COURT ORDERS $31 MILLION RESTITUTION AND PENALTY PAYMENT AGAINST MAN, COMPANY FOR FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

October 20, 2015

Federal Court in Ohio Orders over $31 Million in Restitution and Civil Monetary Penalties against John R. Bullar and His Company, Executive Management Advisors L.L.C., for Commodity Pool Operator and Commodity Trading Advisor Fraud and Ponzi Scheme

In a Related Criminal Action, John R. Bullar was sentenced to 8 Years 4 Months in Prison and Ordered to Pay over $6 Million in Criminal Restitution

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Michael R. Barrett of the U.S. District Court for the Southern District of Ohio entered an Order for Final Judgment by Default against Defendant John R. Bullar, a resident of Cincinnati, Ohio, and a Consent Order against his company, Defendant Executive Management Advisors L.L.C. (EMA), imposing restitution on Bullar and EMA of over $6.2 million. In addition, the Orders require Bullar and EMA to pay civil monetary penalties totaling more than $24.8 million for their fraud, misappropriation, embezzlement, and operation of a Ponzi scheme, while illegally acting as Commodity Trading Advisors (CTAs) and Commodity Pool Operators (CPOs) without registering as such with the CFTC.  The Orders also impose permanent trading and registration bans on the Defendants and prohibit them from further violations of the Commodity Exchange Act, as charged.

The Orders arise out of a CFTC Complaint filed on September 23, 2014, which charged Bullar and EMA with embezzlement, fraudulent solicitation, misappropriation of customer funds, fraud by a CPO and CTA, commodity futures and options fraud, and failure to register as a CPO and CTA (see Complaint and Press Release 7006-14, September 23, 2014).

Embezzlement and Misappropriation

The Orders find that Bullar, from at least January 2008, and EMA, from at least March 2009 through September 2013, fraudulently solicited and accepted at least $8.3 million from at least 40 investors (EMA Pool Participants), who were told their funds would be pooled and traded in commodity futures and option contracts.  In fact, according to the Orders, most of the funds received from the EMA Pool Participants were not traded at all, and over $6.2 million of the EMA Pool Participants’ funds were embezzled or misappropriated by the Defendants and used by Bullar to pay his personal expenses, to pay money to him or to accounts he controlled, and to purchase property, vehicles, landscaping and other home improvements.  Additionally, some EMA Pool Participants’ funds were used by Defendants to pay for other EMA Pool Participants’ withdrawals of principal or fictitious profits, in the manner typical of a Ponzi scheme, the Orders find.

The Orders further find that to conceal their embezzlement and fraud the Defendants issued false account statements that showed fictitious profits and account balances and other false information.  Throughout the periods of their misconduct, Bullar and EMA failed to register with the CFTC as a CPO or CTA, as required, the Orders find.

Related Criminal Action

In a related criminal action brought by the U.S. Attorney’s Office for the Southern District of Ohio, Bullar pleaded guilty to one count of wire fraud and one count of money laundering and was sentenced on June 22, 2015 to 100 months (8 years and 4 months) in prison and ordered to pay criminal restitution totaling over $6 million.

The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrongdoers may not have sufficient funds or assets.  The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC thanks and acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of Ohio, the Internal Revenue Service-Criminal Investigation (Cincinnati Field Office), the Ohio Department of Commerce (Division of Securities-Enforcement), and the Office of the Hamilton County Prosecutor’s Office.

CFTC Division of Enforcement staff members responsible for this case are Xavier Romeu-Matta, Christopher Giglio, Douglas K. Yatter, Steven Ringer, Lenel Hickson, Jr., and Manal M. Sultan.

* * * * * *

CFTC’s Commodity Pool Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Commodity Pool Fraud Advisory, which warns customers about a type of fraud that involves individuals and firms, often unregistered, offering investments in commodity pools.

Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.

THREE INDICTED IN ALLEGED $54 MILLION "GREEN ENERGY" FRAUD

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, September 3, 2015

Indictment Charges Three People with Running $54 Million “Green Energy” Ponzi Scheme

An indictment was unsealed today charging three people in an investment scheme, involving a Bala Cynwyd, Pennsylvania-based company, that defrauded more than 300 investors from around the country.  Troy Wragg, 34, a former resident of Philadelphia, Pennsylvania, Amanda Knorr, 32, of Hellertown, Pennsylvania, and Wayde McKelvy, 52, of Colorado, are charged with conspiracy to commit wire fraud, conspiracy to commit securities fraud, securities fraud and seven counts of wire fraud, announced U.S. Attorney Zane David Memeger of the Eastern District of Pennsylvania and Special Agent in Charge William F. Sweeney Jr of the FBI’s Philadelphia Division.

As the founders of the Mantria Corporation, Wragg and Knorr allegedly promised investors huge returns for investments in supposedly profitable business ventures in real estate and “green energy.”  According to the indictment, Mantria was a Ponzi scheme in which new investor money was used to pay “earnings” to prior investors since the businesses actually generated meager revenues and no profits.  To induce investors to invest funds, it is alleged that Wragg and Knorr repeatedly made false representations and material omissions about the economic state of their businesses.

Between 2005 and 2009, Wragg, Knorr and McKelvy, through Mantria, intended to raise over $100 million from investors through Private Placement Memorandums (PPMs).  In actuality, they raised $54.5 million.  Wragg and Knorr were allegedly able to raise such a large sum of money through the efforts of McKelvy.  McKelvy operated what he called “Speed of Wealth” clubs which advertised on television, radio and the internet, held seminars for prospective investors and promised to make them rich.  According to the indictment, McKelvy taught investors to liquidate all their assets such as mutual funds and 401k plans, to take out as many loans out as possible, such as home mortgages and credit card debt and invest all those funds in Mantria.  During those seminars and other programs, Wragg, Knorr and McKelvy allegedly lied to prospective investors to dupe them into investing in Mantria and promised investment returns as high as 484 percent.

It is further alleged that Wragg, Knorr and McKelvy spent a considerable amount of the investor money on projects to give investors the impression that they were operating wildly profitable businesses.  Wragg, Knorr and McKelvy allegedly used the remainder of the funds raised for their own personal enrichment.  Wragg, Knorr and McKelvy allegedly continued to defraud investors until November 2009 when the SEC initiated civil securities fraud proceedings against Mantria in Colorado, shut down the company, and obtained an injunction to prevent them from raising any new funds.  A receiver was appointed by the court to liquidate what few assets Mantria owned.

In order to lure prospective investors, it is alleged that Wragg, Knorr and McKelvy lied and omitted material facts to mislead investors as to the true financial status of Mantria, including grossly overstating the financial success of Mantria and promising excessive returns.

“The scheme alleged in this indictment offered investors the best of both worlds – investing in sustainable and clean energy products while also making a profit,” said U.S. Attorney Memeger.  “Unfortunately for the investors, it was all a hoax and they lost precious savings.  These defendants preyed on the emotions of their victims and sold them a scam.  This office will continue to make every effort to deter criminals from engaging in these incredibly damaging financial crimes.”

“As alleged, these defendants lied about their intentions regarding investors’ money, pocketing a substantial portion for personal use,” said Special Agent in Charge Sweeney Jr.  “So long as there are people with money to invest, there will likely be investment swindlers eager to take their money under false pretenses.  The FBI will continue to work with its law enforcement and private sector partners to investigate those whose greed-based schemes rob individuals of their hard-earned money.”

If convicted of all charges, the defendants each face possible prison terms, fines, up to five years of supervised release and a $1,000 special assessment.

The criminal case was investigated by the FBI and is being prosecuted by Assistant U.S. Attorney Robert J. Livermore.  The SEC in Colorado investigated and litigated the civil securities fraud charges which formed the basis of the criminal prosecution.      

An indictment is an accusation.  A defendant is presumed innocent unless and until proven guilty.

SEC CHARGES MAN WITH OPERATING $114 MILLION PONZI SCHEME BASED ON ANTI-DROWSY DRIVING TECHNOLOGY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

08/03/2015 02:25 PM EDT

The Securities and Exchange Commission charged a Houston-area businessman with operating a $114 million Ponzi scheme that defrauded investors, some of whom were told that their money would fund technology to prevent accidents caused by drowsy driving.

The SEC’s case filed in federal court in Houston charged Frederick Alan Voight of Richmond, Texas with defrauding more than 300 investors in multiple offerings of promissory notes issued by two partnerships he owns, F.A. Voight & Associates LP and DayStar Funding LP.  While Voight’s latest offering promised investors returns as high as 42 percent a year from loans to small public companies, most of the funds went to pay earlier investors, the complaint alleges.  Approximately $22 million of Voight’s allegedly ill-gotten gains remain unaccounted for to date.

“Voight wooed investors with promises of outsized returns and once-in-a-lifetime investment opportunities.  But, like all Ponzi schemes, we allege that this one collapsed when Voight couldn’t find enough new money to keep up with his false promises,” said David L. Peavler, Acting Regional Co-Director of the SEC’s Fort Worth Regional Office.

According to the SEC’s complaint, Voight recently raised $13.8 million that he said would be loaned to a startup named InterCore Inc. to fund its deployment of a “Driver Alertness Detection System,” or DADS.  Starting in October 2014, Voight allegedly wrote to prospective investors about a “tremendous” opportunity to help InterCore install the DADS technology into “several million trucks and buses,” which he said was enough for the company to pay the 30 to 42 percent annual interest rates on the promissory notes “many, many times over.”

Voight knew the claims were false because he served on InterCore’s board and was aware that the Delray Beach, Florida public company was financially troubled and had no means to pay back the loans, the complaint alleges.  The SEC alleges that Voight used funds from the DADS investors to make Ponzi payments to earlier investors or funneled them to InterCore through two of his other partnerships, Rhine Partners LP and Topside Partners LP.  The complaint alleges that InterCore sent the funds to its Montreal-based subsidiary, InterCore Research Canada, Inc., where the funds seemingly disappeared.  By routing funds through Rhine and Topside, Voight is alleged to have garnered benefits – including fees and InterCore stock warrants – that he never disclosed to the DADS investors.

The SEC’s complaint charges Voight and DayStar with securities fraud and with conducting unregistered securities offerings.  Voight and Daystar, without admitting or denying the allegations, agreed to settle the SEC’s complaint by consenting to permanent injunctions against committing these violations in the future.  They also agreed to asset freezes and other emergency relief, and to pay civil penalties and return allegedly ill-gotten gains with interest in amounts to be set later by the court.  Voight also consented to being barred from serving as a public company officer or director and to be barred permanently from participating in the offer, purchase, or sale of any security except for his own personal account.

The SEC named F.A. Voight & Associates, Rhine, Topside, InterCore, and InterCore Research Canada as relief defendants for the purpose of recovering any allegedly ill-gotten gains they received from the fraud.  F.A. Voight & Associates, Rhine, and Topside have agreed to asset freezes and other emergency relief and to return allegedly ill-gotten gains in amounts to be set by the court.  The SEC will litigate its claims against relief defendants InterCore and InterCore Research.

The SEC’s investigation was conducted by Senior Counsel Jeff Cohen, Senior Staff Accountant Keith Hunter and Assistant Regional Director Jessica Magee of the Fort Worth office.  The SEC’s litigation will be led by Jennifer Brandt.

FOREIGN CURRENCY PONZI SCHEMERS ORDERED TO PAY $76 MILLION

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

Court Orders $76 Million in Civil Monetary Penalties against Keith F. Simmons, Deanna Salazar and Their Companies in Connection with Foreign Currency Ponzi Scheme

In Related Criminal Actions, Simmons Sentenced to 40 Years’ and Salazar Sentenced to 4.5 Years’ Incarceration and Ordered to Pay in Total $40 Million in Criminal Restitution

Both Simmons and Salazar Currently are Serving Their Prison Sentences

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge Robert J. Conrad, Jr. of the U.S. District Court for the Western District of North Carolina entered separate Consent Orders (Orders) against Defendants Keith F. Simmons and his company, Black Diamond Capital Solutions, LLC, and Deanna Salazar and her companies, Life Plus Group, LLC and Black Diamond Holdings, LLC, imposing a total of $76 million in civil monetary penalties in connection with a foreign currency exchange (forex) scheme in violation of the Commodity Exchange Act (CEA). The Orders also impose permanent trading and registration bans on the Defendants and prohibit them from further violations of the anti-fraud provisions of the CEA, as charged.

Simmons was a resident of West Jefferson, North Carolina, and Salazar was a resident of Yucca Valley, California.

The Orders arise out of a CFTC Complaint, filed on January 13, 2011, charging Simmons, Salazar, and their companies with fraudulent solicitation and misappropriation of customer funds in connection with a Ponzi-style scheme involving forex trading (see CFTC Press Release and Complaint 5985-11, February 16, 2011). Also charged in the CFTC complaint are Bryan Coats of Clayton, North Carolina and his company, Genesis Wealth Management, LLC, and Jonathan Davey of Newark, Ohio and his companies, Divine Circulation Services, LLC, Divine Stewardship, LLC, Safe Harbor Ventures, Inc., Safe Harbor Wealth Investments, Inc., and Safe Harbor Wealth, Inc. The CFTC’s litigation against these Defendants is ongoing.

The Orders find that from at least April 2007 through at least 2009, Simmons and Salazar, acting through their companies and with others, fraudulently solicited and accepted at least $35 million from at least 240 individuals to engage in off-exchange forex trading through a trading platform known as Black Diamond. In fact, according to the Orders, no forex trading was ever conducted through the Black Diamond trading platform, and the Black Diamond trading platform never existed. Rather, Simmons and Salazar misappropriated millions of dollars of customer funds to make purported profit payments to customers, as is typical of a Ponzi scheme, and for personal and unrelated business expenses, according to the Orders. The Orders further find that to conceal their fraud, Simmons, with the assistance of Salazar, issued false customer account statements reflecting the promised returns or more based on Black Diamond’s purportedly successful forex trading.

In a related criminal action brought by the U.S. Attorney’s Office for the Western District of North Carolina, Simmons was convicted on December 16, 2010, on charges of securities fraud, wire fraud, and money laundering. Simmons was sentenced to 40 years’ incarceration and ordered to pay criminal restitution of $35 million. On December 7, 2010, Salazar pleaded guilty to charges of investment fraud conspiracy and tax evasion. Salazar was sentenced to 4.5 years’ incarceration and ordered to pay $5 million in criminal restitution. Both Simmons and Salazar are still serving their sentences.

CFTC Division of Enforcement staff members responsible for this case are Alan Edelman, Maura Viehmeyer, James H. Holl III, Gretchen L. Lowe, and Rick Glaser. The Division would like to thank the U.S. Attorney’s Office for the Western District of North Carolina and the Federal Bureau of Investigation for their cooperation in this matter.

SEC CHARGES NON-REGISTERED INVESTMENT ADVISER WITH STEALING CLIENT'S MONEY

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/16/2015 02:05 PM EDT

The Securities and Exchange Commission charged a purported investment adviser in San Diego with stealing money from clients for personal use and conducting a Ponzi scheme to pay customers making redemption requests.

In a complaint filed in federal court in San Diego, the SEC alleges that Paul Lee Moore and Coast Capital Management, his purported investment advisory firm, raised $2.6 million from clients.  Instead of investing their money as promised, Moore allegedly siphoned nearly $2 million of client funds to pay travel expenses, buy retail goods, and fund his use of pornographic websites.  The complaint alleges that Moore used the remaining $625,000 in client funds to repay earlier clients with money from new clients in classic Ponzi scheme fashion.  Moore allegedly sent fake account statements to clients showing securities that he never purchased and attracted new clients when existing customers showed the statements to family, friends, and business associates.  Moore also is alleged to have lied to clients about his education, past employment experience, and the amount assets managed by Coast Capital.

Coast Capital, which was not registered as an investment adviser with the SEC or any state regulator, is no longer in business.

In a parallel action, the U.S. Attorney’s Office for the Southern District of California today will announce criminal charges against Moore.

“As alleged in our complaint, Moore betrayed his clients, brazenly stole nearly $2 million for his own activities and conducted a Ponzi scheme with the remaining funds,” said Michele W. Layne, Director of the SEC’s Los Angeles Regional Office.

The SEC’s complaint, filed in federal court in San Diego, charges Moore with violating federal antifraud laws and related SEC rules.  The SEC seeks a permanent injunction, return of allegedly ill-gotten gains plus prejudgment interest and a penalty.

The SEC’s investigation was conducted by David M. Rosen and supervised by Marc J. Blau of the Los Angeles office.  The SEC’s litigation will be led by Gary Leung.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of California and the Federal Bureau of Investigation.

ALLEGED PONZI/PYRAMID GOLD MINE INVESTMENT SCHEMERS CHARGED BY SEC WITH FRAUD

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/02/2015 01:10 PM EDT

The Securities and Exchange Commission announced fraud charges and an asset freeze against the operators of a pyramid and Ponzi scheme falsely promising a gold mine of investment opportunity to investors in Spanish and Portuguese-speaking communities in Massachusetts, Florida, and elsewhere in the U.S.

The SEC alleges that DFRF Enterprises, named for its founder Daniel Fernandes Rojo Filho, claimed to operate more than 50 gold mines in Brazil and Africa, but the company’s revenues came solely from selling membership interests to investors and not from mining gold.  With the help of several promoters, they lured investors with such false promises as their money would be fully insured, DFRF has a line of credit with a Swiss private bank, and one-quarter of DFRF’s profits are used for charitable work in Africa.  The scheme raised more than $15 million from at least 1,400 investors by recruiting new members in pyramid scheme fashion to keep the fraud afloat, and commissions were paid to earlier investors in Ponzi-like fashion for their recruitment efforts.  The SEC further alleges that Filho has withdrawn more than $6 million of investor funds to buy a fleet of luxury cars among other personal expenses.

“DFRF and its operators falsely claimed that they were running a lucrative gold mining business when in reality they were operating a Ponzi and pyramid scheme that preyed on investors in particular ethnic communities who stand to lose millions of dollars,” said John T. Dugan, Associate Regional Director of the SEC’s Boston Regional Office.  “Investors were not given the full story about the true value and security of their investments.”

According to the SEC’s complaint filed June 30 and unsealed today in federal court in Boston, Filho is a Brazilian native who lives in Winter Garden, Fla., and he orchestrated the scheme with assistance from six promoters also charged in the case: Wanderley M. Dalman of Revere, Mass.; Gaspar C. Jesus of Malden, Mass.; Eduardo N. Da Silva of Orlando, Fla.; Heriberto C. Perez Valdes of Miami; Jeffrey A. Feldman of Boca Raton; and Romildo Da Cunha of Brazil.

The SEC alleges that Filho and others began selling “memberships” in DFRF last year through meetings with prospective investors primarily in Massachusetts hotel conference rooms, private homes, and businesses.  DFRF promoted the investment opportunity through online videos in which Filho falsely claimed that the company had registered with the SEC and its stock would be publicly traded.  As DFRF’s marketing reach widened, membership sales dramatically increased from under $100,000 in June 2014 to more than $4 million in March 2015 alone.

The SEC’s complaint alleges that all defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and registration provisions Section 5(a) and 5(c) of the Securities Act.

The SEC’s investigation was conducted by Caitlyn M. Campbell, Mark Albers, John McCann, Frank C. Huntington, and Michele T. Perillo of the SEC’s Boston Regional Office, and assisted by Carlos Costa-Rodrigues in the agency’s Office of International Affairs.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Boston field office of the Federal Bureau of Investigation, the Massachusetts Securities Division of the Massachusetts Secretary of Commonwealth’s office, the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, the British Columbia Securities Commission, the Swiss Financial Market Supervisory Authority, the Financial Services Commission  of Barbados, and the United Kingdom Financial Conduct Authority.

SEC CHARGES FOR STOCKBROKER FOR ROLE IN PONZI SCHEME

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

07/01/2015 11:55 AM EDT

The Securities and Exchange Commission charged a former stockbroker in Pennsylvania with conducting a Ponzi scheme and stealing investor money to purchase a condominium in Florida and afford his own vacations and other luxuries.

The SEC alleges that Malcolm Segal fraudulently sold so-called certificates of deposits (CDs) to his brokerage customers by falsely claiming that he could get them higher interest rates of return on FDIC-insured CDs than otherwise available to the general public.  In some instances, Segal purchased CDs on behalf of investors but secretly redeemed them early and took the proceeds.  Other times, Segal did not purchase CDs at all despite telling customers he had.  He raised approximately $15.5 million from at least 50 investors.  Besides spending investor money on himself, Segal used it in Ponzi scheme fashion for purported interest payments and principal repayments to earlier investors.

The SEC further alleges that Segal eventually started stealing directly from his customers’ brokerage accounts in a last-ditch effort to keep funding the Ponzi payments.  He forged letters of authorization to facilitate the transfer of customer funds to accounts he controlled, notably forging the signature of one customer’s wife who had died before the date of the transfer.  The scheme collapsed in July 2014.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of Pennsylvania today announced criminal charges against Segal.

“As alleged in our complaint, Segal duped investors by pretending to sell them safe investments while stealing their money for his own benefit and making Ponzi payments to earlier investors,”  said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “Segal put his own greed above his obligations to customers and violated the law.”

The SEC’s complaint filed in federal court in Philadelphia charges Segal with violations of Section 17(a) of the Securities Act of 1933 as well as Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC seeks disgorgement plus prejudgment interest and penalties as well as a permanent injunction.

The SEC’s continuing investigation is being conducted by Michael F. McGraw and Brendan P. McGlynn in the Philadelphia Regional Office.  The SEC’s litigation will be led by David L. Axelrod and Michael J. Rinaldi, and the case is being supervised by G. Jeffrey Boujoukos.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of Pennsylvania and the Federal Bureau of Investigation.

SEC ANNOUNCES CHARGES IN ALLEGED PONZI SCHEME TARGETING CHURCHGOERS

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

06/16/2015 12:55 PM EDT

The Securities and Exchange Commission announced charges against an Ohio-based self-directed IRA provider accused of ignoring red flags for accounts with investments that turned out to be fraudulent.

The SEC Enforcement Division alleges that Equity Trust Company took an active role in marketing investments offered by Ephren Taylor, who targeted churchgoers while running a Ponzi scheme, and Randy Poulson, who has been indicted in federal district court for an alleged offering fraud targeting investors in New Jersey.  The Enforcement Division alleges that Taylor and Poulson defrauded more than 100 investors out of $5 million invested through accounts at Equity Trust, and that Equity Trust was a cause of violations of Section 17(a) of the Securities Act of 1933 by Taylor and Poulson.  

“We allege that Equity Trust failed to protect the interests of its customers when it acted as more than a passive custodian,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “When custodians like Equity Trust are aware of red flags suggesting an ongoing fraud, they must take action to try to prevent it.”

In its order instituting proceedings, the Enforcement Division alleges among other things:

Equity Trust representatives participated at events hosted by Taylor and Poulson, and they encouraged attendees to transfer their retirement savings from traditional IRAs to self-directed IRAs at Equity Trust so they could invest in the Taylor or Poulson offerings.  Equity Trust also sponsored Poulson dinner events with prospective investors.

Equity Trust processed investments in notes offered by Taylor and Poulson in spite of serious red flags.  These included knowing that Taylor and Poulson had not provided them with documentation of the investments’ collateral as it required as custodian of the self-directed IRAs, and that Taylor made false statements to thousands of people at a church near Atlanta.

Equity Trust continued to charge fees to customers invested in Taylor’s notes as recently as this year despite the fraud charges announced against him in 2012.
The matter will be scheduled for a public hearing before an administrative law judge for proceedings to adjudicate the Enforcement Division’s allegations and determine what, if any, remedial actions are appropriate.

The SEC’s investigation was conducted by Andrew Dean and Lara Shalov Mehraban in the New York Regional Office and Luke Fitzgerald in the Asset Management Unit.  The case was supervised by Julie M. Riewe and Amelia A. Cottrell, and the SEC’s litigation will be led by Mr. Dean, Mr. Fitzgerald, and David Stoelting.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of New Jersey, the U.S. Attorney’s Office for the Northern District of Georgia, the Federal Bureau of Investigation, and the U.S. Secret Service.

CFTC CHARGES ALLEGED FLORIDA PONZI SCHEME OPERATOR WITH FRAUD AND REGISTRATION VIOLATIONS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
April 20, 2015

CFTC Charges Florida Resident Dorian A. Garcia and his Companies, DG Wealth Management, Macroquantum Capital LLC, and UKUSA Currency Fund LP with Fraud and Registration Violations

Garcia Allegedly Operated a Ponzi Scheme in Connection with Forex and Options Pools and Stole Approximately $2.5 Million Invested by Customers

Federal Court Enters Emergency Order Freezing Defendants’ Assets and Protecting Books and Records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced that Judge Sheri Polster Chappell of the U.S. District Court for the Middle District of Florida entered an emergency restraining Order freezing assets and prohibiting the destruction or concealment of books and records of Defendants Dorian A. Garcia, and his companies, DG Wealth Management (DG Wealth), Macroquantum Capital LLC, and UKUSA Currency Fund LP, all of Naples, Florida. The judge set a hearing date for April 29, 2015.

The Court’s Order arises from a CFTC Complaint filed under seal on April 14, 2015, charging the Defendants with fraud in connection with their solicitation of customers for their foreign currency (forex) and options trading pools, misappropriation of customer funds, and their issuance of false statements and registration violations, in violation of the Commodity Exchange Act and CFTC Regulations.

According to the CFTC Complaint, the Defendants fraudulently solicited approximately $4.7 million from at least 80 customers to invest in forex and options pools beginning as early as May 2010. The Complaint alleges that Garcia made a number of misrepresentations to those he solicited, including: (1) falsely promising them that their principal was protected with a large collateral account; (2) misrepresenting the total amount of funds he had under management; (3) falsely reporting large profits in existing trading accounts; and (4) failing to disclose that he misappropriated investor funds. Many of Garcia’s misrepresentations were contained within bank and trading firm account statements that he emailed to investors that were falsified to reflect exaggerated account balances.

The CFTC Complaint alleges that Garcia returned nearly $2.1 million to investors in a manner akin to a Ponzi scheme and misappropriated approximately $2.5 million of investor funds. Garcia used the misappropriated funds for his personal and business expenses such as art, domestic help, jewelry, and cash transfers to his personal bank accounts, according to the Complaint.

The Complaint also alleges that Garcia and DG Wealth acted in capacities requiring them to register with the Commission, but were not registered with the CFTC, as required.

In its continuing litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, trading and registration bans, and a permanent injunction against further violations of federal commodities laws, as charged.

The CFTC appreciates the assistance of the Florida Office of Financial Regulation, Bureau of Financial Investigations, Miami, Florida.

CFTC Division of Enforcement staff members responsible for this case are Susan Padove, Ashley Burden, Mary Elizabeth Spear, Ava M. Gould, Scott R. Williamson, and Rosemary Hollinger.

ALLEGED PERPETRATOR OF COLLAPSED PONZI SCHEME CHARGED BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23240 / April 13, 2015

Securities and Exchange Commission v. James A. Evans, Jr., d/b/a Cashflowbot.com, d/b/a DollarMonster, Civil Action No. 1:15-cv-01118-RWS (Northern District of Georgia)

SEC Charges Georgia Resident with Engaging in a Ponzi Scheme

The Securities and Exchange Commission filed charges against the perpetrator of a Ponzi scheme that raised money from more than 3,000 investors between January 2012 and April 2014.

According to the SEC's complaint filed in federal court in the Northern District of Georgia, James A. Evans, Jr., who lives in Villa Rica, Georgia, operating a website at the domain name "Cashflowbot.com," and using the business name "DollarMonster", falsely promoted DollarMonster as a "private fund" where investors could make "big profits." Among other things, Evans misrepresented to investors that DollarMonster: (a) paid out investment returns that exceeded the amount of money investors had contributed to the fund; (b) was a "financial advisor" with more than 120 management teams and $38 million in assets under management; (c) managed a hedge fund that purchased stocks on behalf of investors in the fund; (d) was a "private Holding Company" that invested in assets such as gold, silver, real estate, stocks and bonds, and (e) had used investor funds to profitably invest in stocks with a market value of $3.2 million.

The complaint alleges that Evans raised approximately $1.15 million from investors. He redistributed approximately $1.06 million to investors as purported investment returns, and withdrew approximately $30,405 for his own personal use. Ultimately, Evans' scheme collapsed.

The SEC's complaint alleges that Evans violated the registration and antifraud provisions of the federal securities laws: 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, and Section 206(4) of the Investment Advisers Act of 1934. The complaint seeks a permanent injunction, disgorgement with prejudgment interest and civil monetary penalties pursuant to Sections 21(d)(3) of the Exchange Act and Section 209(e) of the Advisers Act.

INSURANCE BROKER CHARGED BY SEC WITH RUNNING A PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23182 / January 29, 2015
Securities and Exchange Commission v. Loren W. Holzhueter, et al., Case No. 15-cv-00045
SEC Charges Wisconsin-Based Insurance Broker with Conducting Ponzi Scheme

The Securities and Exchange Commission today announced fraud charges against a Wisconsin-based insurance brokerage firm and its president for conducting a Ponzi scheme with money they solicited for investment purposes. The Court entered a temporary restraining order yesterday freezing assets and prohibiting continuing violations of the securities laws.

In its complaint, filed on January 21 in federal district court in the Western District of Wisconsin, the SEC alleges that Loren W. Holzhueter and his firm Insurance Service Center (ISC) raised at least $10.4 million from approximately 120 investors since January 2008 who were misled to believe their investments would be placed in separate investment accounts at ISC or would be used to expand ISC's business by acquiring other insurance agencies.

The complaint alleges that ISC instead deposited investor funds directly into its general accounts. Holzhueter and ISC siphoned investor money to fund ISC's payroll and general operations as well as to pay off existing bank debts. ISC paid some investor money to Holzhueter and entities under his control. ISC also used money raised from newer investors to make interest and principal payments to earlier investors.

According to the SEC's complaint, Holzhueter and his firm hid critical pieces of information from investors, including that ISC's records had been seized by the IRS pursuant to a search warrant.

The complaint alleges that, based on this conduct, Holzhueter and ISC violated 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 Court entered a temporary restraining order that, among other things, freezes Holzhueter's assets, prohibits the defendants from raising new investor funds, and requires the parties to submit a joint plan for independent oversight of ISC.

The SEC's investigation has been conducted by Jen Peltz, Luz Aguilar, and Ariella Guardi and supervised by Paul Montoya of the Chicago office. The litigation is being led by Tim Leiman and Robert Moye.

SEC ANNOUNCES OVER $580 MILLION TO BE PAID BY COMPANY, CEO FOR ROLES IN PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23184 / January 30, 2015
Securities and Exchange Commission v. Edwin Yoshihiro Fujinaga and MRI International, Inc., et al., Civil Action No. 2:13-CV-1658 JCM (CWH) (D. Nev.)

Judge Orders MRI International Inc. and Its CEO Edwin Fujinaga to Pay More Than $580 Million in Ponzi Scheme Case

On January 27, 2015, the Honorable James C. Mahan, United States District Judge for the District of Nevada, entered a final judgment in favor of the Securities and Exchange Commission against defendants Edwin Fujinaga and MRI International, Inc. The final judgment requires Fujinaga and MRI to pay more than $580 million as the outcome of a civil enforcement action originally filed in September 2013. The SEC brought the case on an emergency basis and obtained a temporary restraining order and an asset freeze at the outset of the litigation.

In its pleadings and other court papers, the SEC alleged that the defendants perpetrated an elaborate Ponzi scheme designed to misappropriate money from investors. The SEC alleged that the defendants raised money from thousands of investors living primarily in Japan under the ruse that MRI was using their funds to buy accounts receivable from medical providers at a discount and subsequently collecting the full value of those receivables from insurance companies. The SEC alleged that defendants used the money for other purposes, including financing Fujinaga's extravagant lifestyle. In October 2014, the court granted the SEC's motion for summary judgment on liability against Fujinaga and MRI on all charges against them, including the following violations of the antifraud provisions of the federal securities laws: Sections 17(a)(1), (2), and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

The final judgment, in conjunction with the summary judgment opinion, sets forth findings that form the basis for the sanctions imposed, including that the "defendants engaged in a deceitful Ponzi scheme over several years," and that "such conduct manifested a high degree of scienter." The final judgment finds that the defendants collected hundreds of millions of dollars for purported investments in medical accounts receivable, and that they used these funds to repay earlier investors as well as for their own personal expenses.

The final judgment holds the defendants jointly and severally liable for disgorgement of proceeds in the amount of $442,229,611.70 and for prejudgment interest in the amount of $102,129,752.38. The judgment imposes civil money penalties of $20 million against each defendant. The judgment also provides injunctive relief by permanently enjoining the defendants from further securities violations.

The SEC's case is continuing against multiple relief defendants, who the SEC alleges received and used investors' funds.

For further information, please see Litigation Release Number 22832 (October 3, 2013) [SEC Obtains Asset Freeze and Other Emergency Relief in Ponzi Scheme Targeting Investors in Japan] and Litigation Release Number 23111 (October 10, 2014) [SEC Obtains Summary Judgment Win on Liability in Ponzi Scheme Case].

The SEC appreciates the assistance of the Financial Services Agency of Japan and the Securities and Exchange Surveillance Commission of Japan in this matter.

SEC CHARGED ATTORNEY WITH CONDUCTING A PONZI SCHEME WORTH ABOUT $5 MILLION

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission  charged a Manhattan-based attorney with conducting a Ponzi scheme that defrauded some of his legal clients as well as close family members and friends.

The SEC alleges that Charles A. Bennett raised approximately $5 million by selling purported investments in what he described as a pool of funds that invested in joint ventures with a Wyoming-based investment fund to which he claimed to have a close connection.  Bennett told investors their money would largely be used to fund investments in European real estate mortgage-backed securities yielding lucrative rates of return ranging anywhere from 6 to 25 percent over short periods of time.  He stated that prominent individuals including a former governor of New York were participating in these investment ventures.
However, the SEC alleges that Bennett’s story was a sham.  While the fund does exist and Bennett is an acquaintance of the fund’s principal, he had no connection to the fund nor did he invest in any joint ventures associated with the fund or prominent individuals.  In fact, he made no investments at all, instead secretly misappropriating all of the money he raised from investors.  Bennett used funds from newer investors to pay redemptions and make phony “interest” payments to earlier investors, and he siphoned away investor money to support his own lifestyle that included vacations, expensive hotels, and substantial cash withdrawals.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Bennett.

“Bennett falsely portrayed that he was closely associated with a Wyoming-based fund and would provide substantial rates of return to investors, but he was simply keeping the cash for himself and using it to perpetuate his Ponzi scheme,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in federal court in Manhattan, Bennett sent phony documents to investors in order to make the investments appear legitimate.  He falsely claimed them to be account statements issued by the Wyoming-based fund.  By mid-2014, Bennett’s scheme began to collapse as investors’ demands for the return of their principal outpaced his ability to obtain new funds.  Last month, Bennett composed a lengthy handwritten note admitting to his fraudulent conduct and left it in a Manhattan hotel room.  He then jumped into the Hudson River and was later rescued.

The SEC’s complaint charges Bennett with violating the antifraud provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934, and with selling securities for which no registration statement is active or on file with the SEC.  The complaint seeks among other things permanent injunctive relief, disgorgement of ill-gotten gains, and financial penalties.  

The SEC’s investigation, which is continuing, is being conducted by Jorge G. Tenreiro and Lara S. Mehraban of the New York Regional Office.  The case is being supervised by Amelia A. Cottrell, and Richard G. Primoff and Mr. Tenreiro are leading the SEC’s litigation.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.

OHIO RESIDENT CHARGED BY CFTC WITH COMMODITY POOL FRAUD

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION 

CFTC Charges Ohio Resident Glen Galemmo with Commodity Pool Fraud in a Multi-Million Dollar Ponzi Scheme

CFTC alleges that Galemmo solicited at least $116 million from pool participants and only deposited approximately $4.7 million of the funds into futures accounts

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) filed a civil enforcement Complaint against Defendant Glen Galemmo of Cincinnati, Ohio, charging him with operating a multi-million dollar Ponzi scheme through his firm, QFC, LLC, from February 18, 2010 through at least July 17, 2013.

According to the Complaint filed on September 15, 2014, Galemmo, among other things, made material misrepresentations to commodity pool participants, including the misrepresentation that the pool generated returns of 17 percent to 40 percent from 2008 through 2012. The Complaint also alleges that Galemmo failed to disclose that he failed to trade pool participants’ funds from at least 2003 through May 2011. As alleged, beginning in April 2011, Galemmo only deposited approximately $4.7 million of over $116 million solicited from pool participants into futures accounts that he controlled and sustained total trading losses of approximately $1.2 million. Galemmo also allegedly withdrew or caused to be withdrawn $2.7 million in pool participants’ funds from these futures accounts.

The Complaint further alleges that Galemmo misappropriated pool participant funds for personal and other business uses, and to conceal his fraudulent scheme and misappropriation, Galemmo issued or caused to be issued false account statements to pool participants.

The Complaint also notes that on January 15, 2014, Galemmo formally pleaded guilty in a related criminal case. See United States v. Glen Galemmo, Case No. 1:13-cr-00141-HJW (S.D. Ohio).

In its continuing litigation, the CFTC seeks a return of ill-gotten gains, restitution, civil monetary penalties, trading and registration bans, and permanent injunctions against further violations of the federal commodities laws, as charged.

CFTC Division of Enforcement staff members responsible for this case are Eugene Smith, Peter M. Haas, Dmitriy Vilenskiy, and Paul G. Hayeck.

SEC OBTAINS ASSET FREEZE AGAINST COMPANY BEHIND PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Obtains Asset Freeze Against Company in Turks and Caicos Islands Behind South Florida-Based Ponzi Scheme

09/16/2014 04:30 PM EDT

The Securities and Exchange Commission announced an emergency asset freeze against a company located in Turks and Caicos Islands in connection with its operation of a South Florida-based Ponzi scheme.

The SEC’s request for the emergency asset freeze against Abatement Corp. Holding Company Limited was granted in the U.S. District Court for the Southern District of Florida last week.  The SEC’s complaint alleged that Abatement Corp. and its now-deceased principal Joseph Laurer – who commonly used the name Dr. Josef V. Laurer – falsely promised investors safe, guaranteed returns while engaging in an offering fraud and Ponzi scheme from November 2004 until Laurer’s death on May 15, 2014.

The SEC’s complaint also names Laurer’s widow Brenda Davis and another Laurer-controlled company International Balanced Fund as relief defendants because they received investor funds.

“Unknowing investors were led to believe that Abatement Corp. and Laurer were watching out for their financial best interests when, in fact, they were callously stealing their hard-earned money,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

The SEC’s complaint alleges that Laurer, through Abatement Corp., raised more than $4.6 million from approximately 50 investors residing primarily in South Florida.  Laurer, who was a member of the City of Homestead’s General Employee Pension Board and president of the South Dade chapter of AARP, convinced investors to give him money through false claims that he would put their money into Abatement Corp.’s purported bond fund that invested in triple-A rated corporate and government bonds.  Laurer also told investors that the fund would pay a guaranteed fixed return, with no risk to principal because of insurance from either or both the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation.

The SEC alleges that by at least 2007, Laurer was operating a full-fledged Ponzi scheme and putting virtually no new investor money into securities, instead using investor funds to pay returns to investors, fund investor withdrawals, and pay personal expenses.  At the time of Laurer’s death, approximately $900,000 remained in Abatement Corp.’s bank account in the Turks and Caicos Islands, and another $82,000 remains in a domestic bank account held by International Balanced Fund.  The SEC further alleges that Laurer used investor funds for the benefit of his wife, including paying premiums with investor funds on a half million dollar life insurance policy she received upon his death.

The court order issued on September 12 temporarily freezes the assets of Abatement Corp. and International Balanced Fund and sets a hearing for September 22.  Davis agreed to a temporary freeze of certain assets of hers until November 6, pending a determination of the SEC’s claim against Davis for disgorgement.  If the SEC and Davis have not resolved the claims against her or agreed to an extension of the temporary asset freeze by October 22, then the court will hold a hearing on the SEC’s motion against Davis on October 24.

The SEC’s complaint charges Abatement Corp. with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  In addition to seeking an asset freeze, the SEC also seeks an order directing Abatement Corp. and the relief defendants to pay disgorgement with prejudgment interest and provide a sworn accounting of all proceeds received and an order directing repatriation of any funds held at any offshore bank or other financial institution not subject to the jurisdiction of the court.

The SEC’s investigation was conducted by Terence M. Tennant and Mark S. Dee under the supervision of Elisha L. Frank in the SEC’s Miami Regional Office.  They were assisted by Anson Kwong, Debra E. Williamson, George Franceschini, Nicholas A. Monaco and John C. Mattimore of the Miami office’s examination program.  The SEC’s litigation is being led by Andrew Schiff.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Turks and Caicos Islands Financial Services Commission.

PROSECUTORS CHARGE ALLEGED PONZI SCHEMER WITH VIOLATING SEC OBTAINED COURT ORDERS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Federal Prosecutors Charge Massachusetts Resident with Criminal Contempt Based On Violations of Court Orders Obtained by the SEC

The Securities and Exchange Commission announced today that, on April 10, 2014, the United States Attorney's Office for the District of Massachusetts charged Steven Palladino with 25 counts of criminal contempt based on his repeated violations of Court orders obtained by the Commission in its civil action against Palladino and his Massachusetts-based company, Viking Financial Group, Inc. (collectively, "Defendants"). The Commission's action charged that Defendants were operating a fraudulent Ponzi scheme. The charging document filed by the United States Attorney's Office alleges that Palladino "knowingly and wilfully disobey[ed]" Court orders in the Commission's action that froze all of Defendants' assets, required that Defendants deposit all funds in their possession into a court-ordered escrow account, and required Palladino to purge himself of a prior order of civil contempt. If convicted, Palladino, who is currently serving a prison sentence based on convictions in state court for the same Ponzi scheme activity, could face additional incarceration.

On April 30, 2013, the Commission filed an emergency action against Defendants in federal district court in Massachusetts. In its complaint, the Commission alleged that, since April 2011, Defendants misrepresented to at least 33 investors that their funds would be used to conduct the business of Viking - which was purportedly to make short-term, high interest loans to those unable to obtain traditional financing. The Commission also alleged that Palladino misrepresented to investors that the loans made by Viking would be secured by first interest liens on non-primary residence properties and that investors would be repaid their principal, plus monthly interest at rates generally ranging from 7-15%, from payments that borrowers made on the loans. The complaint alleged that Defendants actually made very few real loans to borrowers, and instead used investors' funds largely to pay earlier investors and to fund the Palladino family's lavish lifestyle.

When the Commission first filed its action, it moved the Court for a temporary restraining order, asset freeze, and other emergency relief. On April 30, 2013, the Court issued a temporary restraining order, which included the asset freeze, and set the matter for further hearing on May 3, 2013. On May 3, 2013, the Court issued a revised restraining order, which included the same asset freeze. On May 15, 2013, the Court issued the order that Defendants deposit all funds in their possession into an escrow account. The asset freeze and escrow order have remained in effect at all times since April 30, 2013 and May 15, 2013, respectively.

Since September 2013, the Commission has filed four motions for civil contempt against Palladino. The Commission's first motion for contempt, filed on September 4, 2013, alleged that Palladino violated the asset freeze by transferring three vehicles that he owned (solely or jointly with his wife) into his wife's name and using the vehicles as collateral for new loans - effectively cashing out the equity in these vehicles. The motion also alleged that Palladino violated the escrow order by failing to deposit the funds he received from this cashing-out process into the escrow account. On November 15, 2013, the Court held Palladino in contempt and ordered that he restore ownership of the vehicles that he had transferred into his wife's name. Subsequently, Palladino reported to the Court that he had repaid all the new loans and restored ownership of two of the vehicles (but had failed to restore ownership of one vehicle). The Commission alleges that, in truth, the checks used to repay the new loans on the vehicles were all returned for insufficient funds. According to the Commission's allegations, to date, Palladino has not purged the civil contempt order against him. The Commission also filed three other contempt motions against Palladino charging that (i) he obtained a loan for $6,750 from a Viking investor and failed to deposit this amount into the escrow account; (ii) he sold a truck owned by him for $9,500 and failed to deposit this amount into the escrow account; and (iii) he opened new credit cards and ran up charges for cash advances, gold coins, luxury merchandise and fine dining and failed to deposit the cash and other assets obtained into the escrow account - all in violation of the asset freeze and escrow order. These three motions remain outstanding. The United States Attorney's Office's criminal charges arise from these same violations, as well as Palladino's alleged refusal to comply with the civil contempt order.

On July 15, 2013, the Court held that Defendants' conduct violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and Section 17(a) of the Securities Act. On November 18, 2013, the Court entered orders that enjoined Defendants from further violations of the antifraud provisions of the securities laws and ordered them to pay disgorgement of $9,701,738, plus prejudgment interest of $122,370. On January 14, 2014, Palladino pled guilty in Suffolk Superior Court to various state criminal charges based on the same conduct alleged by the Commission in its case. Palladino is currently serving a 10-12 year prison sentence for his state court convictions.

The Commission acknowledges the continued assistance of Suffolk County (Massachusetts) District Attorney Daniel F. Conley's Office, whose office referred Palladino's and Viking's conduct to the Commission.

CFTC FILES CHARGES FOR OPERATING PONZI SCHEME AGAINST TWO SOUTH CAROLINA RESIDENTS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Charges South Carolina Residents Robert S. and Amy L. Leben with Commodity Pool Fraud for the Operation of a Multi-Million Dollar Ponzi Scheme

Federal Court Issues Emergency Order Freezing Defendants’ Assets and Protecting Books and Records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that, on March 14, 2014, Judge Terry L. Wooten of the U.S. District Court for the District of South Carolina issued an emergency Order freezing assets under the control of Robert S. Leben and Amy L. Leben (Lebens) of Columbia, South Carolina, in connection with a commodity pool called Structured Finance Group Corporation (SFG).  The Order also prohibits the Lebens from destroying books and records and allows the CFTC immediate access to those records.

This court’s emergency Order arises out of a CFTC enforcement action filed under seal on March 12, 2014, charging the Lebens with fraudulently soliciting and/or accepting at least $3.2 million from pool participants in connection with their operation of the SFG commodity pool from August 2008 to the present.  The CFTC Complaint also charges the Lebens with misappropriating pool participant funds and failing to register with the CFTC as Commodity Pool Operators in connection with their operation of SFG.  In addition, the complaint charges Amy Leben with improper operation of the pool.

The Lebens allegedly misappropriated at least $1.77 million for their personal use

According to the Complaint, the Lebens misappropriated at least $1.77 million of pool participant funds for their personal use, including to purchase their residence and a swimming pool, among other things.  The Complaint also charges Robert Leben with fraudulently guaranteeing pool participants’ principal investment against risk of loss, guaranteeing annual returns of 14 percent, and bolstering these guarantees by issuing written false statements to pool participants.  In addition, to perpetuate their fraud, the Lebens operated SFG as a Ponzi scheme through which they used pool participant funds to pay other pool participants a total of approximately $1 million as purported profits, according to the Complaint.

In its continuing litigation, the CFTC seeks a permanent injunction from future violations of federal commodities laws, permanent registration and trading bans, full restitution to defrauded pool participants, disgorgement of any ill-gotten gains, and civil monetary penalties.

The CFTC appreciates the cooperation of the South Carolina Attorney General’s Office, the U.S. Marshals Service, and the Office of the U.S. Attorney for the District of South Carolina in this matter.

CFTC Division of Enforcement staff members responsible for this case are Amanda Harding, Elizabeth Davis, Michael Loconte, Erica Bodin, Richard Foelber, and Rick Glaser.

ATTORNEY SETTLES CLAIMS HE MADE FALSE AND MISLEADING STATEMENTS TO INVESTORS

FROM:  SECURITIES AND EXCHANGE COMMISSION 
SEC Settles Claims Against Attorney Retained by Funds Involved in Fraudulent Investment Scheme

The United States District Court for the District of Oregon has entered final judgment against Oregon attorney Robert Custis pursuant to a settlement resolving claims brought by the Securities and Exchange Commission.  The Commission’s complaint alleged that Mr. Custis was retained to perform work for investment funds run by Yusaf Jawed and that he made false and misleading statements to the funds’ investors.

The Commission’s previously-filed complaint alleged that Mr. Jawed and two entities he controlled, Grifphon Asset Management, LLC and Grifphon Holdings, LLC, defrauded more than 100 investors in the Pacific Northwest and across the country as part of a long-running Ponzi scheme that raised more than $37 million.  The complaint alleged that Mr. Custis was retained in 2009 and began sending updates to Mr. Jawed’s investors regarding the status of a purported purchase of the funds’ assets that would allow investors to redeem their shares of the funds for a profit.  The complaint alleges that the statements regarding the asset purchase were false and that the investors were never paid.

Mr. Custis agreed to settle the Commission’s charges without admitting or denying the allegations.  The District Court entered final judgment on February 13, 2014, permanently enjoining Mr. Custis from violating Sections 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Section 206(4) and Rule 206(4)-8 of the Investment Advisers Act of 1940.    

On February 27, 2014, pursuant to an offer of settlement submitted by Mr. Custis, the Commission issued an order prohibiting Mr. Custis from appearing or practicing before the Commission as an attorney under Rule 102(e) of the Commission’s Rules of Practice.

COURT ORDERS ACCUSED EMBEZZLER TO PAY $5.2 MILLION

FROM:  COMMODITY FUTURES TRADING COMMISSION 
Federal Court Orders North Carolina Resident Michael Anthony Jenkins and his Company, Harbor Light Asset Management, to Pay over $5.2 Million for Solicitation Fraud, Misappropriation, and Embezzlement in a Ponzi Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that Judge James C. Fox of the U.S. District Court for the Eastern District of North Carolina entered an Order for a permanent injunction against Defendants Harbor Light Asset Management, LLC (HLAM) and its President and owner, Michael Anthony Jenkins, both of Raleigh, North Carolina. The Order requires HLAM and Jenkins jointly to pay restitution totaling $1,301,406.60 and a civil monetary penalty of $3,904,219.80. The Order also imposes permanent trading and registration bans against the Defendants and prohibits them from violating the Commodity Exchange Act and CFTC Regulations, as charged.

The Order stems from a CFTC Complaint filed on November 20, 2012 (see CFTC Press Release 6422-12, November 23, 2012), charging HLAM and Jenkins with operating a Ponzi scheme and fraudulently soliciting at least $1.79 million from approximately 377 persons, primarily in North Carolina, in connection with the scheme.

The Order finds that the Defendants made use of an HLAM Investment Agreement to falsely represent to HLAM Investors that their investment funds were used solely for investment in E-mini futures and that the funds would be wired to a specific trading account. To cover up and further the fraud, Jenkins sent spreadsheets and statements that reported false trades, profits, and inflated the value of HLAM’s investments. In addition, the Order finds that Jenkins acted within the scope of his employment by HLAM and committed embezzlement and failed to register with the CFTC as a Futures Commission Merchant.

The CFTC thanks the Securities Division of the North Carolina Department of the Secretary of State for its cooperation and assistance.

CFTC Division of Enforcement staff members responsible for this case are Xavier Romeu-Matta, Nathan Ploener, Christopher Giglio, Lenel Hickson, Jr., and Manal M. Sultan.

MAN SENTENCED TO PRISON FOR ROLE IN PONZI SCHEME

FROM:  SECURITIES AND EXCHANGE COMMISSION 

Massachusetts Resident Steven Palladino Sentenced to 10-12 Years in Prison for Role in Multi-Million Dollar Ponzi Scheme

The Securities and Exchange Commission announced today that, on January 21, 2014, a Massachusetts state court judge sentenced Massachusetts resident Steven Palladino to a prison term in a criminal action filed by the Suffolk County (Massachusetts) District Attorney.  The criminal action against Palladino and his company, Massachusetts-based Viking Financial Group, Inc., was initially filed in March 2013 and involves the same conduct alleged in a civil securities fraud action brought by the Commission in April 2013.  Suffolk Superior Court Judge Janet Sanders sentenced Palladino, of West Roxbury, Massachusetts, to serve a prison term of 10-12 years, followed by a probationary period of five years, and to pay restitution to victims, for crimes that he committed in connection with a Ponzi scheme perpetrated through Viking.  At the same hearing, Palladino pled guilty to criminal charges that included conspiracy, being an open and notorious thief, larceny, and larceny from elderly person(s).  Viking also pled guilty to related charges and was sentenced to a probationary period of five years and ordered to pay restitution to victims.  The Court set a further hearing for March 7, 2014 to determine, among other things, the amount of restitution to be paid to victims.

The Commission previously filed an emergency action against Viking and Palladino (collectively, “Defendants”) in federal district court in Massachusetts.  In its complaint, the Commission alleged that, since April 2011, Defendants misrepresented to at least 33 investors that their funds would be used to conduct the business of Viking – which was purportedly to make short-term, high interest loans to those unable to obtain traditional financing.  The Commission also alleged that Palladino misrepresented to investors that the loans made by Viking would be secured by first interest liens on non-primary residence properties and that investors would be repaid their principal, plus monthly interest at rates generally ranging from 7-15%, from payments that borrowers made on loans.  The complaint alleged that, in truth, Defendants made very few real loans to borrowers, and instead used investors’ funds largely to pay earlier investors and to pay for the Palladino family’s substantial personal expenses, including cash withdrawals, gambling debts, vacations, luxury vehicles and tuition.

The Commission first filed this action on April 30, 2013, seeking a temporary restraining order, asset freeze, and other emergency relief – which the Court granted.  On May 15, 2013, the Court also issued an escrow order, which ordered Defendants to deposit all funds and assets in their possession into an escrow account.  The asset freeze and escrow order have remained in effect at all times since April 30, 2013 and May 15, 2013, respectively.  On July 15, 2013, the Court held that Defendants’ conduct violated 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.  On November 18, 2013, the Court entered orders that enjoined Defendants from further violations of the antifraud provisions of the securities laws and ordered them to pay disgorgement of $9,701,738, plus prejudgment interest of $122,370.

On September 4, 2013, the Commission filed a motion for contempt against Palladino for violations of the asset freeze and the escrow order.  The motion alleged that Palladino violated the asset freeze by transferring three vehicles that he owned (solely or jointly with his wife) into his wife’s name and using the vehicles as collateral for new loans – effectively cashing out the equity in these vehicles.  The motion also alleged that Palladino violated the escrow order by failing to deposit all cash in his possession into the escrow account.  On November 15, 2013, the Court held Palladino in contempt and ordered that he restore ownership of the vehicles that he had transferred into his wife’s name.  Subsequently, Palladino restored ownership of two of the vehicles but has failed to restore ownership of one vehicle.  As a result, the Court refused to dismiss the contempt finding against him at hearings on December 3, 2013 and January 17, 2014.  The Court has set a further hearing date of February 20, 2014 to address, among other things, whether Palladino remains in contempt.

The Commission acknowledges the continued assistance of Suffolk County (Massachusetts) District Attorney Daniel F. Conley’s Office, whose office referred Palladino’s and Viking’s conduct to the Commission.