Former TD Bank Official Arrested For Role In Rothstein's $1.2 Billion Ponzi Scheme

As some have predicted, federal authorities have unveiled criminal charges against a former TD Bank official implicated in the massive $1.2 billion Ponzi scheme masterminded by Scott Rothstein.  Frank Spinosa, 53, was arrested today on five counts of wire fraud and one count of conspiracy to commit wire fraud and was later released on a $250,000 bond.  Spinosa's lawyer, who called the arrest "unnecessary" and "one of those typical Rothstein case flourishes," has maintained his client's innocence and indicated he intends to stand trial on the charges.

Rothstein's relationship with Spinosa began after he opened over 20 attorney trust accounts and law firm operating accounts in late 2007 at TD Bank and another bank TD Bank later acquired.  Spinosa was Rothstein's point of contact beginning in 2008, and communicated often with Rothstein regarding the accounts and various documents that were provided to investors.  As Spinosa's compensation was tied to the size and volume of accounts he managed, the fact that Rothstein's accounts were among TD Bank's largest accounts in South Florida meant increased compensation and bonuses for Spinosa.  

Spinosa was implicated in the massive scheme by Rothstein himself, who claimed during a 2011 deposition that he had recruited Spinosa to assist in the preparation of false "lock letters" used to show investors that their investments were safe and that Rothstein could not remove funds from the account holdings the funds. According to the Securities and Exchange Commission, which filed civil fraud charges against Spinosa last year, Spinosa also made oral assurances to at least two investors that certain trust accounts at TD Bank holding investor funds contained hundreds of millions of dollars when in reality the "locked" accounts typically held less than $100.  In one instance during August 2009, months before the scheme eventually collapsed, Spinosa participated in a conference call with Rothstein and an investor in which he told the investor that an account had a balance of $22 million when, in reality, the account had a balance of less than $100.  The investor subsequently made four more investments with Rothstein in the ensuing months.

Over two dozen other individuals have been charged for their role in Rothstein's scheme and sentenced to prison.  Spinosa could face decades in federal prison if convicted of all charges and sentenced to the statutory maximum.  

Other Ponzitracker coverage of the Rothstein scandal is here.

A copy of the indictment is here (thanks to Chuck Malkus, authorof The Ultimate Ponzi)

Spinosa Indictment by jmaglich1

SEC Halts $123 Million ATM Ponzi Scheme

The Securities and Exchange Commission announced it had obtained an emergency asset freeze and filed civil fraud charges accusing a California company and its principals of operating a $123 million Ponzi scheme.  Nationwide Automated Systems ("NAS"), and its principals Joel Gillis and Edward Wishner, were named in a civil complaint filed in a Los Angeles federal court.  In addition to the asset freeze, the court approved the appointment of a temporary receiver over NAS's assets and also froze the assets of principals Gillis and Wishner.  NAS, Gillis, and Wishner are accused of multiple violations of federal securities laws, and the Commission is seeking injunctive relief, disgorgement of ill-gotten gains, and civil monetary penalties.

According to the Commission, NAS  has solicited investors since 1999 by promising that their funds would be used to place, operate, and maintain automated teller machines ("ATMs") throughout the country.  Investors were told that they could purchase ATMs for a price ranging from $12,000 to $19,800 from NAS, and could then lease those same ATMs back to NAS for a 10-year term in exchange for a "rent" of $.50 per ATM transaction.  A contract memorializing the investment purportedly contained the serial number and the location of the ATM, and investors were guaranteed an investment return of at least 20% annually.  Notably, each contract also included a "non-interference" clause prohibiting the investor from interfering with the operation of the ATM by contacting the locations where the ATM was installed or any ATM service provider.  While NAS has been engaged in the offering and sale of these ATM leaseback agreements since 1999, the Commission was only able to obtain bank records from 2013 forward during its investigation that showed more than $123 million raised in just that period.

While the company's records showed that it had sold and was leasing back more than 31,000 ATMs to investors as of June 2014, third-party settlement reports provided by NAS's ATM servicers show that only 253 ATMs were serviced.  As the Commission remarked, 

Defendants have “sold” and “leased back” tens of thousands of ATMs to NASI investors that they never owned, that they never operated, and that may have never existed. 

For example, while NAS's internal records claimed ownership or operation of nearly 700 ATMs located at "Casey's Convenience Mart" locations in the Midwest, the Commission's investigation showed that neither NAS nor any of its investors owned or serviced any of those ATMs.  Rather, those ATMs were owned by an unrelated company with no affiliation with NAS.  The Commission also alleged that NAS often sold and leased back the same ATM to more than one investor.  Of the ATMs that NAS did service, those revenues were minimal and were dwarfed by the significant amount of new investor funds.  Those investor funds were used to pay returns to existing investors - a classic hallmark of a Ponzi scheme.  

The Commission's complaint details that NAS bounced over $3 million in checks to investors in August 2014, and investors were told that a "glitch" in connection with retention of a new outside firm handling investor payments was to blame.  

Recently unsealed documents demonstrate that the Commission moved swiftly after presumably receiving a tip about NAS's difficulties making investor payments, with court records showing the Commission filed its application for a temporary injunction and other relief on September 17, 2014.  It appears that the Court granted those requests on September 30, 2014.  The Court also authorized the appointment of William Hoffman as a temporary receiver. It appears that a website has been established at http://www.nasi-nationwideatm.com/ for interested parties.

Several Ponzi schemes purportedly offering lucrative returns from investments in ATMs have been uncovered in recent years, including here, here, and here.

A copy of the Complaint is below:

Comp 23106

In $322 Million Petters Clawback Settlement, No Collection 'Til 2020

The court-appointed trustee overseeing recovery efforts for victims of Thomas Petters' $3.65 billion Ponzi scheme announced a $322 million settlement with two hedge funds accused of receiving hundreds of millions in so-called "false profits" derived from the scheme.  The trustee, Doug Kelley, reached the settlement last week with hedge funds Westford Investment Management LLC and Epsilon Investment Management LLC  (collectively, the "Hedge Funds"), which allegedly received more than $322 million in "net profits" from their investment with Petters' scheme.  In a twist, Kelley does not expect to receive a check anytime soon from the funds; the settlement includes an agreement that Kelley would not start collection efforts until at least 2020.

Petters was arrested in October 2008 after prosecutors alleged that his company, Petters Company, Inc., was not the successful and highly-profitable business that touted handsome returns through the purported purchase and resale of consumer electronics to big-box retail stores.  Rather, Petters was accused of operating a massive Ponzi scheme that duped victims out of billions of dollars that ranks as one of the largest in history.  Instead of using investor funds as promised, Petters built up an elaborate business empire by purchasing legitimate companies such as Polaroid and Sun Country Airlines.  However, when the fraud was uncovered in late 2008, those once-legitimate companies imploded along with the rest of Petters' empire.  Petters was eventually sentenced to serve fifty years in prison for the fraud.  

The Hedge Funds first began investing with Petters in 2001, ultimately entering into over 300 transactions in which approximately $2.9 billion was invested.  The Hedge Funds stopped investing with Petters in 2007, and ultimately recouped not only their entire $2.9 billion investment but also approximately $324 million in net profits.  Eighteen months after the Hedge Funds withdrew their investments, Petters' fraud collapsed.

In a lawsuit filed in a Minnesota bankruptcy court, Kelley alleged that the Hedge Funds were one of the largest investors in Petters' Ponzi scheme through a complex master-feeder fund structure.  The complaint alleged that the Hedge Funds received significant amounts of false profits derived from Petters' scheme, which were used to make fund founder and owner Steven Stevanovich "exceptionally wealthy" based on management and performance fees.  Kelley's complaint sought not only the $323 million in false profits, but also the entire $3.2 billion realized from the scheme under the theory that the Hedge Funds did not give reasonably equivalent value for and take the transfers in good faith.

Kelley reached the settlement with the Hedge Funds after a series of mediation hearings before a former Judge.  The settlement calls for the entry of a judgment in an amount of $322 million that represent an agreed-to total amount of "false profits" realized by the Hedge Funds.  However, under the terms of the settlement, Kelley agreed that he will refrain from initiating any efforts to collect on the judgment for six years, or the end of 2020.  This condition arises from the Hedge Funds' delicate financial status, and will allow the Hedge Funds to manage the investments over the next six years with the goal of completely satisfying the judgment when due.  In return for waiting to collect on the judgment, Kelley will receive a security interest in the entirety of the Hedge Funds' remaining assets.  

The settlement must ultimately be approved by the U.S. Bankruptcy Judge overseeing Kelley's efforts.  A hearing has been scheduled on the settlement for October 28.   

To date, Kelley has recovered approximately $110 million to be eventually distributed to victims.  Recently, Kelley received court approval to file a series of clawback suits targeting international investors that collectively reaped more than $100 million in false profits.  The Minneapolis Star Tribune has estimated that victims can expect a total recovery ranging from 17% to 25% of their approved loss.  

A copy of the complaint against the Hedge Funds is below:

gov.uscourts.mnb.343094.1.0

Stanford Files 299-Page Appeal Of 110-Year Sentence

The man convicted of running the second-largest Ponzi scheme in history has filed a 299-page appeal in a last ditch effort to reduce or reverse his 110-year sentence.  R. Allen Stanford filed his appeal last month with the U.S. Court of Appeals for the Fifth Circuit - which promptly rejected the filing and ordered Stanford to re-file a brief at least 50% shorter.  A federal jury convicted Stanford of 13 fraud counts in 2012.  Stanford, who has maintained his innocence since his arrest in 2009, is currently scheduled for release in April 2105.

According to Vice, Stanford's appeal devotes no less than fifteen arguments as to why his 2012 conviction should be set aside.  This includes arguments that the U.S. lacked jurisdiction to bring charges against him since his bank, Stanford International Bank, was located in Antigua and thus not subject to U.S. laws.  Additionally, Stanford argued that the certificates of deposit issued by Stanford International Bank could not be considered "securities" under federal securities laws.  Argued Stanford, “Simply put, Stanford International Bank was regulated by—and only by—Financial Services Regulatory Commission of Antigua and Barbuda."

Stanford also argues that he was deprived of his right to a fair trial after he was found competent to stand trial despite his claims that a prison beating had irreparably impaired his memory functions and affected his ability to confer with defense lawyers.  A federal judge overseeing his criminal trial found Stanford fit to stand trial after a three-day competency hearing.  Stanford claimed that his injuries "profoundly affected [my] ability to communicate with [my] attorneys and prepare [my] defense.”

Despite holding more than $5 billion in approved claims, victims have received a single distribution constituting 1% of their losses to date.  Many of Stanford's assets tied to his fraud remain locked up overseas and subject to competing claims by the U.S. Receiver and an overseas liquidation effort - including over $300 million located in Canada, Switzerland, and the United Kingdom.  

Indiana Man Gets 22-Year Sentence For $16 Million Used-Car Ponzi Scheme

An Indiana man was sentenced to a 22-year prison term for bilking hundreds of victims out of at least $16 million in a Ponzi scheme that touted double-digit returns from used-car loans.  Thomas Kimmel, 68, was convicted by a federal jury in June on conspiracy, mail fraud, and money laundering charges.  In addition to the sentence, Kimmel was also ordered to pay $16.5 million in restitution to his victims, which included his wife, sister, and brother-in-law.  

Kimmel was a director of Sure Line Acceptance Corporation ("SLAC") and the President of Faithful Stewards Incorporated ("FSI").  SLAC was responsible for financing for Automacion, a used-car dealer with dealerships throughout Indiana which hired Kimmel in 2006.  Kimmel used his company, FSI, to solicit potential investors, emphasizing his religious ties and decades as a financial planner as he hosted conferences throughout the country advertised as "debt-free conference" and "God's Plan for His Money Conferences."  Kimmel told potential investors that their funds would be used to fund these used-car loans, and that they could expect a monthly 1% return that was both risk-free and backed by collateral.  Additionally, Kimmel told investors that he had set up a "spiritual board of directors" to oversee his company. In total, more than 300 investors, many of them retirees or senior citizens, entrusted approximately $20 million with Kimmel.

However, despite his promises that his investment opportunity was risk-free and backed by collateral, the reality was that SLAC was far from risk-ree and was in fact hemorrhaging money.  Nor were investors told that Kimmel received nearly $2 million in commissions from SLAC for business he generated or that the local church leaders endorsing the legitimacy of his venture were also receiving a 1% commission.  In reality, funds from new investors were being used to pay returns to existing investors - a classic hallmark of a Ponzi scheme.  After SLAC suffered financial problems, many investors ended up losing their entire investment.  Three officers at SLAC, James Willis Kirk Jr., Glen E. Smith Jr. and Carol April Graff, were eventually sentenced to prison for their role in the fraud.

Kimmel was ordered to report to prison in one month.