Connecticut Investment Adviser Arrested For $10 Million Ponzi Scheme

A Connecticut senior citizen and investment adviser is facing multiple federal fraud charges on allegations that he used his financial services firm to conduct a Ponzi scheme that took in at least $10 million from clients over 20 years. James Booth, 74, was arrested yesterday morning on one charge of wire fraud, one charge of securities fraud, and one count of investment adviser fraud, and is also the subject of an enforcement action filed by the Securities and Exchange Commission.

Booth, who has been in the securities industry for nearly 30 years, was the founder and operator of Booth Financial Associates (“Booth Financial”) where he provided advisory services and sold insurance products to clients. Booth was also affiliated with several broker-dealers as a registered representative and investment advisor, most recently being affiliated with LPL Financial from February 2018 to June 2019 after previously being at Invest Financial Corporation December 2005 to February 2018. While serving as a registered representative and investment adviser and using Invest Financial’s trading platform, Booth allegedly solicited Booth Financial clients to invest in outside opportunities through a company, Insurance Trends, Inc., that he controlled. In doing so, Booth purportedly told potential clients that he could achieve larger returns for them through Insurance Trends and encouraged them to invest their inheritances, retirement savings, and children’s college funds.

Clients that invested with Booth were provided with account statements showing positions in securities that Booth had promised would be purchased with funds invested with Insurance Trends. These statements included details about those securities, including cost basis, total gains, and returns. In total, Booth convinced clients to invest over $10 million with him and Insurance Trends from 1999 to the present.

LPL Financial, Booth’s then-current broker-dealer, made an unannounced onsite office in May 2019 in part stemming from complaints by former Booth clients about difficulties in transferring their assets to a new investment adviser. After LPL officials reviewed Insurance Trend bank statements and raised questions about the company, Booth allegedly confessed to running a Ponzi scheme for the last 20 years and to having stolen from $4 million to $10 million from clients. Booth also admitted that he had fabricated account statements that had been provided to clients during the scheme. LPL subsequently terminated Booth’s association with the firm the next day, and Booth later submitted a written response to a regulatory inquiry by the Financial Industry Regulatory Authority confessing to operating a Ponzi scheme and stealing client funds. Booth has since been barred from the financial industry.

Booth’s ownership and association with Insurance Trends constituted an outside business activity under regulatory rules and thus he was required to both disclose and gain approval of that OBA while he was associated with a broker-dealer. That disclosure in turn obligates the associated broker-dealer to supervise the registered representative’s OBA with the goal of preventing situations like Booth’s where client funds are misappropriated through fraudulent means. In reviewing Booth’s FINRA BrokerCheck, it appears that Insurance Trends was not listed in the “Other Business Activities” section and thus it remains unknown whether Booth sought to concela his association from Invest, LPL, and other broker-dealers with whom he was associated during the duration of the Ponzi scheme.

A copy of the SEC’s Complaint is below:

SEC: Colorado Man Ran "Massive" Cattle-Flipping Ponzi Scheme That Funded Weed Business

In what astonishingly is not the first or second time this blog has covered bovine fraud, a Colorado man has been sued by the Securities and Exchange Commission for operating a “massive cattle-flipping” Ponzi scheme that took in tens of millions of dollars from investors and was used to, among other things, fund a marijuana business. Mark Ray, along with several business he operated, was charged with violating federal securities laws in a complaint filed in a Denver federal court. Two other individuals, Reva Stanchniw and Ron Throgmartin, were also named and accused of aiding and abetting Ray’s fraud. The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, and imposition of civil monetary penalties.

Ray, a 59-year old Denver resident, operated multiple companies including Custom Consulting and Product Services, LLC, RM Farm and Livestock, LLC, MR Cattle Production Services, LLC, Sunshine Enterprises, Universal Herbs, LLC, and DBC Limited, LLC (the “Ponzi Businesses”). Beginning in 2014, Ray began soliciting potential investors for his various cattle-trading and state-licensed marijuana business, promising sky-high returns of 10% - 20% in the span of just a few weeks. Potential investors in the cattle-trading venture were told that Ray would purchase specific commercial cattle from a particular ranch, with Ray often telling investors which feed lot their cattle would be sent to for fattening. Other investors were told that their returns would come from Ray’s profitable state-licensed marijuana business, Universal Herbs, while yet other investors simply invested via promissory notes carrying high promised rates of return. At the height of Ray’s scheme, alleged the SEC, more than $140 million per month moved through the Ponzi Businesses’ various accounts.

The SEC alleged that Ray’s scheme was “substantially assisted” by Stachniw and Throgmartin. For example, Stachniw used her ownership of RM Farm and Sunshine Enterprises to allow Ray free reign over the companies’ bank accounts. Stachniw would then sign stacks of blank checks to be used by Ray and his employees and also made wire transfers at Ray’s direction. As owner of RM Farm, Stachniw also signed promissory notes in favor of investors and was “reckless” at best in allegedly not knowing that significant portions of funds deposited into RM Farm’s bank accounts came from Ray’s investors. Similarly, Throgmartin assisted Ray by tracking investor contributions and communicating with investors about the status of their investments. Throgmartin also was the primary craftsman of the various documents used by Ray to perpetrate his scheme, preparing invoices and promissory notes that were sent to memorialize investor contributions. This even included Thromartin communicating with a bank president concerned with the flow of funds in the RM Farm bank account that ultimately resulted in Throgmartin purportedly sending a false cattle inventory to the bank president.

As the SEC alleges, Ray was running a massive Ponzi scheme that used new investor funds to pay fictitious returns to existing investors and also misappropriated investor funds for his own personal use. According to the Complaint, “tens of millions of dollars’ worth of investor money is missing and unaccounted for” which is further complicated by Ray’s apparently lack of records of the various cattle transactions he claimed to make and his failure to maintain adequate records to trace the flow of investor funds. Ray also allegedly “extensively commingled” the assets of the Ponzi Businesses with Universal Herbs, which operates two licensed retail marijuana locations in Denver as well as a separate marijuana production facility.

Amazingly, this is at least the third time that Ponzitracker has covered allegations of cattle being used in a Ponzi scheme. For example, a June 2011 story recounted the guilty plea from a Missouri man who copped to defrauding investors out of at least $8 million in a cattle purchasing business that falsely claimed ownership of over 6,000 cattle. Another story two years later covered the arrests of several Japanese citizens in a $4.2 billion bankruptcy involving promises of steady returns from a "wagyu beef ownership system."

The SEC’s Complaint is below:

Florida Brothers Plead Guilty To $7 Million Silver Ponzi Scheme

Two Florida brothers have pleaded guilty to federal fraud charges for operating a Ponzi scheme that raised at least $7.9 from over 100 investors who thought their precious metal purchases were being held at a secure depository. Salvatore Esposito, 47, and Joseph Esposito, 43, each agreed to plead guilty to a single count of conspiracy to commit mail and wire fraud according to a filing in the Orlando Division of the U.S. District Court for the Middle District of Florida.  The fraud charge carries a maximum twenty-year prison sentence and a $250,000 fine, although any sentence handed down by the presiding judge will likely be lower due to federal sentencing guidelines. A hearing is scheduled later this week on the change of plea.

According to authorities, the Esposito brothers operated U.S. Coin Bullion LLC (“US Coin”) out of Orlando, Florida.  Formed in 2012, the company primarily offered two investment opportunities that depended on whether or not the customer actually took physical delivery of the precious metals.  If a customer elected to take physical delivery of the metal, it was delivered to them via a shipping company.  But if physical delivery was not preferable, U.S. Coin told investors that their investment would be held in a safe and secure depository until further instructions were received regarding sale or delivery.  In the event that the customer no longer wished to hold the investment, U.S. Coin also promised that it would buy back the precious metal at the current market price.  From 2014 to July 2019, U.S. Coin took in nearly $8 million from over 100 customers who believed that their purchased precious metals would be held in a secure U.S. Coin depository.  Those customers also received account statements showing the purported value of their accounts. 

However, the brothers’ plea agreements indicate that these claims were false.  The depository  holding company identified in customer agreements that would purportedly hold customers’ precious metals was actually a company owned by an acquaintance of the Esposito’s with a name designed to sound similar to an existing well-known depository.  U.S. Coin never purchased any physical quantities of precious metals, nor did the depository store those holdings, because the depository did not have anywhere to actually store the metals. 

Instead, U.S. Coin used some customer funds to purchase “open positions” of various precious metals, usually silver, with a well-known commodities and metals trader.  In some situations, U.S. Coin also used customer funds to purchase silver on margin which required payment of interest and storage costs on the required margin loan as well as susceptibility to margin calls in the event of declining silver prices.  Unfortunately, the price of silver continually dropped during the period of the alleged fraud, dropping from $35 an ounce in 2012 to under $15 an ounce.  As a result of the declining price and the leveraged margin purchases, as well as the diversion of customer funds to buy back other customers’ investments, U.S. Coin “lost all of the money that its customers had invested in precious metals that did not involve physical delivery to the customer.”

The arrests come more than 10 years after the Esposito’s were sued in 2008 by the Florida Attorney General’s Office for their operation of an illegal foreclosure-assistance company named Financial Management Advisors.  The Florida AG alleged that the company illegally unlawful charged homeowners a fee to assist with a loan modification, and a Florida judge later ordered that the Esposito’s and their business partner pay nearly $400,000 in restitution. 

 The criminal Information is below:

Amidst Questions Over Husband’s Death And Misuse Of Little League Funds, West Virginia Pharmacist Arrested For $2.5 Million Ponzi Scheme

In a story seemingly pulled from a Hollywood screen, a West Virginia woman has been arrested on allegations that a company she operated with her late husband ran a Ponzi scheme that raised at least $2.5 million from investors who thought they were funding lucrative government contracts.  Natalie Cochran, pictured above in a “Tailgate Socialite” shirt after being arrested yesterday morning, was indicted on twelve counts of wire fraud, one count of bank fraud, one four counts of aggravated identity theft, seven counts of money laundering, one count of bankruptcy fraud, and one count for false oath in a bankruptcy proceeding.  If convicted on all counts, Cochran could face a maximum sentence of decades in federal prison.  The charges come amidst a separate investigation into Cochran’s alleged misuse of funds from a Little League baseball program when she served as treasurer as well as a court order ordering the exhumation of her late husband’s body over questions about his death.

According to the indictment, Cochran and her late husband Michael Cochran owned and operated Technology Management Solutions LLC (“TMS”) and Tactical Solutions Group LLC (“TSG”), both of which were registered as federal government contractors.  TMS allegedly operated as an information technology company that provided consulting services while TSG held itself out as a wholesale merchant and provider of durable goods.   

Beginning in mid 2017, TMS and TPG were touted as successful government contractors, including that TPS was a “leading supplier to the U.S. Department of Defense, national security agencies, federal civilian agencies, prime contractors, and worldwide non-profit organizations.” Investors were told that they could invest in individual contracts that had been awarded to TMS or TSG and receive a percentage of the ensuing profits from the government work.  Investors were provided with various information confirming the status of their investment, including contract numbers representing the purported government contract they were funding and forwarded emails from federal government employees or bank personnel about the contracts.  In total, TMS and TSG raised at least $2.5 million from 11 investors.

Several months later, federal authorities filed a civil forfeiture complaint seeking to confiscate several properties owned by Cochran that had allegedly been purchased with illegal funds.  The filing alleged that TSG and TMS never had any government contracts and were instead used as a Ponzi scheme to pay fictitious returns to new investors using existing investor funds.  Investor funds were also purportedly used by the Cochrans “to support their outwardly lavish lifestyle by making luxurious purchases, dining out frequently, taking vacations and making payments towards the defendants' properties.  Cochran filed personal bankruptcy the next day, listing less than $600 in bank accounts and cash on hand and $1.4 million in liabilities that did not include any investors in TSG or TMS.  

The Indictment echoes allegations that TSG and TMS failed to ever secure a single government contract, instead claiming the companies used new investor funds to pay purported returns to existing investors and also secured cash advances from several financial institutions by claiming that investor deposits were actually business sales.  Cochran is also accused of stealing the identities of various government employees through the forwarding of emails and other communications purporting to come from those officials lending credence and legitimacy to the alleged scheme.  The Indictment also accuses Cochran of committing bankruptcy fraud by misrepresenting her income, failing to disclose transfers and gifts she had made, omitting her ownership of property and interests in TSG and TMS, and testifying as to those facts during her meeting of creditors.  

Cochran is also under a separate investigation by West Virginia state police for her alleged misuse of funds while serving as treasurer of the Shady Spring Youth Baseball League, a private boy’s baseball league.  Authorities are looking into a variety of suspicious transactions in the league’s bank account including:

• a $1,364 charge to Amazon;

• investments in crowdfunder.com, an online investment site;

• $1,142 in charges at Dunham’s and Dick’s Sporting Goods;

• a $402.60 charge to Parker Compound Bows for a bow and arrow;

• $2,099 in Yeti cooler purchases;

• $53 spent at Olive Garden;

• $528 for baseball season tickets at West Virginia University;

Additionally, TSG had hosted a fundraiser for the league earlier this year at the Cochran’s residence that included a bingo game and the raffling of semi-automatic weapons and apparently raised more than $16,000 for the league’s coffers.  However, TSG’s check for the donation subsequently bounced.

Authorities are also looking into the circumstances surrounding Michael Cochran’s death this February, with one outlet reporting that Cochran’s attorney claimed that Michael Cochran had been vomiting in a sink and broke a countertop when he collapsed.  Natalie Cochran maintains that she called authorities and that her husband was transported to a hospital within 20 minutes of his fall; however, it is being reported that multiple witnesses have suggested that a longer amount of time may have elapsed between Michael Cochran’s fall and when he was taken to a hospital.  Michael Cochran’s body was exhumed earlier this month pursuant to a sealed court order.

At an initial hearing following Natalie Cochran’s arrest, prosecutors urged the court to hold her indefinitely on fears she was a flight risk.  Cochran was ordered to be placed on home confinement, but she is expected to remain in the state jail over the weekend while the logistics of the home confinement are resolved.

A copy of the Indictment is below:

SEC Says Chicago Rabbi’s $10 Million Nursing Home Ponzi Scheme Targeted Orthodox Jews, Including Holocaust Survivor

The Securities and Exchange Commission charged a well-known Chicago rabbi with running a Ponzi scheme that raised at least $10 million from primarily Orthodox Jewish investors who thought their funds were being used to buy, operate, and sell nursing home facilities. Zvi Feiner, 49, his business associate Erez Baver, 39, and several companies operated by Feiner were charged with violating federal securities laws in a complaint filed on September 19, 2019.  Baver and his company, Cedarbrook Management, Inc., agreed to settle the Commission’s charges without admitting or denying the allegations and consented to disgorgement and prejudgment interest of over $2.25 million and a civil monetary penalty to be determined at a later date.  Feiner is contesting the Commission’s allegations.

According to the Commission’s complaint, Feiner formed FNR Healthcare, LLC (“FNR”) in 2007 and told investors it was “a private equity group focused on quality healthcare assets throughout the United States.”  But FNR did not actually hold those assets; instead, Feiner would establish a separate LLC for each nursing home facility he purchased and then sell membership interests in those entities to investors.  In private placement memorandums that were prepared for each entity, prospective investors were told they would receive an above-average annual return - often around 15% - from the operation of the specific facility they invested in, that an investment would be “low-risk,” and that they could expect a full return of their investment within three to five years.  

Some PPMs also contained language or provisions designed to reassure investors of the safety and success of the investment, including claims that (i) Bayer and/or Feiner were also making a personal investment in the facility; (ii) investors would receive quarterly distributions that were paid out before any profits were paid to the managers; (iii) the investment would be so profitable that the investor would be entitled to an additional “windfall” return when the facility was sold; and (iv) that the principals had extensive experience in the industry and were currently operating a significant number of “beds” in other facilities.  In total, and based on these claims, FNR and Feiner rated at least $10 million from over 60 investors from March 2014 to 2017.  Many of those investors came from Feiner’s connections in the Orthodox Jewish community, including an 86-year old Holocaust survivor who alone invested over $1 million.

But the Complaint alleges that many of Feiner’s claims to investors were misleading at best and in some instances fraudulent.  For example, Feiner is accused of misappropriating investor funds in at least four LLCs “upon receipt,” using those funds to pay promised distributions to investors in separate LLCs, fund operations in other struggling facilities, and misappropriate funds for his and Baver’s own personal use.  Nor did Feiner and/or Baver purportedly make the personal investments they touted in various PPMs, often either failing to invest at all or making a substantially lower investment than advertised.  In another instance, investors who believed their funds were being used to purchase two nursing homes were not informed about or given equity in a third facility that was purchased with their funds.  Feiner also allegedly sold at least three separate facilities without telling investors who would have been entitled to a portion of the sale proceeds, instead misappropriating funds to support other separate projects, fund distributions to other investors, and for his own personal use.

The Complaint alleges that Feiner and FNR raised “at least $10 million” from March 2014 to 2017, likely focusing on that period because of the current legal uncertainty over whether the Commission is limited to a five-year statute of limitations to obtain disgorgement.  But the Complaint contains other allegations showing that the actual amount raised during the entire duration of the scheme - which may have dated back as far as 2010 - may have been much higher.  For example, and in addition to the four primary LLCs highlighted in the Complaint during the relevant period, the Commission claims that Feiner raised at least $8 million by selling interests in three different LLCs during 2013.  When the facilities owned by those LLCs were sold, Feiner purportedly concealed the sales from the respective investors and instead misappropriated the sales proceeds by making transfers to other LLCs and paying back loans.  

While the sales of the nursing facilities were often profitable, the Commission alleges that the scheme eventually collapsed under the weight of increasing obligations and eventually ceased paying investor distributions by late 2016.  Only then did investors begin to ask questions, with several investors in a 2014 project learning with their attorney’s assistance in early 2017 that the property at issue had been sold back in 2015.  

A copy of the Complaint is below: