North Carolina Bank Sued By Victims of $40 Million “Black Diamond” Ponzi Scheme

Four years after settling allegations by the U.S. Department of Justice that it turned “a blind eye to criminal conduct occurring under its nose,” a North Carolina bank is facing a lawsuit from victims of a $40 million Ponzi scheme who claim that the bank allowed the scheme to thrive.  CommunityOne Bank (“CommunityOne”), based in Asheboro, North Carolina, was named in a lawsuit filed by 30 victims of the “Black Diamond” Ponzi scheme which resulted in a 40-year federal prison term for its mastermind, Keith Simmons.  The lawsuit, which seeks recovery of the estimated $10 million in losses suffered by the 30 investors as well as punitive damages, alleges that CommunityOne failed to inform investors of Simmons’ fraudulent activity and conspired to violate the federal anti-racketeering law.  

Simmons operated Black Diamond, a foreign currency venture that touted potential investors with promises of extravagant returns and guaranteed results.  The scheme, which ran from 2007 to 2009, ultimately raised more than $35 million from hundreds of investors.  However, there were no lucrative foreign currency ventures, and Simmons instead simply used new investor funds to pay the outsized returns.  In addition, Simmons misappropriated millions of dollars for his own use, including the purchase of nearly $5 million in real estate, the formation of a real estate company, and the acquisition of an interest in an Extreme Fighting Championship venture.  Following Simmons’ arrest in 2009, nearly a dozen individuals - including Simmons - were subsequently sentenced for prison for varying terms for their role in the scheme.

From 2007 to 2009, Simmons conducted his scheme using a single bank account at CommunityOne, where he deposited approximately $35 million in investor funds.  During the same period, Simmons also caused withdrawals of roughly that same amount consisting of investor distributions and withdrawals for Simmons’ personal benefit.  While the bank’s systems flagged Simmons’ account on numerous occasions for potentially fraudulent or suspicious activity, the bank did not take any action or close Simmons’ accounts until his arrest in 2009.  Banks like CommunityOne were required to institute and enforce policies aimed at money laundering and potentially fraudulent activity pursuant to the Bank Secrecy Act, which includes a requirement mandating the filing of a Suspicious Activity Report (“SAR”) for certain potentially illegal activities.  

In 2011, the Department of Justice announced that CommunityOne had agreed to settle charges that it had failed to maintain an effective anti-money laundering program, which included allegations that the bank failed to file required SARs related to Simmons’ banking relationship.  The bank entered into a deferred prosecution agreement ("DPA") with the government, under which the bank, after paying $400,000 in restitution to the victims of Simmons' scheme, was able to have the criminal charges dismissed after two years.  According to Justice Department officials, CommunityOne failed to file a single SAR relating to Simmons’ banking relationship despite the fact that the bank’s computer software had continually flagged Simmons’ accounts for potential wrongdoing. Those same prosecutors noted that other banks had terminated the accounts of hedge fund managers who acted as “feeder funds” to Simmons’ scheme. The then-acting U.S. Attorney for the Western District of North Carolina, Anne Tompkins, remarked that

This bank’s failure to detect and report a ponzi scheme cost it 16 percent of its value.  Other financial institutions should heed this warning:  the Bank Secrecy Act applies to more than just drug and terrorist financing.”

While the investors bringing the suit against CommunityOne reportedly recouped a portion of their losses in the $400,000 settlement paid by CommunityOne, their attorney indicated that the vast majority of their losses remain outstanding.

Hollywood Filmmaker Charged With $21 Million Ponzi Scheme

A California man and woman were arrested by authorities on charges that they masterminded a $21 million Ponzi scheme that pitched large returns in exchange for financing movie productions.  Michelle Kenen Seward, 42, and Dror Soref, 75, were arrested by authorities with the California Department of Insurance last week.  According to arrest records, Soref is being held on $2.7 million bail pending a September 28th court appearance.

Soref is an award-winning Hollywood filmmaker who once directed videos for comedian Weird Al Yankovic. Seward was previously licensed to sell insurance, which she sold through her entities Protege Financial and Insurance Services Inc. ("Protege") and Saxe-Coburg Insurance Solutions LLC ("Saxe-Corburg").  According to authorities, Seward solicited clients and potential investors - most of whom were elderly retirees - with the promise of outsized annual returns purportedly realized from the financing of movies produced by Soref.  This included urging clients and potential investors to surrender annuities and other savings, as well as obtain home equity loans, in order to fund the investments.  Potential investors were told their investment was safe and guaranteed and that it “was not a Ponzi scheme.” 

Beginning in 2007, investors were solicited to finance production of the film "Not Forgotten," for which they were promised annual returns ranging from 10% to 18%.  However, "Not Forgotten" did not attain the success Soref envisioned, and ultimately netted approximately $50,000 from the box office.  Yet, despite the film's meager returns, Soref and Seward continued to solicit investors for a company they co-founded named Windsor Pictures, LLC ("Windsor").  While those making investments in Windsor were told that their funds would be used to finance future productions, authorities allege that those funds were instead diverted to pay the returns previously promised to "Not Forgotten" investors - a classic hallmark of a Ponzi scheme.  Ultimately, authorities estimate that at least 140 victims invested over $21 million with Soref and Steward.  

The California Commissioner of Business Oversight previously brought civil charges in 2012 against Soref, Steward, and their entities.  Following those defendants failure to answer or defend the allegations, a default judgment was entered in 2014 ordering the defendants to pay $23 million in restitution and $15 million in civil penalties.  

Perhaps surprisingly, this is not the first alleged Ponzi scheme centered around a filmmaking or production venture.  For example, Georgia authorities arrested several individuals in 2011 on charges that their animation studio was a $2.1 million Ponzi scheme.  More recently, a California man was sentenced to a 27-year prison term after being convicted of running a $11 million Ponzi scheme that promised exorbitant returns to investors from the production of independent movies.  

Three Charged With $54 Million "Green Energy" Ponzi Scheme

Nearly six years after the Securities and Exchange Commission brought civil fraud charges, federal authorities filed criminal charges against three people for operating a $54 million Ponzi scheme touting "green energy" and "carbon-negative" technologies.  Troy Wragg, 34, of Georgia, Amanda Knorr, 32, of Pennsylvania, and Wayde McKelvy, of Colorado, were charged in an unsealed indictment for their former role with Mantria Corp. ("Mantria").  Each of the three defendants was charged with one count of wire fraud conspiracy, seven counts of wire fraud, conspiracy to commit securities fraud, and securities fraud.  If convicted of all charges, each defendant could face dozens of years in prison.

Mantria was formed in mid-2005 by co-founders Tony Wragg and Amanda Knorr.  Mantria touted itself as a vast conglomerate comprised of 11 operating divisions, at least 32 wholly-owned or affiliated companies, and other related entities that, in total, brought in lucrative profits.  Wayde McKelvy operated Speed of Wealth, LLC ("SOW") and Retirement TRACS, LLC ("RT"), which heavily advertised to the public and hosted investor seminars in Colorado, Las Vegas, and other cities to solicit investors for Mantria.  Neither Wragg, Knorr, or McKelvy were licensed to sell securities.  Initially, Mantria began partial development of a Tennessee real estate development, building roads, a model home, and an entrance gateway to give the appearance of progress to investors.  After those plans fizzled out, Mantria turned to the manufacture of "biochar," a charcoal-like product made from organic waste.  In promotional materials distributed by Mantria's financial arm, potential investors were told they could expect 450% returns from Mantria's bio-char activities and eventual public offering. 

At events hosted by McKelvy, which included live, internet, and radio presentations that even once included a cameo from former NFL quarterback John Elway, investors were first told that McKelvy would teach them the secrets of wealth - which started with McKelvy urging investors to first liquidate their "traditional investments" that included their retirement accounts and 401(k) plans.  McKelvy then encouraged potential investors to borrow as much as possible against both their home equity and their parents' home equity, as well as to tap their business line of credit.  After doing so, McKelvy recommended that those investors entrust those funds to the consistent and safe investments offered by Mantria.  The following are statements made by McKelvy at a seminar in May 2009 as alleged in the complaint filed by the Securities and Exchange Commission:

''Number one,  you must quit following the herd and never, ever expect to build wealth by investing in mutual funds, CDs, money market, bonds, or qualified retirement accounts, such as a 401(k) plan, which is exactly where all you guys are investing. You will not get wealthy. You'll go straight to the poor house. I'll prove that to you in a moment."

"[w]hat do we always hear, students? It's too good to be true, right? All the time, it's too good to be true. It's a Ponzi scheme. No, guys, you need to understand the truth about guarantees and collateral. We'll go over that tonight."

"So here's what I'm telling you to do, guys. Gotake your equity out, because you're an A lender, you can borrow 6 percent or less today. Go loan it out at 17 percent. Create arbitrage. That's how you get rich. That's it. Troy [Wragg] is going to be talking to you about an opportunity to make phenomenal returns collateralized by real estate, in the second half."

Through various offerings, Mantria raised at least $54 million from over 300 investors.

However, the Department of Justice now alleges that Mantria was nothing more than a massive Ponzi scheme which "grossly overstat[ed] the financial success of Mantria and promis[ed] excessive returns."  Despite claims that Mantria was pulling in lucrative returns, authorities charge that Mantria had "virtually no earnings, no profits, and was merely using new investor money to repay earlier investors."  Similarly, Mantria's claims that they were producing large quantities of "biochar" and had significant pre-orders are also claimed to be false.  Authorities estimate that Mantria investors ultimately suffered at least $37 million in losses.

Knorr, Wragg, McKelvy, and McKelvy's wife, Donna McKelvy, were the subject of a 2009 emergency enforcement action filed by the Securities and Exchange Commission.  The Commission ultimately obtained judgments against the four totaling over $130 million and consisting of disgorgement, civil penalties, and prejudgment interest.  Lawyers representing Mantria victims reached a $6 million settlement last year with a lawyer and accountant who provided services to the scheme. 

A Mantria promotional video is still available on Youtube:

A copy of the indictment is below:

Indictment - Mantriaetal

Bar Owner Liable For Promoting $18 Million Ponzi Scheme

A Texas federal judge has ruled that a California bar owner who solicited investors for a suspected $18 million oil and gas Ponzi scheme is liable for nearly $400,000 in civil penalties, interest, and disgorgement stemming from the lucrative commissions he received.  Roland Barrera, the owner of a nightclub and speakeasy in Costa Mesa, California, was ordered to pay the amount after U.S. Magistrate Judge Mark Lane granted summary judgment to the Securities and Exchange Commission in an ongoing suit brought in December 2013 to halt the scheme allegedly perpetrated by Robert Helms and Janniece Kaelin.  The decision by the Commission to include promoters of the alleged scheme, while not unprecedented, is rare amid a flurry of enforcement actions brought to combat suspected oil-and-gas frauds.

According to the complaint filed by the Commission, Helms and Kaelin began soliciting investors in 2011 for Vendetta Royalty Partners ("VRP"), a limited partnership they controlled.  Formed in 2009, VRP initially acquired oil-and-gas royalty interests from another limited partnership the two men controlled.  However, beginning in 2011, VRP filed documents with the Commission seeking to raise $50 million through the sale of limited-partnership interests.  In offering documents, potential investors were told that (1) 99% of the raised proceeds would be used to purchase oil-and-gas royalty interests, (2) that Helms had extensive experience in the oil-and-gas industry, (3) that investors would receive periodic reports on VRP's progress, and (4) no legal proceedings were pending against the company.  Potential investors were told to expect a return ranging from 150% - 200% in just several months.  In total, approximately $18 million was raised from nearly 100 investors in a dozen states.  This included a $3 million investment solicited by Barrera and another defendant, Deven Sellers, from a California investor who was told that he could realize outsized returns and that Sellers and Barrera would only receive a small commission from his investment.  In reality, Sellers and Barrera pocketed nearly $400,000 in commissions off that investment. 

However, VRP did not achieve the profitable returns promised by Helms and Kaelin.  Indeed, rather than invest 99% of raised offering proceeds in oil-and-gas royalty interests, only 10% was in fact invested as advertised.  These investments generated de minimus returns.  The representations made to investors were also false.  Helms did not have 10 years of experience in the oil-and-gas industry; rather, his sole experience came from operating VRP.   Investors were never provided with periodic progress reports, and were not informed of significant pending litigation against VRP by an existing investor accusing the company of fraud.  Instead, nearly $6 million was paid to existing investors in the form of "income distributions" that was, in reality, funds from new investors in a classic example of a Ponzi scheme.  Millions of dollars were also allegedly misappropriated by Helms and Kaelin for their own personal benefit.

According to Bizjournals, summary judgment was also entered against the scheme principals Helms and Kaelin.

The SEC's Complaint is below:

comp-pr2013-256 by jmaglich1

Alleged Schemer Wins Request For Victim Tax Returns; Government Objects

Both federal prosecutors and a defrauded victim are fighting a court order requiring the government to provide a Las Vegas man on trial for allegedly masterminding a $190 million Ponzi scheme with copies of the last ten years of tax returns for the scheme's wealthiest victims.  Ramon Desage, 64, was arrested back in June 2012 and is currently awaiting trial on 52 charges including 19 counts of wire fraud and 28 counts of money laundering. Recently, his lawyers successfully petitioned the presiding magistrate judge to order the government to produce tax returns for several wealthy victims and their spouses on the basis that the failure to claim any scheme proceeds could serve as the basis for impeachment at trial.  This week, both the government and one of the affected victims have filed papers challenging that ruling as error.

Desage was arrested in mid-2012 on a complaint by the Internal Revenue Service that he used his company, Cadeau Express, to defraud investors out of at least $75 million in an elaborate Ponzi scheme.  That company, whose website is still active, describes itself as a "unique company that caters to hotels and casinos who roll out the red carpet for selective guests and high-end gamblers."  The IRS alleged that Desage and Cadeau Express defrauded at least four wealthy investors, using some of these funds to pay off over $20 million of gambling debts owed by DeSage.  While the IRS initially alleged that Desage defrauded investors out of at least $75 million, a subsequent indictment levied dozens of additional charges and pegged the amount of victim losses as at least $190 million.  Desage was also accused of failing to report nearly $90 million in income from the Internal Revenue Service from 2006 to 2009.

In June, Desage filed a "Motion for Discovery of Tax Returns," seeking the production of tax returns for four wealthy victims named in his indictment as well as for those victims' spouses and business partners.  Arguing that the returns, which are normally considered confidential, Desage stated:

Mr. Desage expects that Mr. Richardson's, Mr. Vechery's and Mr. Foonberg's personal and corporate tax returns will show that they did not take into account their receipts of cash from Mr. Desage.  These omissions from their tax returns will constitute significant impeachment material regarding the credibility of these alleged victims.  Thus, the tax returns are crucial to Mr. Desage's defense that he did not defraud investors/lenders.

While the government opposed Desage's motion, Magistrate Judge Fehrenbach entered an order on August 13, 2015 granting the request and concluding that Desage's efforts were not a fishing expedition and that he had made a plausible showing that the tax records were favorable to his defense.  In so finding, the Court cited the government's obligation under Giglio v. United States to disclose potential impeachment evidence to the defense.

The government filed an objection today to Magistrate Judge Fehrenbach's order.   The government asserted that Magistrate Judge Fehrenbach's Order was "clearly erroneous," first taking issue with the finding that Desage's "plausible" showing justified production of the tax returns.  Rather, the government argued that Desage was required to, and failed to, articulate "specific facts, beyond allegations, relating to materiality."  Next, the government argued that the tax returns did not constitute impeachment evidence under Giglio, noting that the materiality requirement of such evidence again doomed such an effort.  Finally, the government argued that the tax returns were not favorable to Desage's defense since any cash payments were simply the return of funds previously stolen by Desage.

Notably, an objection was also filed by victim William Richardson, who invested over $50 million with Desage of which over $30 million remains outstanding.  In that objection, Mr. Richardson cited to the Crime Victims Rights Act ("CVRA"), a 2004 "broad and encompassing" law that sought to create "enforce[able] rights" for victims.  In providing a list of eight rights to crime victims, the first right listed was the "right to be reasonably protected from the accused."  The objection first noted that while the indictment only alleged that Mr. Desage had committed wire fraud against Mr. Richardson for the years 2011-2012, the Order erroneously required production of Mr. Richardson's tax returns for the remaining years during the 2005 - 2014 period.  Next, the objection argued that any distributions received from Desage during those years were not reportable income, as supported by a letter from Mr. Richardson's accountant, and thus were not required to be reported on the relevant tax returns.  In short, Mr. Richardson argued, like the government, that his tax returns were not "material" and thus should not be produced. 

As prosecutors noted, allowing Desage's request would be akin to a "rank fishing expedition that puts the victims' sensitive financial data in the hands of the defendant, effectively victimizing them a second time."

Copies of Desage's Motion, the Order, and the Government's objection are below:

Motion for Production of Tax Returns

Order Granting Motion for Tax Returns

US objection to order allowing tax returns.pdf