Florida Man Gets 10-Year Sentence For $3 Million Ponzi Scheme Targeting Teachers

A Jacksonville man will spend the next ten years in federal prison for carrying out a Ponzi scheme that targeted public employees, many of whom were teachers, and ultimately caused more than $3 million in losses.  Scott Anderson Hall, 50, received the sentence from U.S. District Judge Timothy Corrigan after previously pleading guilty to fraud and money-laundering charges.   The sentence was in line with that requested by prosecutors, and Judge Corrigan openly questioned the sincerity of Hall's remorse and whether victims would ever see any of their money again.  

Hall formed Abaco Securities International, a shell company in the Turks and Caicos islands, in 1999.  Using his affiliation with various financial services companies, including AXA Advisors, Hall solicited clients to invest their retirement savings in an investment product known as ASI.  Many of Hall's victims were employees of the Duval County School Board, including teachers and at least one principal.  Hall promised annual returns ranging from 6% to 18%.  In one particular example noted by prosecutors, Hall showed up at a the funeral of a North Carolina woman, although he did not know the woman or her husband, and followed the family to the funeral reception where he convinced the deceased woman's husband to invest the proceeds of a life insurance policy with him.  In total, Hall took in more than $4 million from at least 50 investors.

According to authorities, however, Hall did not use investor funds as promised.  Instead, Hall lived a luxurious lifestyle that included the purchase of commercial property and high-end automobiles.  Hall also used investor funds to pay fictitious returns - a classic example of a Ponzi scheme.  Hall's scheme lasted over a decade until it collapsed in 2011.  He was indicted in January 2013 and pleaded guilty later that year.

Criminal Charges Filed In Alleged $32 Million Pro Athlete Loan Ponzi Scheme

A former National Football League player and his business partner were arrested this morning on charges they masterminded a $32 million Ponzi scheme that promised generous returns purportedly generated from loans to high-profile athletes.  Will Allen, 36, and Susan Daub, 55, were arrested in south Florida on one count each of securities fraud.  The pair, who already face civil fraud charges filed by the Securities and Exchange Commission, were charged on a criminal complaint filed by authorities in Boston.  The securities fraud charge carries a maximum prison sentence of up to twenty years as well as a fine of up to $5 million. Each of the defendants is free on a $200,000 bond.  

According to authorities, Daub and Allen operated Capital Financial Partners, LLC, Capital Financial Holdings, LLC, and Capital Financial Partners Enterprises, LLC (collectively, "Capital Financial").  Allen had a length career in the NFL that spanned over ten years and included stints with the New York Giants, the Miami Dolphins, and the New England Patriots.  Beginning in 2012, the pair began soliciting investors to contribute some or all of a short-term loan to a professional athlete who might not have access to guaranteed salary money during that particular athlete's "off-season."  As Capital Financial's website explained,

In many cases, athletes' contracts do not allow them to access their guaranteed money during the off season or early in the season when they may need a significant sum to purchase a house or car, pay the bills, or meet a financial demand. By pooling the resources of a network of investors, CFP gives athletes access to money when they need it while providing investors with solid, short-term returns on investment.

Potential investors were told that Capital Financial required a minimum $75,000 investment, of which a 3% origination fee would be subtracted, and that a typical athlete loan was for $600,000.  Before making an investment, a potential investor was often provided with information about a particular athlete, including that athlete's sports contract and what amounts of that contract were guaranteed.  According to authorities, at least some potential investors were led to believe that their investment was backed by that particular athlete's contract and that Capital Financial had the ability to receive payments from that athlete's team if needed.  In return, an investor was promised monthly interest rates ranging from 9% to over 18% depending on the duration of the loan.  In total, Capital Financial raised at least $31.7 million from over 40 investors from July 2012 to February 2015.

However, authorities charge that nearly half of the money raised from investors never made it into the pockets of a particular professional athlete.  For example, over two dozen investors contributed more than $4 million in mid-2014 with the understanding that they were participating in a $5.65 million loan to an unnamed National Hockey League player.  The SEC previously alleged that the $5.65 million promissory note was never signed, and the particular NHL player subsequently filed for bankruptcy in October 2014.  While Capital Financial filed a proof of claim in the player's bankruptcy case claiming a $3.4 million debt, none of the investors were informed of the bankruptcy and continued to receive monthly payments amidst assurances that the loan was "performing as expected".  The pair is accused of similar misrepresentations with respect to purported loans made to MLB and NFL players.

From July 2012 to February 2015, Capital Financial allegedly received approximately $13 million in loan repayments from athletes, yet paid out approximately $20 million to investors - a scenario in which the additional $7 million paid out to investors was possible only by using new investor funds in a classic Ponzi scheme.  Allen and Daub are also accused of withdrawing more than $7 million for various personal and unrelated business expenses, including casino and travel expenses as well as loans to various insurance companies.

While it is unknown when Capital Financial appeared on the radar of authorities, it appears that the unnamed NHL player in the SECcomplaint filed by the SEC in April was veteran NHL player Jack Johnson, whose high-profile October 2014 bankruptcy filing disclosed at least $15 million in undisclosed loans taken out by his parents - loans that the Columbus Dispatch characterized as "nonconventional" high-interest loans.  Given the significant media coverage of Johnson's bankruptcy and allegations that some of the loans were fraudulently obtained by his parents, it is certainly plausible that authorities may have discovered the fraud after closely scrutinizing Capital Financial's creditor status.

According to criminal prosecutors, investor funds were also spent at Florida and Las Vegas casinos, where Allen had accounts.  Allen is alleged to have profited by more than $4 million from the scheme, while Daub and her son allegely received nearly $300,000.  At a bond hearing earlier today, the Court rejected a Boston prosecutor's request for a $500,000 bond apparently based on claims by Allen's lawyer that most of his money had been frozen by the SEC and that former Miami Dolphin teammate Vernon Carey would be paying the bond.  

A copy of the Complaint filed by the SEC is below:

TelexFree Trustee Provides Update On Claims, Losses, And Clawbacks

The bankruptcy trustee tasked with recovering funds to compensate hundreds of thouands investors worldwide who were duped in the massive TelexFree fraud appeared at a Bankruptcy court hearing today where he provided an update on the complexity of the scheme, the estimated losses, and the next steps moving forward.  Stephen B. Darr, the court-appointed trustee, was in court today for a hearing on the approval of nearly $3 million in fees incurred by his financial and legal professionals.  While the fees were ultimately approved, Darr also provided an update on the progress of the monumental task he has undertaken in attempting to understand and reconstruct the inner workings of what may be the largest and most complex financial fraud in history.

Background

TelexFree raised billions of dollars from hundreds of thousands of investors through the sale of a voice over internet protocol (“VoIP”) program and a separate passive income program.  The latter was TelexFree's primary business, offering annual returns exceeding 200% through the purchase of "advertisement kits" and "VoIP programs" for various investment amounts.  Not surprisingly, these large returns attracted hundreds of thousands of investors worldwide, and participants were handsomely compensated for recruiting new investors – including as much as $100 per participant and eligibility for revenue sharing bonuses.  Ultimately, while the sale of the VoIP program brought in negligible revenue, TelexFree's obligations to its "promoters" quickly skyrocketed to over $1 billion.

In April 2014, after multiple attempts to modify the passive income program both to rectify regulatory deficiencies and to curb increasing obligations, TelexFree quietly filed for bankruptcy in a Nevada bankruptcy court.  While it appeared that TelexFree had hoped to use the bankruptcy proceeding to eliminate its obligations to its "promoters" and extinguish any ensuing liabilities, the filing immediately attracted scrutiny and was followed shortly by enforcement actions filed by the Securities and Exchange Commission (the "Commission") and Massachusetts regulators.  The Commission then moved to transfer the bankruptcy proceeding to Massachusetts, where the company was headquartered and where the Commission had filed its enforcement proceeding.  Despite vehement objections by TelexFree, that effort was ultimately successful, and the appointment of an independent trustee, Mr. Darr, shortly followed.

TelexFree's founders, James Merrill and Carlos Wanzeler, were later indicted on criminal fraud charges, with Wanzeler currently a fugitive and believed to be in Brazil.  

Update

In the bankruptcy hearing, Darr disclosed that he had identified over 900,000 unique email accounts that were registered with TelexFree's program - of which over 90% were determined to have suffered an average loss of nearly $2,000.  The remaining approximately-68,000 email accounts were fortunate enough to profit from the scheme, although those profits were simply the redistribution of new investor funds as the VoIP business made little actual money.  Those "net winners," as they are commonly known in Ponzi parlance, made an average profit of over $20,000 - meaning that there is the possibility of over $1 billion in potential future clawback/avoidance actions. To put that figure in context, the number of Ponzi schemes in which losses surpassed $1 billion can likely be counted on one hand.  

Going forward, Darr indicated that he planned to schedule a meeting in the next few months to update TelexFree investors.  A creditors meeting, known as a 341 Meeting in bankruptcy parlance in reference to the specific section of the U.S. Bankruptcy code, is mandatory in bankruptcies and allows creditors to obtain testimony from a debtor under oath.  

To date, Darr disclosed that he had recovered approximately $16 million that would ultimately be returned to creditors.  One of the largest sources of recoveries in similar fraud cases is often through the institution of "clawback" or "avoidance" actions filed to recover funds from net winners or those who received transfers on the eve of an entity's collapse.  In this scenario, it is very likely that Darr will pursue those TelexFree net winners who profited most from the scheme, as well as the third-party entities that provided services to TelexFree or who may have facilitated or exacerbated the fraud.  It is expected that further details will emerge in the coming months.

Further Ponzitracker coverage of TelexFree is here.

Authorities Bust Craigslist Ponzi Scheme

Massachusetts securities regulators filed charges against an Alabama company and its principals alleging that the company targeted investors through the popular online classified website Craigslist and promised extraordinary returns of 100% in as little as 48 hours.  The Massachusetts Securities Division ("MSD") filed an administrative complaint against Premiere Asset Management, Inc. ("PAM"), as well as PAM principals and/or employees Gerald Lawler, Nicola Lawler, Mariam Williams, Claude L. Collins, Sr., and Patrik Granec, accusing the defendants of violating the Massachusetts Uniform Securities Act through the fraudulent and unregistered sale of securities.  The MSD is seeking a cease-and-desist order, a bar from future employment in the securities industry, restitution, and administrative fines.

According to the MSD, at least one Massachusetts resident - a public school teacher - responded to an advertisement on Craigslist.org in March 2014 which offered an investment opportunity with a return of 100% in as little as 48 hours.  After some back-and-forth, the investor wired $100,000 to an Alabama on the promise that PAM would provide a "tender cash credit and leverage of $200,000 USD..."  PAM represented that investor funds would be used for "purchase, sell and/or loan of banking instruments or securities and/or etc."  Several weeks later, the investor contacted PAM to inquire about the investment. PAM informed the investor that the investment had increased to $200,000, and the investor agreed to reinvest $145,000 of the amount while withdrawing the remaining $55,000.  PAM subsequently ceased contact with the investor.

An investigation by authorities revealed that PAM principals and associated individuals opened up several accounts at Regions Bank, including two bank accounts in the name of Premiere Asset Management that were subsequently closed by the bank.  An examination of pertinent banking activity showed that at least one other similar deposit of $100,000 was made - presumably representing an additional unidentified investor lured by the Craigslist advertisement.  The Complaint further discloses that PAM's website should have triggered warning bells given its generic and plagiarized language and representations.  

Red Flags Were Readily Apparent

A review of the communications between the investor and the unidentified PAM agent(s) offers a sobering lesson that despite the presence of numerous red flags - including at least one recognized by the identified investor - these concerns were ultimately dismissed.  These red flags included not only the exorbitant promised returns, but also the exchanges between the investor and purported PAM representatives.  For example, the first response received by the investor after responding to the Craigslist advertisement included the following description of the investment opportunity by a PAM agent:

The program is totally 100% secure under your sub accout (under your client) with most reputable bank in NY, bank of Melon [sic].  This is privilege not a need to be part of it."

The multiple spelling and grammatical errors should have raised concerns over the individual to whom the investor was contemplating handing over a significant portion of their wealth, and should have at least prompted further investigation.  These deficiencies were also apparent in an overview provided to investors describing the program, a portion of which provided that:

It appears the investor may have noticed these red flags, as a subsequent email to the unidentified PAM agent stated that:

My brother is my financial consultant...[h]e thinks [the money] will be gone if I give you the bank info...he said it looks like another scam from Craigslist.

Yet, despite taking the affirmative step of seeking advice from a knowledgeable and impartial third party, the investor decided to move forward with the investment and confided that the sum represented "all [of] my retirement money."  In response, the PAM agent reassured the investor that:

There is NO risk and you are with TRILLION dollar asset holding bank.  You don't need to be worry about anything!

Unfortunately, it appears that the investor's brother's concerns were well-founded.

A copy of the MSD's Complaint is below:

E 2014 0092 Administrative Complaint

July Trial Date For Cay Clubs Principals In Alleged $300 Million Ponzi Scheme

A July 2015 trial has been scheduled for a husband and wife accused of masterminding a massive $300 million real estate Ponzi scheme and facing multiple fraud and conspiracy counts.  Dave and Fred Davis Clark, Jr., a/k/a Dave Clark, 56, and Cristal R. Clark, a/k/a Cristal R. Coleman, face charges of bank fraud and conspiracy to commit bank fraud in connection with their operation of Cay Clubs, a Florida company that was accused by the Securities and Exchange Commission of operating a $300 million Ponzi scheme based on the sale of luxury timeshares.  If convicted, the Clarks could face up to thirty years in prison for each bank fraud charge. 

Cay Clubs operated from 2004 to 2008, marketing the offering and sale of interests in luxury resorts to be developed nationwide.  Fred Clark served as Cay Clubs' chief executive officer, while Cristal Clark was a managing member and served as the company's registered agent.  Through the purported purchase of dilapidated luxury resorts and the subsequent conversion into luxury resorts, Cay Clubs promised investors a steady income stream that included an upfront "leaseback" payment of 15% To 20%.  In total, the company was able to raise over $300 million from approximately 1,400 investors.

However, by 2006 the company lacked sufficient funds to carry through on the promises made to investors.  Instead of using funds to develop and refurbish the resorts, Cay Clubs used incoming investor funds to pay "leaseback" payments to existing investors in what authorities alleged was a classic example of a Ponzi scheme.  After an investigation that spanned several years, the Securities and Exchange Commission initiated a civil enforcement action in January 2013 against Cay Clubs and five of its executives, alleging that the company was nothing more than a giant Ponzi scheme.  However, the litigation came to an abrupt end in May 2014 when a Miami federal judge agreed with the accused defendants that the Commission had waited too long to bring charges and dismissed the case on statute of limitations grounds.  

Just weeks after the dismissal of the Commission's action, authorities unveiled criminal charges against Fred and Cristal Clark and coordinated their arrest and extradition from Honduras and Panama where they had previously been living.  The charges stemmed from the Clarks' operation of an unrelated scheme to siphon money from their operation of a series of pawn shops throughout the Caribbean. Authorities alleged that the pair used a series of bank accounts and shell companies previously used with Cay Clubs to steal funds from the pawn shops to sustain their lavish lifestyles abroad.  Several months later, authorities filed bank fraud charges related to the Clarks' interaction with lenders as part of their operation of Cay Clubs - a strategy seemingly designed to ensure the charges would withstand any statute of limitation challenges given that bank fraud carries a 10-year statute of limitations.  

In the wake of the charges against the Clarks related to their operation of Cay Clubs, authorities targeted former sales directors Barry Graham and Ricky Lynn Stokes and charged the pair with conspiracy to commit bank fraud.  The charges resulted in guilty pleas and identical five-year sentences, and each of the men could be called to testify at the Clarks' trial.  

A forensic analysis conducted by the government alleges that Cay Clubs evolved into a Ponzi scheme as early as April 2005, with $2 out of every $3 paid to investors allegedly coming from existing investors.  The forensic analysis also showed that the Clarks lived lavishly, including nearly $20 million in boat purchases and expenses, $5 million in aircraft expenses, and $3 million in personal credit card bills.  Fred Clark also allegedly spent over $3 million at a Bradenton golf and country club.