CFTC ANNOUNCES COMMODITY POOL FRAUDSTER SENT TO PRISON FOR 17 YEARS

FROM:  U.S. JUSTICE DEPARTMENT 

September 9, 2015

Commodity Pool Operator Sentenced to 17 Years’ Incarceration for Fraud

Washington, DC — Donovan Davis Jr., one of three Principal Defendants charged by the CFTC for the fraudulent operation of Capital Blu Management, LLC of Melbourne, Florida, was sentenced to 17 years in a federal prison on August 27, 2015.

Davis was convicted on May 14, 2015 of multiple counts of criminal conspiracy, mail fraud, wire fraud, and money laundering in connection with the operation of a fraudulent $17 million commodity pool. The two other Co-Defendants in the CFTC action, Blayne Davis and Damien Bromfield, earlier pleaded guilty to similar criminal charges. B. Davis was sentenced to 9 years in prison; Bromfield’s sentencing is scheduled for September 24.

CFTC Enforcement Director, Aitan Goelman, said “These sentences serve as a strong reminder that those who engage in fraud in the commodities markets face the very real possibility of criminal prosecution and jail time in addition to the civil sanctions sought by the CFTC.”

In 2011, the U.S. District Court for the Middle District of Florida found these same Defendants liable for civil violations of the Commodity Exchange Act and CFTC Regulations and ordered them to pay more than $7 million each in restitution and civil monetary penalties and permanently barred them from engaging in any commodity-related activity (see CFTC Press Release, Order, and Judgment 6054-11, June 15, 2011, and CFTC Press Release and Complaint 5643-09, April 7, 2009).

The CFTC subsequently provided material assistance to the U.S. Attorney’s office responsible for the criminal prosecution of these Defendants.

SEC SAYS "FINANCIER" CHARGED IN ALLEGED PONZI SCHEME INVOLVING PROMISSORY NOTES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Thursday, February 26, 2015

California Financier Charged in Alleged Ponzi Scheme

Former CEO and Corporate Counsel of Financial Services Marketing Company Previously Pleaded Guilty

A California man and purported billionaire financier was taken into federal custody today for his role in an alleged Ponzi scheme in which investors lost $2.5 million, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and Inspector in Charge Gary Barksdale of the U.S. Postal Inspection Service’s Criminal Investigations Group.

Kenneth Brewington, 50, of Corona, California, was indicted on Feb. 24, 2015, by a federal grand jury in the District of Colorado for conspiracy to commit wire and mail fraud, mail fraud and six counts of wire fraud.

According to allegations in the indictment, from September 2009 until 2011, Brewington and his co-conspirators sold promissory notes to investors through a financial services marketing company based in Denver called Compass Financial Solutions (CFS).  The indictment alleges that Brewington and his co-conspirators falsely represented to investors that Brewington held millions of Euros in overseas bank accounts, and that the proceeds raised from investors would be used to obtain the release of his overseas funds.  To conceal the scheme, Brewington and his co-conspirators allegedly had investors wire their funds to an attorney trust account.  The funds from that account, however, were then allegedly sent to Brewington and his co-conspirators.  Brewington and his co-conspirators allegedly used the investors’ money for their own personal benefit.

The former corporate counsel for CFS, William E. Dawn, 77, of Denver, and the former CEO of CFS, Brian G. Elrod, 58, of Lakewood, Colorado, previously pleaded guilty for their roles in the scheme.  Sentencing hearings are scheduled for May 29, 2015, and May 22, 2015, respectively.

The charges contained in an indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

The case was investigated by the U.S. Postal Inspection Service, and is being prosecuted by Trial Attorneys Henry P. Van Dyck and Jennifer G. Ballantyne of the Criminal Division’s Fraud Section.  The Securities and Exchange Commission has provided substantial assistance in this matter.

SEC ANNOUNCES SENTENCE OF ANDREW FRANZ RELATING TO MISAPPROPRIATION OF CLIENT FUNDS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Commission announced that on October 23, 2013, the Honorable Christopher A. Boyko sentenced Andrew J. Franz (“Franz”) to 57 months imprisonment, to be followed by three years of supervised release, as well as $357,068.77 in criminal restitution. U.S. v. Andrew J. Franz, Criminal Action No. 1:13-cr-00331 (N.D. Ohio). Previously, on July 23, 2013, Franz pled guilty to ten counts, including counts of mail fraud, securities fraud, investment adviser fraud, and income tax evasion. The criminal information in this action alleged, among other things, that Franz stole hundreds of thousands of dollars from advisory clients at Ruby Corporation, a registered investment adviser with which he was associated.

Previously, the SEC filed an action against Franz in the U.S. District Court for the Northern District of Ohio. SEC v. Andrew J. Franz, Civil Action No. 5:12-cv-00642 (N.D. Ohio). The SEC’s complaint alleged that Franz operated a fraudulent scheme in which, through forgery and other fraudulent means, he misappropriated approximately $865,969 from clients of Ruby Corporation, including $779,418 from family members and $86,551 from other clients. The complaint alleged that Franz kept a net of approximately $354,000 in stolen funds. According to the SEC complaint, Franz violated Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and aided and abetted violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 (Advisers Act).

At the SEC’s request for emergency relief, on March 15, 2012, the Honorable Benita Y. Pearson, United States District Court, Northern District of Ohio, entered an order of permanent injunction against further violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Sections 206(1) and (2) of the Advisers Act, as well as an order freezing all assets under Franz’s control and other emergency relief. Finally, on March 15, 2013, Franz was permanently barred from the securities industry.

MAN INDICTED IN $20 MILLION PROMISSORY NOTE FRAUD CASE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Joseph Paul Zada Indicted for Fraud

The Securities and Exchange Commission announced today that on September 4, 2013, a Grand Jury sitting in the United States District Court for the Southern District of Florida returned an Indictment charging Joseph Paul Zada with 21 counts of mail fraud, two counts of wire fraud, two counts of money laundering, and two counts of interstate transportation of stolen property. The Indictment also seeks forfeiture of properties obtained as a result of the alleged criminal violations.

The Indictment alleges that from at least January 1998 through August 2009, Zada caused over twenty investors to invest over $20 million based on materially false statements and omissions. According to the Indictment, Zada attracted investors by projecting an image of great wealth, portraying himself as a successful businessman and investor with connections to Saudi Arabian oil ventures. He also hosted extravagant parties, drove expensive luxury vehicles, and maintained expensive homes in Wellington, Florida and Grosse Pointe, Michigan. The investors sent money to Zada with the understanding that he would use the funds to invest in various oil ventures on their behalf. The investors usually received promissory notes reflecting the principal amount of their investment. Zada deposited investors' funds into bank accounts he controlled. Instead of investing the funds in oil ventures, Zada used the money to support his lavish lifestyle and to make purported returns on investments to prior investors.

The Indictment's allegations are based on the same conduct underlying the Commission's November 10, 2010 Complaint against Zada in the United States District Court for the Eastern District of Michigan. The Commission charged Zada with violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. On July 31, 2013, the Court granted the Commission's motion for summary judgment against Zada, finding that Zada had violated the provisions alleged by the Commission in its Complaint. The Court set a hearing for October 9, 2013 on the Commission's claims for disgorgement and civil penalties against Zada.

INVESTMENT FRAUDSTER GETS 20 YEARS IN PRISON

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Minneapolis-Based Fraudster Patrick Joseph Kiley Sentenced to 20 Years in Priso
The Securities and Exchange Commission announced that on July 15, 2013, the Honorable Chief Judge Michael J. Davis of the United States District Court for the District of Minnesota sentenced Patrick J. Kiley to 20 years in prison and ordered him to pay $155 million in restitution.  The sentence was based on Kiley’s conviction on 15 criminal counts including mail and wire fraud, conspiracy to commit mail and wire fraud, and money laundering for his role in a $194 million foreign currency trading scheme that defrauded approximately 1,000 investors.  Kiley was charged on July 19, 2011, and a jury found him guilty on June 12, 2012.

Kiley is one of the defendants in a pending civil injunctive action filed by the Commission on November 23, 2009 in the United States District Court for the District of Minnesota.  The Commission’s action against Kiley arose out of the same facts that are the subject of the criminal case against him.

The Commission’s complaint alleges that from at least July 2006 through at least July 2009, Kiley and co-defendant Trevor G. Cook of Minneapolis, Minnesota, raised at least $190 million (later determined to be $194 million) from 1,000 investors through the unregistered offer and sale of investments in a purported foreign currency trading venture.  According to the Commission’s complaint, Cook and Kiley pooled investors’ funds in bank and trading accounts in the names of entities they controlled.  The Commission’s complaint alleges that the foreign currency trading they conducted resulted in millions of dollars in losses, and they misused approximately one half of the investor funds to make Ponzi-like payments to earlier investors and pay for, among other things, Cook's gambling losses and the purchase of the historic Van Dusen Mansion in Minneapolis.

The Commission’s complaint charges Cook and Kiley with violating Sections 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  On November 23, 2009, the Court entered a preliminary injunction order against Cook and Kiley and froze all of their assets.  On March 7, 2011, the Commission also filed a civil complaint in the U.S. District Court in Minneapolis against Jason Bo-Alan Beckman and his registered investment advisory firm Oxford Private Client Group, LLC, for their roles in this scheme.  On August 27, 2010, the Court entered an order of permanent injunction against Cook.  The Court also appointed a receiver to marshal and preserve all of the Defendants’ assets

FINAL JUDGEMENTS ENTERED IN DEER HILL FINANCIAL GROUP, LLC., CASE

FROM: SECURITIES AND EXCHANGE COMMISSION

Final Judgments Entered Against Connecticut-Based Investment Adviser and His Firm Charged with Fraud for Stealing Investor Funds

The Securities and Exchange Commission announced today that on May 16, 2013, the United States District Court for the District of Connecticut entered final judgments by consent in a previously filed enforcement action against Stephen B. Blankenship and his investment advisory firm, Deer Hill Financial Group, LLC. The judgments enjoin Blankenship and Deer Hill from future violations of the federal securities laws.

On September 13, 2012, the Commission filed an enforcement action charging Blankenship, then a resident of New Fairfield, Connecticut, and Deer Hill Financial Group, LLC, a Connecticut limited liability company under Blankenship’s control, with a scheme to defraud investors. The Commission’s Complaint alleged that, from at least 2002 through November 2011, Blankenship misappropriated at least $600,000 from at least 12 brokerage customers by falsely representing that he would invest their funds in securities through defendant Deer Hill. The Court’s judgment enjoins Blankenship and Deer Hill from future violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933. The judgment also enjoins the defendants from future violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and Section 15(a) of the Exchange Act.

Based on the same misconduct, the U.S. Attorney’s Office for the District of Connecticut charged Blankenship with criminal violations. On December 5, 2012, the United States District Court for the District of Connecticut sentenced Blankenship to forty-one months imprisonment plus three years of supervised release and ordered him to pay a fine of $7,500 and restitution in the amount of $607,516.81, based on his earlier guilty plea to one count of Mail Fraud and one count of Securities Fraud.

On October 11, 2012, the Commission barred Blankenship from working in the securities industry. The bar was based on his guilty plea to the federal criminal charges. The Connecticut Department of Banking’s Securities Division also obtained, by consent, a revocation of Blankenship’s registration and has barred Blankenship and Deer Hill from operating in Connecticut.

MULTIMILLION DOLLAR PONZI FRAUDSTER GETS 33 YEARS IN PRISON

FROM:  SECURITIES AND EXCHANGE COMMISSION 

April 11, 2012

Robert Stinson, Jr. Sentenced to 33 Years in Prison and Ordered to Pay $14 Million in Restitution for Orchestrating Multimillion Dollar Ponzi SchemeThe Securities and Exchange Commission announced that on April 10, 2012, Robert Stinson, Jr., of Berwyn, Pennsylvania, was sentenced in a parallel criminal action for orchestrating a Ponzi scheme that defrauded at least 263 investors of more than $17 million. Judge Michael M. Baylson of the United States District Court for the Eastern District of Pennsylvania sentenced Stinson to 33 years in federal prison, followed by three years of supervised release, and ordered him to pay more than $14 million in restitution. On August 15, 2011, Stinson pleaded guilty to five counts of wire fraud, four counts of mail fraud, nine counts of money laundering, one count of bank fraud, three counts of filing false tax returns, two counts of obstruction of justice, and two counts of making false statements to federal agents.

On June 29, 2010, the Commission filed a civil injunctive action against Stinson and related persons and entities based on the same conduct, and sought and obtained a Temporary Restraining Order and Order Freezing Assets and the appointment of a receiver. According to the Commission’s complaint, from 2004 through June 2010, Stinson, primarily through Life’s Good, Inc. and Keystone State Capital Corporation, two companies he controlled, sold purported “units” in four Life’s Good private real estate hedge funds. Stinson falsely claimed that the Life’s Good funds generated annual returns of 10 to 16 percent by originating more than $30 million in commercial mortgage loans, and other investment income gained on the sale of foreclosure and investment properties. The Commission’s complaint alleges that Stinson stole investor funds for his personal use, transferred money to family members and others, and used new investor proceeds to pay existing investors as part of a Ponzi scheme. On June 20, 2011, the United States District Court entered partial summary judgment against Stinson and his co-defendants, finding violations of the federal securities laws and ordering permanent injunctive relief. The court deferred the determination of the amount of disgorgement and prejudgment interest, as well as the imposition of any civil penalties.