Madoff's Last Living Son Dies Of Cancer

The sole living son of convicted Ponzi schemer Bernard Madoff has reportedly died after a battle with cancer.  Andrew Madoff, who had long maintained his innocence of any wrongdoing associated with his father's massive fraud, passed away after losing a long fight against mantle cell lymphoma.  His brother Mark Madoff committed suicide in December 2010 - nearly two years to the date after his father's arrest for the largest Ponzi scheme in history.  With Andrew Madoff's death, both of Bernard Madoff's children have now preceded him in death following their father's imprisonment.

Both Andrew and Mark Madoff were the targets of litigation filed by the court-appointed bankruptcy trustee for Madoff's failed brokerage firm seeking the return of more than $200 million withdrawn from Madoff' scheme.  The litigation, which also named Madoff's brother and niece, was amended in November 2013 seeking to highlight certain facts that demonstrated the Madoffs' knowledge of their father's scheme, including revelations that each of the Madoff kin received tens of millions of dollars in transfers from Madoff, and also maintained investment accounts in which they withdrew amounts far in excess of their invested principal, making them "net winners" under applicable terminology.  Indeed, Madoff's brother, Peter, managed to withdraw more than $16 million from his investment account despite investing only $32,146 - including only $14 after December 1995.

Peter Madoff is currently serving a ten-year prison sentence after pleading guilty to several fraud charges relating to his role as the former chief compliance officer at Madoff's firm - a role that prosecutors alleged served merely as a blank check for Bernard Madoff to conduct his scheme with impunity.  

Ironically, Mark and Andrew Madoff were responsible for turning their father in to criminal authorities after he confessed that he was operating a Ponzi scheme with liabilities of $50 billion.  Neither have ever been accused of criminal wrongdoing.  

Government Seeks To Stay Discovery In TelexFree SEC Case Pending Criminal Resolution

The U.S. Department of Justice ("DOJ") has sought to intervene in the civil enforcement action brought against TelexFree by the Securities and Exchange Commission on the basis that a stay of civil discovery is appropriate pending resolution of parallel criminal proceedings against certain former TelexFree principals. In an 18-page motion filed today, the DOJ argued that the existence of parallel criminal proceedings based on the same alleged misconduct warranted the stay of civil discovery for several reasons, including that defendants James Merrill and Carlos Wanzeler might use the civil discovery process "in a manner that impairs proper administration of the criminal case." Of the nine civil defendants, at least seven - including Wanzeler - assent to a stay of discovery.

In the Motion, the DOJ elaborates on the history of the case, indicating that the criminal investigation began in June 2013 after a tip from the Department of Homeland Security. The Commission allegedly began its investigation six months later in January 2014, also on the suspicion that TelexFree was an illegal Pyramid scheme. The DOJ suggests that TelexFree was somehow aware of its "covert" investigation due to TelexFree's surprise decision to declare bankruptcy in April 2013 - a decision that immediately prompted authorities to execute search warrants on TelexFree headquarters based on fears that evidence would be destroyed. That same day, the Commission filed its emergency enforcement action and Wanzeler, a TelexFree principal, fled the country to Canada to catch a flight to Brazil.

The focal point of the DOJ's Motion turns on the fear that Merrill and/or Wanzeler could use the more expansive discovery permitted in a civil case to circumvent the more limited scope of discovery available in a criminal case. For example, in criminal cases there are typically no automatic disclosure requirements by the government except that any exculpatory evidence must be turned over. In contrast, Rule 26 of the Federal Rules of Civil Procedure requires the parties in a civil proceeding to exchange basic information and discovery at an early stage of the case. Additionally, whereas in criminal proceedings the Jencks act prohibits the turnover of any witness statements until that witness has testified and the defense has requested those statements, a defendant in a civil case is usually free to use depositions and other discovery techniques to gather information about a potential witness.

In considering requests to stay civil proceedings, courts evaluate several factors including (a) the extent to which the civil and criminal cases overlap; (b) the public interest; (c) any potential prejudice to the civil parties if that matter is stayed; (d) the court’s interest in managing dockets and resources; and (e) the current status of the criminal case. The DOJ argues that the two cases will rely on identical witnesses and evidence, that the public interest favors preventing a criminal defendant from evading discovery rules, that the civil defendants will not be prejudiced by the stay and will in fact save money, and that a stay would promote judicial efficiency.

According to the DOJ, Merrill is currently considering the DOJ's request to stay civil discovery and has reserved his right to oppose such a stay. As highlighted by the DOJ, Merrill has raised issues with the estimated cost of defending the criminal cases and has claimed he has no funds available for his defense.

A copy of the Motion is below (thanks to ASDUpdates):

Doc 253

California University Seeks Removal Of Ponzi Schemer's Name From Football Scoreboard

“They think I’ve been running a Ponzi scheme...But Social Security is a Ponzi scheme. The Fed’s a Ponzi scheme.”

- Al Moriarti

On the eve of the 2014-2015 college football season, a California university has sought judicial approval to remove or otherwise cover up the name of a recently-convicted Ponzi schemer prominently featured on the team's football scoreboard.  California Polytechnic State University, San Luis Obispo ("Cal Poly") recently filed a motion in bankruptcy court seeking a court order to allow the modification of their football scoreboard, which currently prominently features Moriarty Enterprises - the entity used by Al Moriarti to mastermind a Ponzi scheme that duped investors out of at least $22 million.  A hearing has been scheduled for September 19, 2014 - the day before Cal Poly is scheduled to host its home football opener.

Background

Moriarty was a Grover Beach businessman who was well known in the community for his philanthropy, having donated extensively to area charities and also coaching various community sporting teams.  Beginning in the early 1990's, Moriarty used his company, Moriarty Enterprises, to solicit potential investors with the promise of 10% returns purportedly derived from providing home loans to educators.  While specifics on the investments remain unknown, Moriarty was able to raise tens of millions of dollars from dozens of investors.  

While the investments initially performed as promised, Moriarty began defaulting on scheduled interest payments during the economic downturn due to what he blamed on financial headwinds.  Investors increasingly pursued legal remedies, and Moriarty was facing 19 civil suits by November 2012.  One month later, Moriarty filed for bankruptcy.  After a criminal investigation, authorities arrested Moriarty in May 2013 and charged him with seven felonies including the fraudulent sale of securities and material misstatements and omissions in connection with the sale of securities.  Moriarty pleaded no contest to the charges on August 4, 2014, and is scheduled to receive a five-year prison sentence on September 17, 2014.

Moriarty was known not only for his philanthropy, but also for his extensive ties to local and national athletics.  His wife, Patricia Rooney, is part of the iconic family that owns the Pittsburgh Steelers.  Moriarty played football at Cal Poly, and also previously coached local football and basketball teams.  As a Cal Poly alumnus, Moriarty donated generously to his alma mater, This generosity included the donation of $625,000 in 2009 inechange for the prominent placement of Moriarty Enterprises on Cal Poly's football stadium.

Disputes Arise Over Naming Rights

Despite Moriarty's bankruptcy filing and subsequent arrest, the name "Moriarty Enterprises" still remained prominently featured on the scoreboard at Cal Poly's Alex G. Spanos Stadium.  Indeed, because of his bankruptcy filing, the naming rights to the stadium were transferred to the bankruptcy trustee in an effort to realize potential value for creditors.   

The school was well aware that any action taken to modify or remove the scoreboard could result in severe financial consequences - including punitive damages and the possibility of being held in contempt.  After Cal Poly balked at repaying the $625,000 received from Moriarty, the trustee filed a lawsuit seeking the return of the funds and claiming that Moriarty was insolvent at the time the donation was made.  In recent discussions between Cal Poly and the trustee, Cal Poly has asked for permission to cover the name with either "#CalPoly" or "Go Cal Poly" before the September 20th home opener, claiming that "having that company name on the scoreboard obviously is a problem for Cal Poly."  In another potential alternative, Cal Poly has offered to assist with the sale of the naming rights to a disinterested third party.

A hearing on the motion is scheduled for September 19, 2014.  

Ohio Man Gets 15 Years For $100 Million Ponzi Scheme

“These offenses and their devastation cannot be tolerated.  The court must inflict a punishment that emphasizes this kind of financial chicanery cannot and does not exist. It’s necessary for this court to send a loud message, an emphatic message, that this kind of conduct cannot be tolerated.”

- U.S. District Judge Herman Weber

A Cincinnati man will spend the next 15 years in federal prison for orchestrating a devastating Ponzi scheme that took at least $100 million from over 140 investors.  Glen Galemmo received the maximum possible sentence from U.S. District Judge Herman Weber pursuant to a plea agreement with prosecutors in which he pleaded guilty to one count of money laundering and one count of wire fraud.  Galemmo will also be ordered to forfeit his assets.  With credit for time served, Galemmo will serve at least 13 years of his sentence.

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.

However, Galemmo's touted prowess as a savvy trader was pure fiction.  Galemmo was able to pay the promised outsized rates of return not through trading stocks and bonds, but from using incoming investor funds to pay existing investors - a classic sign of a Ponzi scheme.  Nor was the Queen Fund audited; rather, Galemmo simply listed the name of an audit firm that had not had a relationship with Galemmo or his fund since 2003.  Galemmo also created fictitious trading and account statements that were distributed to investors.  Investor funds were diverted by Galemmo for a variety of unauthorized uses, including the purchase of real estate, the payment of fictional interest and principal distributions, and even to operate other businesses such as entertainment complexes. 

The scheme came to a sudden halt in July 2013 when investors received an email from Galemmo stating that the funds were shutting down and directing all further inquiries to an IRS agent.  Galemmo was later arrested, and agreed to plead guilty shortly thereafter.  The prospect of recovery for victims appears bleak, with one source reporting that the Department of Justice has estimated that victims could recoup 10% to 20% of their investment.  One group of investors has commenced litigation against several national banks, seeking to hold the banks liable for their assisting Galemmo's scheme.  

Galemmo was allowed to remain free on bond while the Bureau of Prisons determines where he will serve his sentence, which could take as long as two months. 

Ponzi Schemes Remain Prevalent In 2014; Over $1 Billion In New Schemes Uncovered

Nearly six years after the word "Ponzi scheme" became a household name thanks to Bernard Madoff, Ponzi schemes continue to proliferate and leave a trail of financial destruction in their wake as demonstrated by newly-compiled data showing more than $1 billion of newly-uncovered schemes and over 600 years in prison sentences handed down in the first half of 2014.  In the first six months of 2014, at least 37 Ponzi schemes were uncovered, with a total of more than $1 billion in potential losses.  This equated to the discovery of a Ponzi scheme (1) more than once per week, (2) every 4.9 days, or (3) every 118 hours. Included in this list are at least three Ponzi schemes with estimated losses of at least $100 million or more, with the estimated $300 million in losses in the alleged TelexFree Ponzi scheme ranking as the largest Ponzi scheme exposed in the first half of 2014.

The data, permanently housed in this database and also displayed below, is presented as a reminder that Ponzi schemes remain rampant in the United States and worldwide despite mounting government and regulatory efforts.  Indeed, the 37 schemes discovered during the first half of 2014 suggest that at least 74 schemes will be discovered in 2014 - approximately 10% more than the 67 schemes unearthed in 2013. 

A full list of Ponzi schemes uncovered in the first half of 2014, arranged by the estimated size of the scheme, is below:

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 Ponzi Scheme Sentencing

In terms of sentencing, at least 66 prison sentences were handed down for those convicted for their role in Ponzi schemes in the first half of 2014, with over 600 years in cumulative sentences.  These figures are ahead of the pace for 2013, which saw 117 prison sentences for more than 1,000 years in total. These sentences ranged from mere months to decades in prison, with Hendrix Montecastro's 81 year sentence ranking as the highest Ponzi sentence handed down in the first half of 2014.  The total dollar amount of the Ponzi schemes for which sentences were levied: nearly $3 billion. 

A full database of the sentences handed down in the first half of 2014 is below:

A special thanks to Alison K. Jimenez from Dynamic Securities Analytics for her assistance in compiling the data.