Former Lawmaker's Son-in-Law Gets Two Years For $6 Million Ponzi Scheme

The son-in-law of former New York politician Sheldon Silver will serve two years in federal prison for orchestrating a Ponzi scheme that duped several investors out of $6 million.  Marcello Trebitsch, 37, received the sentence after he pled guilty earlier this year to a single count of securities fraud.  In handing down the sentence, U.S. District Judge Vernon S. Broderick indicated that he departed from his original intent to sentence Trebitsch to a four-year term based on letters from friends and relatives extolling his contributions to society.  Trebitsch's sentence comes nearly one month after his father-in-law was convicted on federal corruption charges.

According to authorities, Trebitsch began soliciting investors in or around 2009 for Allese Capital, LLC ("Allese"), which Trebitsch touted as a successful investment fund that he operated with his wife.  Trebitsch, whose wife Michelle is a certified public accountant and is the daughter of Sheldon Silver, told potential investors that Allese employed a successful trading strategy through the day-trading of large cap stocks that resulted in annual returns ranging from 14% to 16%.  Trebitsch assured investors that little to none of their funds would remain invested in the market overnight, and also claimed that he cleared his trades through a major Wall Street investment bank that also had agreed to invest $50 million in Allese.  In total, Trebitsch raised at least $7 million - a majority of which was raised from a single victim.

After Trebitsch's largest investor requested a partial redemption of his investment in June 2014, Trebitsch ultimately disclosed through his attorney that he had experienced significant trading losses and that, after accounting for Trebitsch's $400,000 "fee," no money remained.  

The Complaint alleged that a forensic review of Trebitsch's bank accounts demonstrated that only a small portion of investor funds were used to engage in trading, and that Trebitsch suffered net trading losses.  A subsequent search warrant executed at Trebitsch's house apparently turned up a handwritten note that appeared to be authored by Trebitsch and stating that he "reckognize [sic] the tremendous pain along with financial," followed by the crossed-out word, "pain." 

Former Bank VP Gets 2.5 Years For Role In Rothstein Ponzi Scheme

A former TD Bank vice president was sentenced to serve thirty months in federal prison for his role in Scott Rothstein's $1.2 billion Ponzi scheme.  Frank Spinosa, 54, faced up to five years after previously pleading guilty to a single count of wire fraud conspiracy.  While prosecutors sought a 37-month sentence, U.S. District Judge Beth Bloom cited Spinosa's rough upbringing and the death of his first child as factors warranting a slight downward departure from that recommendation.  With the sentence, Spinosa becomes the 29th person sent to prison for their role in Rothstein's massive fraud.  Rothstein is currently serving a 50-year sentence at an undisclosed location due to his inclusion in the witness protection program.

Spinosa became involved with Rothstein when the former attorney 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.

Spinosa was ordered to report to federal prison no later than February 18, 2016.   

Other Ponzitracker coverage of the Rothstein scandal is here.

Cay Clubs Founder Convicted After Retrial

Less than four months after a Florida jury deadlocked on charges that a Florida man operated a $300 million Ponzi scheme, a second jury returned a guilty verdict on three counts of bank fraud, three counts of making false statements to a financial institution, and obstruction of an official investigation.  Fred Davis Clark, aka Dave Clark, was convicted for his role as CEO of Cay Clubs, which authorities have alleged was a massive $300 million Ponzi scheme disguised as a timeshare leasing venture that defrauded hundreds of investors.  An August 2015 trial resulted in a mistrial for Clark - and a acquittal of Clark's wife, Cristal Clark, of all charges. Authorities quickly announced their intention to retry Clark and handed down a superseding indictment outlining a slightly different theory.  Clark could face dozens of years in prison when sentenced February 25, 2016.

The Scheme

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 was alleged to have lacked sufficient funds to carry through on the promises made to investors.  Instead of using funds to develop and refurbish the resorts, Cay Clubs allegedly 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.  

Original Trial

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.  

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.

After a five-week trial earlier this summer, a federal jury deliberated for four days before acquitting Cristal Clark of all charges and deadlocking on the charges against Dave Clark. 

Superseding Indictment

Shortly after the mistrial, authorities handed down a superseding indictment that signaled a slight change in strategy.  While the previous indictment focused on the Clarks' alleged operation of a Ponzi scheme through Cay Clubs, the superseding indictment honed in on the insider transactions that were used to artificially inflate the unit prices and allegedly defraud the lending institutions.  The new indictment alleged that Clark would identify certain family members to act as "straw borrowers for loans that were used to purchase Cay Clubs units." These straw borrowers would prepare fraudulent loan applications, which included representations about the borrower's employment and income, designed to induce lenders to approve the extension of credit.  Clark and others also allegedly prepared fraudulent HUD-1 Statements in which they certified that the borrowers had made the required down payment and cash-to-close payments when, in reality, those payments were made by a Cay Clubs entity controlled by Dave Clark.  

The retrial began November 9th and lasted four weeks.  

The arrest likely marks the end of a circuitous civil and criminal prosecution of Cay Clubs and its former associates, as former Cay Clubs sales agents Ricky Lynn Stokes and Barry Graham were previously sentenced to a five-year term after entering into plea agreements with prosecutors.  Former Cay Clubs attorneys Scott Callahan and Charles Phoenix previously entered into immunity agreements in which they admitted to concealing information about Cay Clubs from lenders and agreed to provide assistance and testimony. 

A copy of the Superseding Indictment is below:

Former NBA Star Faces Sentencing For $7 Million Ponzi Scheme

Sentencing for a former NBA star convicted of a $7 million Ponzi scheme is scheduled to begin today in a Connecticut federal court.  Tate George, a former standout college and professional basketball player, was convicted on four counts of wire fraud by a federal jury more than two years ago.  George, who played professional basketball for the New Jersey Nets and Milwaukee Bucks, has successfully delayed his sentencing by nearly two years as he dismissed his former attorneys and chose to represent himself in the sentencing phase.  George faces a maximum prison sentence of twenty years, but federal sentencing guidelines will result in a lower recommended sentence.  The sentencing is expected to last two days. 

Beginning in 2005, George owned and operated The George Group ("TGG"), which solicited potential investors  based on promises it was a successful real estate development company that had a portfolio exceeding $500 million.  The company was said to specialize in commercial and residential development financing, and represented that investor funds would be safeguarded in an attorney escrow account.  In return for their investment, investors received promissory notes with varying terms reflecting their investment amount and length.  In total, George raised more than $7 million from investors - including some former professional athletes.

However, contrary to George's representations, TGG did not have $500 million under management and investor funds were not used to fund real estate development projects.  Rather, TGG had virtually no income-generating operations, and George used TGG to run a classic Ponzi scheme by using investor funds for a variety of unauthorized purposes that included the payment of principal and interest to existing investors.  George also used investor funds to sustain a lavish lifestyle that included throwing a Sweet 16 party for his daughter, the mortgage and extensive renovations on his New Jersey home (that has since been foreclosed), taxes to the IRS, and traffic tickets. George also spent $2,905 for a reality video about himself (a “sizzle reel” for “The Tate Show,” is available on YouTube).

After his conviction in October 2013, Tate lodged a series of unsuccessful post-trial motions arguing for his acquittal on various grounds and later gained court approval to represent himself.  Allegations also surfaced that Tate had sent correspondence while behind bars to some of his victims soliciting them to invest with him again. 

While George spent four years in the NBA, his most memorable playing moment arguably came on a buzzer-beater in the third round of the 1990 NCAA tournament:

SEC Wins Trial Against Utah Man Accused Of $100 Million Ponzi Scheme

The Securities and Exchange Commission has prevailed at trial against a Utah man it accused of operating a massive Ponzi scheme that raised $100 million from hundreds of investors.  After a trial in which neither defendant appeared or participated, U.S. District Judge Bruce S. Jenkins entered Findings of Fact and Conclusions of Law against Wayne Palmer, of West Jordan, Utah, and his company, National Note of of Utah, LLC ("National Note"), finding that (i) National Note as operated as a Ponzi scheme; (ii) Palmer's violations of federal securities laws were repeated and egregious; and (iii) Palmer acted willfully and has failed to acknowledge his wrongdoing.  Palmer and his cousin were indicted earlier this summer for their roles in the scheme, which likely explains Palmer's lack of participation in the Commission's trial.  

Palmer operated National Note of Utah ("National Note"), which he formed in 1992, and had worked in the real estate financing business since 1976. Palmer Martin joined National Note in 1993 and served various roles, including "Client Development Manager."  National Note purportedly purchased real estate loans and funded new loans, and also dabbled in other unrelated ventures such as flipping rental properties, operating a mint, and extracting precious metals. Palmer traveled across the country teaching real estate investment seminars, in which he offered investors two-to-five year investment opportunities that paid annual returns of 12%. Potential investors were told that their funds would be used to buy and sell mortgage notes, underwrite and make loans, or buy and sell real estate. In a brochure provided to investors, Palmer "guaranteed" "double digit returns" with "no worries about reductions in earnings," touted the reliability of the "monthly payments," and assured investors of the "safety of principle."   Between 1995 and 2012, National Note has raised over $140 million from at least 600 investors.

According to authorities, National Note took on the characteristics of a Ponzi scheme as early as 2004 when the majority of funds raised from investors were simply loaned to National Note affiliates. By 2009, over 90% of National Note's outstanding loans were to various affiliates. While Palmer represented that National Note was highly profitable, the indictment alleges that National Note and its affiliates never had net income or positive net equity from 2004 to 2012 sufficient to meet its investor obligations. Scheduled interest payments to National Note investors ceased in October 2011.

The Court's ruling, which came after the Commission presented argument, entered documents into evidence, and called witnesses, concluded that National Note raised more than $140 million from investors.  Of that amount, approximately $88.5 million was returned to investors in the form of interest payments or returns of principal, thus resulting in total investor losses of approximately $51.9 million.  The Court ordered National Note to disgorge $51.9 million of ill-gotten gains, to pay pre-judgment interest of $13.25 million, and to pay a civil monetary penalty of $900,000. As to Palmer, the Court ordered disgorgement of $1.4 million, pre-judgment interest of $359,264, and a civil monetary penalty of $1.05 million.  

The case is one of several high-profile alleged Ponzi schemes uncovered in Utah, which prompted a CNBC segment dubbing Utah as "Ponziland." Authorities point to the large Mormon population as a primary target for fraudsters in what is termed "affinity fraud," and efforts to combat this fraud, including a 2010 public service campaign aimed at educating citizens, have fallen short. Recently, Utah became the first state to pass legislation mandating the creation of a white collar crime registry that will feature a public database of offenders convicted of certain financial/securities crimes.  

The Court's Findings of Fact and Conclusions of Law are below:

11.30.2015 Trial Judgment Entered Against Wayne Palmer