rosenfeldt has maintained he had no involvement or awareness of Rothstein's Ponzi scheme, and the narrowed focus of the criminal charges seems to corroborate his position.  Indeed, in a civil deposition, Rothstein himself even pointed the finger at Rosenfeldt and Adler, the two name partners beside himself, saying, 

At various points in time, they came to know that there was a Ponzi scheme going on, although the word Ponzi was never utilized.

The remaining name partner, Russell Adler, pleaded guilty last month on similar charges that he violated federal election laws by making hundreds of thousands of dollars in campaign contributions to prominent politicians including former Florida Governor Charlie Crist and Senator John McCain.  Adler could face up to five years in federal prison when he is sentenced next month.

In addition to making illegal campaign contributions, Rosenfeldt is also accused of conspiring with Rothstein to use their influence with Broward County police officers to threaten and intimidate an escort who they suspected was on the verge of disclosing her relationship with Rosenfeldt.  According to authorities, the officers illegally detained the escort and her boyfriend, deleted evidence of the relationship from the escort's phone, and later escorted the escort and her boyfriend to an airport and ordered them to return to Pennsylvania.  

According to Chuck Malkus, who has covered the Rothstein saga closely and authored the book, The Ultimate Ponzi: The Scott Rothstein Story, the arrest marks the 24th to date since Rothstein's scheme collapsed nearly five years ago.  Malkus believes that this number may keep climbing, theorizing that next up to be charged are the bankers, hedge fund feeders and possibly even elected officials."

Rothstein Colleague Gets Five-Year Prison Sentence

A former law associate of convicted Ponzi swindler Scott Rothstein was sentenced to serve five years in federal prison for assisting Rothstein by impersonating a Florida Bar official during a call with investors.  Christina Kitterman, 39, received the sentence from U.S. District Judge Daniel T. Hurley after a six-hour sentencing hearing, and was immediately taken into custody.  A federal jury took less than two hours to convict Kitterman, who was the only defendant to stand trial of the numerous individuals that have faced charges for their ties to Rothstein.

Kitterman was indicted last summer, along with south Florida attorney Douglas Bates, on charges that she was a participant in Rothstein's scheme while employed as an attorney at his former firm, Rothstein Rosenfeldt Adler ("RRA").  There, according to authorities, Kitterman agreed to participate in a meeting with Rothstein investors posing as a Florida Bar official, telling investors that Rothstein's bank accounts had been frozen as the result of a pending bar association.  The ensuing trial drew widespread attention due to Kitterman's request to have Rothstein testify - a decision that was generally not observed to have bolstered her defense.  In his testimony, Rothstein claimed that he and Kitterman had a "friends with benefits" relationship and that Kitterman was aware of her actions in assisting him.  

After a jury convicted her of three counts of wire fraud, Judge Hurley suggested that Kitterman may have committed perjury during her trial testimony by claiming that she did not identify herself as the Florida Bar president during the phone call.  If true, Kitterman was warned that she could face a sentencing enhancement.  That prediction bore true at today's sentencing hearing, where Judge Hurley noted that his original sentencing calculation has placed Kitterman's term at 3-4 years.  However, Kitterman was given a five-year sentence after factoring in her perjury and her abuse of trust as an attorney.  Prosecutors had indicated they were seeking a sentence of up to nine years in prison.

There is no parole in the federal prison system, and inmates generally serve 80% - 85% of their sentence when accounting for credit for good behavior.  Judge Hurley allowed Kitterman to enter into a substance abuse program, which could potentially reduce her sentence by up to one year.  Kitterman also indicated that she had entered into a tentative agreement withe Florida Bar to surrender her law license on the condition that she could apply for reinstatement in five years.  That arrangement is subject to approval by the Florida Supreme Court.