After Robbing Bank With Fake Bomb, Man Pleads Guilty To $20 Million Ponzi Scheme

A New Jersey man, who after his arrest for a $20 million Ponzi scheme subsequently robbed a Florida bank by brandishing a fake bomb, has pleaded guilty to a wire fraud charge in connection with the scheme.  Louis Spina, 57, entered his guilty plea today before U.S. District Judge Anne E. Thompson.  Spina could face a maximum of twenty years in federal prison when he is sentenced, as well as criminal fines and restitution. 

credit - Sacramento CBS LocalSpina's story reads like a gripping Hollywood thriller.  With only a high school diploma, Spina started working for the New York Stock Exchange at the age of 19.  Spina apparently had a penchant for Wall Street, becoming an NYSE member at age 27 and taking home at least $800,000 in annual pay during an 18-year period beginning in 1983.  Spina, who apparently had a knack for being captured by media outlets on the trading floor (see here, here, and here), ultimately spent over 25 years on Wall Street.

In 2010, Spina left Wall Street and formed LJS Trading, LLC ("LJS").  Potential investors were told that Spina could deliver annual returns ranging from 9% to 14% through trading in various stocks and equities, wit the understanding that Spina would be entitled to keep any surplus profits.  Spina would ultimately raise approximately $20 million from dozens of investors.

However, Spina ultimately used less than 50% of investor funds for their stated purpose, and indeed lost the entirety of the $9.5 million he invested.  He spent the remainder of investor funds to sustain a lavish lifestyle that included expensive cars, luxury real estate, and even a $400,000 donation to a private university.

When investors began questioning Spina about the safety of their funds, Spina provided them with "screenshots" of his trading account displaying a large balance.  According to the FBI, this balance was not the accurate balance, but simply a display of the 100-to-1 margin purchasing power used by Spina.  In late 2013, Spina told investors that he was in talks to sell the company to an unnamed wealthy individual that could offer even higher annual returns of 14% to 30% - and succeeded in raising an additional nearly $2 million.  

"Rock bottom"

However, there was no wealthy benefactor waiting in the wings, and Spina was arrested in November 2013 on federal charges that he was operating a Ponzi scheme.  Several months after his arrest, Spina entered a Wells Fargo branch in Coral Gables, Florida, wearing a black ski mask over his head and carrying a bag which he claimed contained a live bomb.  Spina made off with approximately $16,000 from the heist, but a witness observed his getaway and reported his plates to authorities.  Spina was arrested without incident the following day, where he confessed to authorities that he had robbed the bank, used a key fob to simulate a detonator, and used most of the robbery proceeds to pay bills.  Spina was recently sentenced to a 41-month prison sentence for the robbery.

Spina now faces an additional prison term of up to twenty years for the wire fraud charge.   Sentencing is currently scheduled for February 26, 2015.

Zeek Founder Set For Trial In January 2015

A North Carolina man will face trial in January 2015 over charges that he masterminded the ZeekRewards Ponzi scheme that allegedly swindled hundreds of millions of dollars from hundreds of thousands of victims.  Paul Burks, 67, will have until January 20, 2015 to prepare his defense to multiple wire fraud, mail fraud, conspiracy, and tax fraud conspiracy charges brought by the United States.  Burks has pleaded not guilty to the charges.

Burks operated Rex Venture Group, LLC ("RVG") since 1997.  In 2010, he formed zeekler.com, which operated as a penny auction website offering participants the ability to place bids on merchandise in one-cent increments.  Individuals were required to purchase "bids" in lots, usually at a cost of $.65 per bid, in order to participate in the auctions.  Burks launched ZeekRewards in January 2011 as an "affiliate advertising division" of Zeekler.  Participants were then solicited to become investors, or affiliates, in ZeekRewards in the form of investment contracts called the "Retail Profit Pool" and the "Matrix."  None of these investments were registered with the SEC or any state regulatory authorities.

The Retail Profit Pool promised investors the chance to earn lucrative daily returns of "up to 50% of the daily net profits" after completing a process that involved enrolling in a monthly subscription plan, soliciting new customers, selling or purchasing ten Zeeker.com "bids", and placing one free ad daily for Zeeker.com.  According to the ZeekRewards website, a daily commitment of "no more than five minutes per day" was required to share in daily profits.  The daily "award" was usually 1.5% of the individual's 'investment'.  Due to the compounding nature of these "Profit Points", as they were called, the cumulative amount of outstanding Profit Points numbered nearly $3 billion in August 2012 when the Securities and Exchange Commission filed an emergency action to halt the ongoing fraud.  Assuming a 1.5% daily "award", the outstanding Profit Points would have required daily cash outflows of $45 million should all investors seek to receive their "award" in cash.  

In addition to the Retail Profit Pool, investors could also participate in the "Matrix", which was a form of multi-level marketing that rewarded investors for each "downline" investor within that investor's "Matrix".  The Matrix consisted of a 2x5 pyramid, and each person added to an investor's Matrix qualified that investor to receive a bonus.  

While ZeekRewards represented to investors that the operation was extremely profitable, in reality, the company's revenues and payments to investors were derived solely from funds contributed by new investors - a classic hallmark of a Ponzi scheme.  Indeed, authorities alleged that 98% of all incoming funds were derived from the funds of new investors. Thus, the scheme could only stay afloat so long as new investor contributions were sufficient to satisfy the amount of outflows.  However, because investors were actively encouraged to "roll-over" their "profit points" back into the scheme, the number of outstanding liabilities to investors steadilty increased, reaching approximately $2.8 billion in August 2012 despite available cash reserves of less than 4300 million.  Due to the likelihood that those funds would soon be exhausted, the Commission initiated an emergency enforcement proceeding and sought an asset freeze in August 2012.

Burks, as principal of Rex Ventures and Zeek Rewards, is alleged to have withdrawn over $10 million in investor funds for the benefit of himself and his family members.  

Timing of Charges

Burks was the third person to be charged in connection with the scheme after Dawn Wright Olivares and Daniel Olivares were charged in December 2013 and currently await sentencing.  The indictment of Burks has not only been rumored for some time, but also comes as the court-appointed Receiver, Kenneth D. Bell, begins his quest to recover "false profits" from thousands of victims that were fortunate enough to profit from their investment.  The receiver's efforts to recover these "false profits" will become markedly easier in the event that Burks pleads guilty or is convicted of the fraud, which would allow the use of the "Ponzi presumption" that significantly simplifies the burden of proof required in the so-called "clawback" actions.  

Tax Fraud Conspiracy

While mail fraud and wire fraud charges are commonly brought against individuals associated with Ponzi schemes, Burks also faces a tax fraud conspiracy charge that centers around the issuance of IRS Form 1099's to victims that reported fictional income derived from the scheme.  While 1099's and/or K-1's are often issued by Ponzi schemers to investors as part of the quest to lend legitimacy to the scheme, the filing of tax fraud conspiracy charges is certainly unusual and it remains to be seen whether this may lead to similar charges in future actions.

More Ponzitracker coverage of ZeekRewards is here.

North Carolina Woman Gets 10-Year Sentence For $1.6 Million Ponzi Scheme

A North Carolina woman will serve at least ten years in state prison after pleading guilty to operating a Ponzi scheme that duped fellow churchgoers and art class acquaintances of at least $1.6 million.  Angela Dawn Campbell, 42, was sentenced by Special Superior Court Judge Richard Stone to two consecutive 60-to-81-month sentences, which translates into a minimum of ten years and a maximum term of 14.5 years.  Campbell currently owes more than $350,000 in restitution to her defrauded victims.

From 2009 to 2011, Campell befriended fellow churchgoers and members of art classes she attended, telling them she was operating an online brokerage and investment business.  Victims that Campbell approached at church later told investigators that Campbell asked them to keep their investment quiet because she "didn't want to get over her head and have too many people coming to her."  Investors were told that they could double or triple their investment, and Campbell also promised investors that they could request a withdrawal of their funds at any time.  

However, in reality Campbell did not use investor funds to open online trading accounts; rather, she used investor funds for a variety of unauthorized purposes, including the payment of fictitious returns to existing investors and the withdrawal of funds at Atlantic City casinos.  Campbell was arrested in February 2012 on twenty-two counts of obtaining property through false pretenses.  As part of her plea agreement, prosecutors agreed to drop twenty of the charges in exchange for Campbell's guilty plea to two charges.  As part of North Carolina's Structured Sentencing Act, parole was eliminated for crimes committed after October 1, 1984, and an offender must serve 100% of the minimum sentence and 85% of the maximum sentence. 

California Man Gets 14-Year Prison Sentence For $2.7 Million Ponzi Scheme

A federal judge sentenced a California man to a fourteen-year prison term for operating a real estate Ponzi scheme that duped family and friends of nearly $3 million.  James Berghuis, 42, received the sentence from U.S. District Judge William B. Shubb, who factored in Berghuis' lack of "conscience" in fashioning his sentence. Berghuis chose to stand trial on the charges last year, which resulted in a federal jury convicting him on four counts of mail fraud, four counts of wire fraud and one count of laundering money.  Berghuis could have potentially faced decades in prison.

From 2005 to 2007, Berghuis used his company, Berghuis National Lending Inc. ("BNLI") to solicit potential investors to take out home equity loans in order to invest in hard-money loans, real estate parcels, or the purchase of real estate franchises.  Investors were assured that the investment was safe, and some were offered a deed of trust purportedly giving them a second position on the asset underlying their particular investment.  In total, Berghuis raised millions of dollars from family members, friends, and acquaintances.

However, Berghuis did not use investor funds as promised; instead, he diverted funds for his own personal use and paid out fictitious returns to existing investors.  In one situation, Berghuis signed over a $200,000 check he had received from a new investor to a car dealership to take possession of a top-of-the-line Mercedes sports car.  Meanwhile, when funds began to run out, investors received various excuses as to why Berghuis could not make the promised payments; many investors ultimately lost their houses or were saddled with significant mortgages as a result of Berghuis' encouragement to use home equity money for the investment.

Madoff Recoveries Top $10 Billion After $497 Million Settlement

The court-appointed trustee tasked with recovering assets for victims of Bernard Madoff's massive Ponzi scheme announced a $497 million settlement with two Cayman Islands hedge funds that brings the total amount recovered to approximately $10.3 billion.  Irving Picard, the bankruptcy trustee for Madoff's now-defunct broker-dealer, filed a Motion to Approve Settlement (the "Motion") with Herald Fund SPC and Primeo Fund (the "Funds"), two "feeder" funds that had funnelled investor funds to Madoff.  With the settlement, Picard has now recovered approximately 59% of the estimated $17.5 billion in losses attributable to Madoff's fraud; with the inclusion of funds paid to victims from Madoff's membership in the Securities Investor Protection Corporation, all investors with losses of $925,000 or less have been fully paid back.

The Funds maintained various accounts with Madoff's firm, investing both directly and through other funds that also had exposure to Madoff.  In the six years preceding the collapse of Madoff's scheme, the Funds withdrew more than $700 million in invested principal from Madoff's firm.  Picard filed lawsuits against Herald and Primeo in July 2009, and subsequently filed an amended complaint on December 5, 2010.  As a protective measure, Picard also filed a proceeding against Primeo in the Cayman Islands.

Under New York law, transfers within six years of the filing of a bankruptcy petition may be recovered as proceeds of a fraudulent transfer.  Because Madoff admitted to running a Ponzi scheme, these transfers are considered to be made with the actual intent to hinder, delay, or defraud.

While settlement negotiations had been ongoing for several years, the Motion implied that a Cayman court's 2013 placement of Herald into official liquidation - which replaced the fund's board of directors with a court-ordered slate - may have been the turning point.  Picard entered into mediation with the Funds earlier this year, and recently reached an agreement.

The agreement calls for Herald to pay approximately $467 million to Picard, which includes a $100 million credit relating to an investment in Herald by JP Morgan that Herald had long maintained should be factored into any amount it purportedly owed.  In addition, Primeo would pay approximately $29 million, which brings the total settlement by the funds to approximately $497 million.

The settlement also includes the allowance of a customer claim filed by Herald of approximately $1.64 billion, which Picard indicated represents Herald's net equity of $1.172 billion and the $467 million paid into the estate as part of the settlement.  Notably, this claim amount would likely place Herald as among one of the largest investors in Madoff's scheme.  As part of the settlement, Picard will make a "catch-up" distribution to Herald, since it was not allowed to receive distributions made to victims over the past few years due to the pending litigation, representing 46.059% of its allowed losses of $755,320,133 - of which Herald will use a portion to contribute its settlement amount with Picard.

Interestingly, while Herald filed a claim with Madoff's bankruptcy estate claiming scheme-related losses, Primeo did not.  While the Motion for Approval of Settlement does not disclose the amount of Primeo's losses, it does disclose that all transfers made by Primeo during the six-year period preceding the bankruptcy filing were withdrawals of principal.  Thus, it is entirely possible that Primeo's failure to file a proof of claim may have prevented it from recovering a significant portion of its losses, as Herald was able to do.

A hearing is scheduled for December 17, 2014 to present the settlement for court approval.

A copy of the Motion is below:

Madoff Settlement