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Archive for the ‘Ponzi Scheme’ Category


SEC Halts Fraudulent Farm Loan Scheme by Indianapolis Investment Adviser

The Securities and Exchange Commission today announced charges against an Indianapolis investment adviser, its president, two associates and several affiliated companies for engaging in two fraudulent farm loan offerings, in which they made ponzi scheme payments to investors in other offerings and paid themselves hundreds of thousands of dollars in undisclosed fees. The SEC obtained a temporary restraining order and emergency asset freeze to halt the scheme.

According to the SEC’s complaint, filed in the U.S. District Court for the Southern District of Indiana, in 2013 and 2014, Veros Partners, Inc., its president, Matthew D. Haab, and two associates, attorney Jeffrey B. Risinger and Tobin J. Senefeld, fraudulently raised at least $15 million from at least 80 investors, most of whom were Veros advisory clients. The investors were informed that their funds would be used to make short-term operating loans to farmers, but instead, significant portions of the loans were to cover the farmers’ unpaid debt on loans from prior offerings. According to the SEC’s complaint, Haab, Risinger and Senefeld used money from the two offerings to pay millions of dollars to investors in prior farm loan offerings and to pay themselves over $800,000 in undisclosed “success” and “interest rate spread” fees.

In addition to Veros, Haab, Risinger, and Senefeld, the SEC charged Veros Farm Loan Holding LLC and FarmGrowCap LLC, the issuers of the offerings, and PinCap LLC. The SEC also charged registered broker-dealer Pin Financial LLC as a relief defendant.

The Honorable Jane Magnus-Stinson of the U.S. District Court for the Southern District of Indiana issued an asset freeze order against the defendants as well as a temporary restraining order prohibiting them from soliciting, accepting or depositing any monies from any actual or prospective investors, and in the case of Veros, any investors in private securities offerings. Judge Magnus-Stinson also ordered that a receiver be appointed. A preliminary injunction hearing has been scheduled for May 1, 2015.

The SEC’s complaint charges the defendants with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and also charges Veros and Haab with violating Sections 206(1), 206(2) of the Investment Advisers Act, and Veros with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-2. The SEC’s complaint seeks permanent injunctions and disgorgement against all defendants and a financial penalty. The SEC’s complaint names Pin Financial for the purposes of recovering proceeds it received from the fraud.

SEC Announces Cases Targeting International Pyramid Scheme Operators

The Securities and Exchange Commission today announced charges against the operators of an international pyramid scheme that raised more than $129 million from investors worldwide, primarily in the U.S., China, and Taiwan.  The case follows another against a separate pyramid scheme that lured investors in the U.S., China, and Korea with seminars, webinars, and YouTube videos.

The newest case, filed in federal court in San Francisco, charges Hong Kong-based eAdGear Holdings Limited and California-based eAdGear, Inc., along with operators Charles S. Wang and Qian Cathy Zhang, of Warren, N.J., and Francis Y. Yuen, of Dublin, Calif.  According to the SEC complaint, even though eAdGear claimed to be a successful Internet marketing company, nearly all of its revenue was generated by investors, not its products or services. 

The complaint alleges that eAdGear’s operators used money from new investors to pay earlier investors as well as to repay a personal loan and purchase million-dollar homes for themselves. It alleges the operators concealed and perpetuated the scheme by displaying sham websites on eAdGear’s own site to make it appear as if it had real, paying customers and manipulated revenue distributions to investors to appear profitable.

“eAdGear and its operators falsely claimed that they were running a profitable Internet marketing company when in reality, they were operating a Ponzi and pyramid scheme that preyed on Chinese communities and caused investors to lose millions of dollars,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office.

The eAdGear case follows one filed Monday in federal court in Georgia against Zhunrize Inc. and CEO Jeff Pan for allegedly defrauding investors of more than $105 million since 2012.  Despite its claims to be a legitimate multi-level marketing company, Zhunrize derived most of its funds from selling memberships, not products, according to the SEC complaint. 

“Zhunrize claimed to offer investors the opportunity to be an ‘e-commerce Business Owner’ selling products to customers through a website.  In fact, it was a pyramid and ‘profits’ came from fees paid by later investors,” said William Hicks, associate regional director of the SEC’s Atlanta Regional Office.

In both cases, the courts granted the SEC’s request for an asset freeze and issued a temporary restraining order.  In the case of eAdGear, that order bars the defendants from soliciting investors, including through websites they have used until now –www.eadgear.comwww.eadgear.netwww.winteam777.com, and www.winteam168.com.  A court hearing has been scheduled for October 10.

SEC halts Ponzi scheme targeting Dominican and Brazilian immigrants

The Securities and Exchange Commission today announced that on Tuesday it filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S.  The charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze.  That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets.  After the SEC staff implemented the asset freeze, at the SEC’s request the court lifted the seal today, permitting public announcement of the SEC’s charges.

The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on “voice over Internet” (VoIP) technology but actually are operating an elaborate pyramid scheme.  In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds. 

According to the SEC’s complaint, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites.  The SEC complaint alleges that TelexFree’s VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters.  As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

SEC stops pyramid scheme targeting Asian and Latino communities

The Securities and Exchange Commission today announced charges and asset freezes against the operators of a worldwide pyramid scheme targeting Asian and Latino communities in the U.S. and abroad.  The SEC alleges that three entities collectively operating under the business names WCM and WCM777 are posing as multi-level marketing companies in the business of selling third-party cloud computing services, which can include website hosting, data storage, and software support.  The entities are based in California and Hong Kong and controlled by “Phil” Ming Xu, who is a resident of Temple City, California. 

According to the SEC’s complaint filed in federal court in Los Angeles, WCM and WCM777 have raised more than $65 million since March 2013 by falsely promising tens of thousands of investors that the return on investment in the cloud services venture would be 100 percent or more in 100 days.  Investors were told they would receive “points” for making investments or enrolling other investors.  The points would be convertible into equity in initial public offerings of high-tech companies their money would help launch.  However, rather than building out cloud services or incubating high-tech companies, Xu and the WCM entities used investor funds to make Ponzi payments of purported investment returns to some investors.  They also spent investor money to purchase golf courses and other U.S.-based properties among other unauthorized expenditures. 

The court has granted the SEC’s request for an asset freeze and the appointment of a temporary receiver over the assets of WCM, WCM777, and several other entities named as relief defendants for the purpose of recovering money from the scheme in their possession. 

According to the SEC’s complaint, WCM and WCM777 sell their products exclusively to investors and have no other apparent sources of revenue.  Their offerings and operations depend almost entirely on the recruitment of new investors and purchases by existing investors to provide the money for returns.  On its website, WCM777 specifically addressed the question “Is WCM777 a Ponzi Game?” by writing, “In summary, we are not a Ponzi game company. We are creating a new business model.” 

The SEC alleges that Xu and his entities made various false claims to investors about purported partnerships with more than 700 major companies such as Siemens, Denny’s, and Goldman Sachs – in some instances falsely representing that they had permission to use their logos.  Meantime, besides buying two golf courses with investor money, Xu and his entities also purchased a warehouse, vacant land, and several single family homes  They also used investor funds to play the stock market and make other related investments through intermediary companies, such as an oil and gas offering.  They also sent investor money to a rough diamond jewel merchant in Hong Kong and another unrelated company affiliated with Xu.

The SEC’s complaint alleges that WCM, WCM777, and Xu violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.  The complaint further alleges that Xu violated Section 20(a) of the Exchange Act.  In addition to the asset freezes and appointment of a temporary receiver, the Honorable Christina A. Snyder also granted the SEC’s request for an order prohibiting the destruction of documents and requiring the defendants to provide accountings. A court hearing has been scheduled for April 10, 2014.

3 with ties to Ponzi scheme charged

Three major associates of Nicholas Cosmo, the mastermind of a $400 million Ponzi scheme, were arraigned on an indictment Wednesday charging them with conspiracy, as well as mail, wire and securities fraud, officials said.

The three — Jason Keryc, 34, of Wantagh; Anthony Ciccone, 39, of Locust Valley; and Diane Kaylor, 36, of Bethpage — all pleaded not guilty at arraignment in federal District Court in Central Islip, officials said.

Keryc, Ciccone and Kaylor had originally been arrested in April of 2012 on similar charges.

Magistrate A. Kathleen Tomlinson continued the $1 million bail they had each originally posted after their arrests.

The three had been charged in the indictment along with two other close associates of Cosmo — Bryan Arias, 40, of Maspeth, and Shamika Luciano, 31, of Coram — when Arias and Luciano were arrested in December. The new indictment added securities fraud to the original charges.

Arias and Luciano each were released on $500,000 bail shortly after their arrests.

Cosmo, who is serving a 25-year sentence for fraud, took in more than $400 million dollars from 5,000 investors during the operation of the scheme out of his Hauppauge-based companies, Agape World and Agape Merchant Advance, officials have said.

Of that total, 4,100 investors lost $179 million from 2003 until 2009 when the scheme was shut down, officials have said. Much of the rest of the money Cosmo took in went to pay off early investors with Agape.

Working with Cosmo, of Lake Grove, Keryc allegedly made $16 million, Ciccone $10.7 million; Kaylor $4.7 million; Arias $1.7 million; and Luciano $275,000, according to court papers filed by Eastern District federal prosecutors Grace Cucchissi and Christopher Caffarone.

Two Indicted in Fraud Scheme

A federal grand jury has indicted Richard Shusterman, age 50, of Highland Beach, Florida, and Jonathan E. Rosenberg, age 44, of West Orange, New Jersey, on charges of conspiracy and wire fraud, in connection with a scheme to defraud equity investors and asset-based lenders in medical accounts receivable of more than $275 million. The indictment was returned on September 4, 2013, and unsealed today upon the arrest of the defendants.

 The guilty pleas of Robert Feldman, age 65, of Beach Haven, New Jersey, and Douglas A. Kuber, age 53, of Livingston, New Jersey, were also unsealed today. Feldman and Kuber pleaded guilty to conspiracy to commit wire fraud on September 3, 2013 and October 11, 2012, respectively.

The indictment and guilty pleas were announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Stephen E. Vogt of the Federal Bureau of Investigation; and Special Agent in Charge William Winter of U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI).

“The indictment alleges that the defendants perpetrated a brazen and complex Ponzi scheme that defrauded investors of more than $275 million,” said U.S. Attorney Rod J. Rosenstein.

According to the 10-count indictment, Richard Shusterman was a shareholder and president of International Portfolio Inc. (IPI). Robert Feldman was part owner of IPI and was also the president of United Consulting Inc. Shusterman and Feldman represented that IPI was a company that had experience in the field of medical accounts receivable, including their purchase, valuation, collection, and resale. Beginning on June 21, 2006, Shusterman and Feldman, through United Consulting and IPI, engaged in the business of buying and selling consumer debt, including medical debt portfolios.

According to the indictment, Jonathan E. Rosenberg and Douglas A. Kuber operated Account Receivable Services LLC (ARS). ARS invested in medical accounts receivable purchased from IPI using funds borrowed from investors interested in asset-based lending. Rosenberg was also president of two other companies that recruited investors for medical accounts receivable portfolios purchased from IPI.

From December 2006 through June 2008, IPI paid more than $25 million to purchase over $4.1 billion in medical accounts receivable, comprising more than 3,872,514 past due patient accounts that the hospitals and other entities selling the accounts had been unsuccessful in collecting. Beginning in June 2007, Shusterman, Rosenberg, Feldman, and Kuber began promoting an investment model to individual investors and investment fund managers.

To implement the investment model, the conspirators allegedly agreed that Shusterman, through IPI, would batch accounts receivable from IPI’s inventory into discrete debt portfolios with specified total outstanding account balances. These portfolios would then be offered for sale to investors. In addition, Shusterman and IPI would manage all the collection efforts for each debt portfolio IPI sold.

Two indicted in Ponzi scheme

A federal grand jury in Baltimore indicted two men Friday on conspiracy and wire fraud charges in a scheme to defraud investors and lenders of $275 million. Richard Schusterman, 50, of Highland Beach, Fla., and Jonathan Rosenberg, 44, of West Orange, N.J., were named in the indictment. A statement by the U.S. Department of Justice said the 10-count indictment alleges “the defendants perpetrated a brazen and complex Ponzi scheme that defrauded investors of more than $275 million” through their medical accounts receivable company, International Portfolio Inc.

The indictment claims Schusterman, Rosenburg and two partners who have pleaded guilty, Robert Feldman, 65, of Beach Haven, N.J., and Douglas Kuber, 53, of Livingston, N.J., made fraudulent claims regarding the prices, results and values of debt portfolios they sold to investors.

Receiver imposes deadline for Ponzi scheme investors who profited

Receiver Kenneth Bell sent emails earlier this year to 16,000 investors who made money from the Lexington, N.C.-based online company ZeekRewards. He also posted a letter on the ZeekRewards receivership website, saying the investors, or net winners, had until May 31 to contact his office to negotiate a settlement or face possible legal action.

“It’s a deadline to contact us. That doesn’t mean we’re going to start suing people on Monday,” he said. “If somebody contacts us in the next week and says, ‘Will you still talk to me?’, we will of course talk to them. We probably will be a little firmer in our negotiations than we would have been if they had contacted us more timely. But we will still talk to folks who want to settle without litigation.”

The deadline is the latest development in one of the largest Ponzi schemes in U.S. history.  Authorities say ZeekRewards owner Paul Burks, 66, of Lexington, was the mastermind of the scam, which attracted 1 million investors, including nearly 50,000 in North Carolina.

OC resident sentenced to 8 years for Ponzi scheme

A 70-year-old Orange County man has been sentenced to eight years in federal prison for running a Ponzi scheme that bilked more than two dozen investors out of nearly $3 million.

The Orange County Register reports (http://bit.ly/10yzYWf) Timothy Melvin Murphy was also ordered Tuesday to pay $2.95 million in restitution.

Murphy pleaded guilty last year to one count of mail fraud.  Prosecutors say he ran the scheme through his Orange-based business, Capital Investors Inc. The government estimates Murphy’s 26 victims lost $2.95 million they invested over a decade.

Murphy used the money for personal expenses, including refurbishing and maintaining a classic car collection. He also paid for treatments at a weight-loss clinic.  Murphy retired as a colonel in the California Army National Guard in 2006.

Ponzi scheme architect sentenced to 10 years

A man accused of cheating California residents out of hundreds of millions of dollars in what prosecutors characterized as one of the largest real estate Ponzi schemes in state history has been sentenced to 10 years in prison.

A Shasta County Superior Court judge issued the sentence against Gary Armitage, 62, on Monday, as some of his victims spoke out against him in court.

“All of your words and promises turned out to be lies,” said Ron Johnson, of Auburn, a retired insurance company employee. “Not only did you steal the money we worked for our entire lives to save, you destroyed our ability to trust in others and ourselves.”

Johnson said Armitage persuaded him and his wife, Sandy, to refinance their home and sell a rental property to invest more money with him. The couple lost $1.2 million, according to court records.

In all, prosecutors said Armitrage and two accomplices—James Koenig, of Redding, and Jeffrey Guidi, of Santa Rosa—bilked 2,000 investors out of $200 million. Many of the victims were retirees who lost much of their life savings.

Armitage pleaded no contest in January, four years after his arrest, to four felony counts of conspiracy and securities fraud. Koenig went on trial in January and has pleaded not guilty. Guidi has also pleaded guilty to lesser charges.

Prosecutors said the three men sold real estate investments, promising low-risk returns. But many of the projects faltered or were never finished. Still, the men continued to raise money from investors, using it to pay off earlier investors, according to prosecutors.

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