Colorado Woman Charged With $7 Million "Triple Algorithm" Ponzi Scheme

North Carolina authorities have filed criminal charges against a Colorado woman on allegations that she operated a massive Ponzi scheme that duped over 10,000 victims out of at least $7 million under the guise that a "lifetime income plan" could deliver annual gains exceeding 700%.  Kristine L. Johnson, of Aurora, Colorado, was charged with one count of wire fraud conspiracy in an information filed in the Western District of North Carolina.  Johnson has agreed to plead guilty to the charge, and could face up to twenty years in prison.

Johnson and Troy Barnes, of Riverview, Michigan, operated Work With Troy Barnes Inc. ("WWTB"), which was subsequently rebranded as "The Achieve Community" ("Achieve") in April 2014.  Johnson served as CFO of WWTB and Achieve and was responsible for day-to-day activities.  Achieve solicited investors to purchase "positions" costing $50 each that in turn promised a pay-out of $400 per position in the subsequent three-to-six month period - a return of 700% and an annualized return exceeding 1000%. In a short video on Achieve's website, Johnson touted Achieve as a "lifetime income plan," and explained:

How are we a lifetime income plan? It’s simple. Every $50 position you purchase, you make $400. With two positions, you make $800. With five positions, you make $2,000. Want to go bigger? With twenty positions, you make $8,000. With one hundred positions, you make $40,000. This is limitless.

Barnes made similar claims, narrating a different Achieve video claiming that Achieve “will teach you how to take $50 and turn it into thousands of dollars, and that’s a fact.”  Investors that questioned Achieve's ability to pay such exorbitant returns were assured that Achieve utilized a "triple algorithm" and "matrix" created by Johnson and Barnes.  Johnson attempted to explain the "3-D matrix" as follows:

I thought, what can I do, what can I make, what can I design, that has only what works and none of what doesn’t, and one day, honestly this is what happened, I just saw it. I just saw it in my head. This matrix is 3D, which is why we can’t put it on paper. It’s a triple algorithm. And I can’t for the life of me tell you why I could figure that out in my head. But I could.

Investors were encouraged to re-invest their returns, with Barnes assuring investors that such a strategy would make it "very easy to make six figures."  In total, Achieve took in at least $6.8 million from investors.

However, despite its claims that it was "not a pyramid scheme," both civil and criminal authorities alleged that Achieve was a pure Ponzi and pyramid scheme.  For example, Achieve's sole source of revenue allegedly originated from investor contributions.  Nor were any profits derived from legitimate business activities; rather, Achieve used funds contributed from new investors to make principal and interest payments to existing investors.  Johnson admitted to taking more than $200,000 in investor funds for her own personal use.  

Despite Barnes' prominent role in the suit filed by the Securities and Exchange Commission, he is named in the criminal information only as an unindicted co-conspirator, suggesting that he may have cooperated with authorities.  

The criminal charging document filed against Johnson is below.  Special thanks to Don at ASDUpdates.

Doc 1 (6) by jmaglich1

Supreme Court Deals $4 Billion Blow To Madoff Recovery Efforts

The Supreme Court refused to consider an appeal brought by the court-appointed bankruptcy responsible for recovering assets for Bernard Madoff's massive Ponzi scheme, instead leaving intact an appellate decision that prevents the recovery of "false profits" by Madoff profiteers beyond the two-year period preceding the collapse of Madoff's scheme.  Irving Picard, the court-appointed trustee, had estimated that an adverse ruling could result in the inability to recover an additional $4 billion for the benefit of the thousands ensnared by Madoff's historic fraud.  Picard's efforts have already resulted in the recovery of nearly $11 billion for victims, with an additional $4 billion recovered through government settlements set to be distributed through a more expansive claims process.  The decision will have no effect on the funds recovered to date.

One of the principal sources of recoveries in the aftermath of a collapsed Ponzi scheme is those investors who were fortunate enough not only to realize a recovery of their invested principal but also some form of profits.  While characterized as interest or returns, the operation of a Ponzi scheme meant that those profits were nothing more than the redistribution of funds raised from other newer investors.  A bankruptcy trustee is able to utilize avoidance powers under the U.S. Bankruptcy Code as well as fraudulent transfer claims under state law, often with the ability to recover prejudgment interest from the time of the transfer.  Picard has brought hundreds of such suits, known as clawback suits, since his appointment with significant success - including a $7 billion settlement with the estate of Jeffry Picower, a close friend of Madoff's and early investor. Picard's success prompted many to settle with Picard for all or a majority of the illicit funds they received from the scheme.

However, a federal bankruptcy judge ruled in 2011 that several executives with the New York Mets baseball team could only be held liable for transfers they received in the two years preceding the collapse of Madoff's scheme, citing the "safe harbor" provision codified in section 546(e) of the Bankruptcy Code.  In relevant part, that section provides:

Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b)…, the trustee may not avoid a transfer that is a … settlement payment … made by or to (or for the benefit of) a … stockbroker … or that is a transfer made by or to (or for the benefit of) a … stockbroker … in connection with a securities contract…, except under section 548(a)(1)(A). 

Both U.S. District Judge Jed S. Rakoff, as well as the U.S. Court of Appeals for the Second Circuit, concluded that Section 546(e) applied to the situation present in the Madoff suits: the Madoff account documents qualified as a securities contract, customer distributions were made in connection with that "securities contract," and those distributions also qualified as settlement payments.   As Judge Rakoff concluded, Section 546(e) covers an extremely broad definition of "settlement payments", and "clearly includes all payments made by Madoff Securities to its customers."  Thus, by its "literal language," the Bankruptcy Code prohibits Picard from bringing any clawback action against Madoff customers except those paid in the case of actual fraud.  The Second Circuit affirmed Judge Rakoff's ruling in December 2014.

Picard's legal team has estimated that upholding the Second Circuit's decision could prevent the recovery of more than $4 billion - consisting of approximately $2 billion in direct recoveries and complicating efforts to seek an additional $2 billion.  

Key Player In $150 Million Ponzi Scheme Gets 1-Day Sentence

A California man accused of being a key player in a $150 million Ponzi scheme - allegedly the largest scheme ever uncovered in Orange County, California - will spend one day in jail for his role despite once facing over thirty felony charges.  Adam Jay Boskovich, 45, received the sentence after a California judge agreed to reduce his felony conviction to a misdemeanor following the payment of restitution to defrauded investors.  Prosecutors cited "serious statute of limitations issues" as well as victims' refusal to cooperate in justifying the decision.  Boskovich could have faced up to 45 years in prison had he been convicted of the original charges.

According to authorities, Gerald Frank Cellette masterminded a massive Ponzi scheme while living in Minnesota.  Cellette used his company, Minnesota Print Services ("MPI") to solicit potential investors by promising annual returns ranging from 10% to 15% purportedly derived from lucrative printing contracts between MPI and major companies.  Investors were provided with various documentation allegedly proving the scheme's legitimacy, such as "deal sheets" evidencing the contracts between MPI and its clients.  After Cellette sold an investment in MPI to an Orange County man in 2005, that individual informed others, including Boskovich, of the investment opportunity.   

Boskovich later formed a company called Center-Point Capital ("CPC") to solicit potential investors.  Authorities alleged that Boskovich also went one step further by essentially conducting his own scheme by making misrepresentations or omissions to investors to solicit larger investments, including that he had personally examined Cellette's operations, contracts, and insurance policies in an effort to soothe any concerns over the scheme's legitimacy.   Cellette's scheme ultimately took in more than $200 million nationwide - including $150 million from Orange County residents.  While Orange County residents ultimately incurred losses of approximately $21 million, the investors recruited by Boskovich comprised over $17 million of that amount.

Boskovich was charged in October 2013 with 32 felony counts and accused of being a key player in Cellette's scheme.  Last month, Boskovich agreed to plead guilty to one felony count of making false statements in the sale or purchase of securities, with a top Orange County prosecutor explaining that the decision to agree to such a plea deal was made in the face of "serious" statute of limitations issues and testimony by potential victims during preliminary hearings that they would not cooperate with authorities out of a fear of jeopardizing potential restitution.  Those investors had reached a confidential settlement with Boskovich in a civil lawsuit, the terms of which allowed Boskovich to reduce his conviction from a felony to a misdemeanor in the event he fully repaid investors by May 19.  Boskovich's sentence reduction followed after he was able to satisfy the terms of the civil settlement.  

Cellette is currently awaiting trial on 116 felony counts, including 46 counts of selling unregistered securities, 43 counts of money laundering, and 27 counts of using a false statement in the purchase and sale of a security.  If convicted of all charges, Cellette could be sentenced to up to 104 years in prison.

Texas Man Charged With $4.5 Million Oil-And-Gas Ponzi Scheme

A Texas man is facing criminal charges on allegations that he ran a $4.5 million Ponzi scheme through the sale of purported interests in oil and gas wells.  William Allen Risinger was charged with three counts of wire fraud and one count of money laundering in an indictment that was filed in May 2015 but only recently unsealed following Risinger's arrest.  The wire fraud charges carry a maximum 20-year term per count while the money laundering charge carries a maximum 10-year prison term.  Risinger is currently free on a $50,000 bond. 

According to the indictment, Risinger formed RHM Exploration in November 2010.  Risinger solicited potential investors through the sale of interests in various oil and/or gas wells.  For example, investors were given the opportunity to purchase units in the RHM-Sinton Joint Venture (the "SJ Venture") from December 2010 to August 2012.  Investors were told that the SJ Venture would sell ten units for $60,000 each, with RHM purchasing one unit and the remaining nine units available for purchase by investors.  Investors were further promised that funds would be kept in an account at JP Morgan, that they would be used as described in offering documents, and that none of the funds would be used to pay sales commissions. 

However, RHM never purchased an investment unit in the SJ Venture.  Instead, RHM sold over 20 investment units to investors, resulting in the receipt of over $1.2 million and thus diluting the membership interest promised to potential investors.  RHM also allegedly used funds for unauthorized purposes, including making Ponzi-style payments to existing investors and the payment of sales commissions.  As the funds were not used as promised, a lien was ultimately filed - but not disclosed to RHM investors - against the mineral lease purportedly at the center of the investment. The Indictment alleged that similar misrepresentations and omissions were made in connection with several other mineral lease offerings.  Risinger ultimately raised over $4 million from several dozen investors. 

The government indicated in the indictment that it is seeking the forfeiture of a residence in Round Rock, Texas, multiple bank and brokerage accounts, and even a 4-seat Cessna airplane.  A copy of the indictment is below:

Risinger Indict

MLM Law Firm Pays $1.175 Million To Settle Zeek Receiver's Lawsuit

A law firm that touts itself as the "premier law firm servicing the direct sales industry" has agreed to pay over $1 million to settle charges that it played an "indispensable role" in the massive ZeekRewards Ponzi scheme that defrauded thousands of investors out of hundreds of millions of dollars.  The court-appointed receiver tasked with recovering assets for defrauded victims, Kenneth Bell, has sought court approval of a $1.175 million settlement reached with Kevin D. Grimes and his law firm, Grimes & Reese P.L.L.C. ("G&R").  If approved, the settlement will be added to the over-$300 million recovered by Bell that will ultimately be distributed to victims. 

ZeekRewards was an online penny auction website that attracted users at an exponential pace due to a lucrative investment program that promised annual returns exceeding 200% and provided recruitment-based incentives to participants..  The program, masterminded by Paul Burks, attracted over one million participants before the Securities and Exchange Commission filed an emergency enforcement action in August 2012 alleging the venture was a massive Ponzi and pyramid scheme.  Following Bell's appointment, his subsequent investigation revealed that over 700,000 participants suffered collective losses exceeding $700 million.

Grimes is a well-known attorney in the multi-level-marketing arena, operating www.mlmlaw.com and touting his firm as the "premier law firm servicing the direct sales industry."  According to Bell, Grimes served as counsel to Zeek beginning no later than January 2012 up to August 2012 when the Commission's enforcement action was filed.  According to the complaint filed by Bell, Grimes was allegedly aware that Zeek was a Pyramid/Ponzi scheme and that investors were being rewarded solely for the recruitment of new investors without any regard to any efforts to sell any products.  Despite this alleged knowledge, Grimes was accused of creating a "compliance course" specifically designed to encourage investors and potential investors that completion of such a course somehow bestowed an air of legitimacy to the scheme.  Bell alleged that Zeek required completion of this course, for which it charged each affiliate $30 - of which $5 was paid to Grimes.   

Bell also alleged that Grimes, a well-known figure in the multi-level marketing world, knowingly allowed Zeek to use his association with the company as an implicit endorsement of the company's legitimacy in order to attract more investors.  This not only included Grimes' participation in Zeek conference calls with investors, but the use of his name in marketing and promotional materials disseminated to prospective investors.  

Bell sued Grimes and G&R last year and sought over $100 million in damages.  The parties participated in a mediation earlier this year, which resulted in subsequent settlement discussions that ultimately resulted in the $1.175 million settlement.  In the motion seeking approval of the settlement, the Receiver cited the complexity of the litigation and the potential difficulty of settlement as reasons weighing in favor of approval of the settlement.  The Court approved the settlement earlier this week.

The Motion for Approval of Settlement is below.  Thanks to ASDUpdates for their coverage of the scheme.  

34-main