Ponzi Scheme

Ponzi Scheme Dupes Senior Citizens

11/07 - (Michigan) - A 71-year-old Oakland County man is being accused of defrauding as many as 1,200 investors, many of them senior citizens, of up to $250 million.

A lawsuit filed Tuesday in U.S. District Court by the Securities and Exchange Commission alleges that Edward P. May and his company E-M Management Co. LLC, raised between $74 million and $250 million by fraudulently selling securities through various companies between 1998 and July 2007.

May told investors the companies were contracted to install and provide telecommunications equipment and services to major hotel chains and casinos, including establishments in Las Vegas.

The deals involved investors in Michigan, California, Florida, Illinois, New York, Ohio and New Jersey.

"Categorically, Ed May never dealt with elderly investors. He never dealt with elderly investors who didn't know what they were doing. They were sophisticated investors with substantial means," said May's attorney Ronald Gold, who has offices in Southfield.

May and his company told investors that they would receive payments for 20 to 24 months soon after they invested. The SEC alleges in the suit that those representations were false.

May and E-M relied on a network of individuals, some of whom organized investment seminars, to entice investors to invest through E-M.

The SEC called the scheme a "brazen scam in which the defendants touted phony casino and resort deals, complete with bogus contracts and fictitious hotel executives, to cheat hundreds of investors out of millions of dollars."

The SEC alleges that the companies did not have any telecommunication contracts with the establishments identified by May and E-M.

May and E-M provided investors copies of fictitious contracts, the SEC alleges. Some of these contracts included the names of purported hotel executives who did not exist.

"One of the things that disturbed us ... is that a number of investors were seniors and elderly," said Peter Chan, assistant regional director of the SEC's Chicago regional office.

"It is an outright scam, but one that had a very broad reach to different states and people," Chan said.

The SEC is seeking a court order for May to repay the money, with interest, and a penalty.

(Detroit Free Press)

High Yield Ponzi Scheme Operators Arrested

07/06 - (Hawaii) - A former Maui resident pleaded guilty Wednesday in Portland, Ore., as a conspirator in an investment fraud scam that took in more than $125 million, the Internal Revenue Service said.

Rita L. Regale, 53, also known as Rita L. Brunges, faces a maximum sentence of 10 years in prison, a fine of $250,000 and a three-year term of supervised release for conspiring to commit money laundering, the IRS said. Regale served as the chief financial officer and director of First International Bank of Grenada between October 1997 and April 2000.

Regale's plea agreement calls for her to cooperate against other defendants in exchange for a sentencing recommendation in the range of 51 to 71 months. Her sentencing has been postponed pending trial of two remaining co-defendants — Douglas C. Ferguson and Laurent E. Barnabe, aka Larry Barnabe — in February 2007.

Gilbert A. Ziegler, founding chairman and CEO of First International Bank of Grenada, was indicted in January 2004 for fraud and money laundering related to the bank scam. Ziegler died of a heart attack in December 2005.

Ziegler and others, including Regale, persuaded people to deposit money by promising annual returns of up to 300 percent, according to the indictment.

Ziegler, who fled to Uganda and was arrested with Ferguson following a shootout, and Regale were the only figures in the case with ties to Hawai'i.

U.S. Assistant Attorney Claire Fay of Oregon told The Advertiser yesterday that many people were bilked by the promises of high returns and 100 percent guarantee against loss by the International Depositors' Reinsurance Corp., including "a lot of folks from Hawai'i who were investors." IDRC was established as a name-only insurer in December 1996 by Ziegler and Ferguson.

It was a common pyramid scam.

The bank, in fact, had no investment income and used new depositors' money to make purported interest payments to earlier investors, according to court documents. First International Bank of Grenada was taken over by the government of Grenada in August 2000 and the group went into liquidation in January 2001.

Ziegler came to Hawai'i from Oregon around 1994 and started a business, Wheatland Interests, which sold tax avoidance "pure trust organizations," according to court documents.

In August 1996, he purchased the paperwork of an offshore bank called Fidelity International Bank for $50,000 and created a Class I offshore bank in Grenada, West Indies, called First International Bank of Grenada, in October 1997, according to court documents.

Regale, a former real estate agent, health food store manager and fitness center co-owner, was hired in June 1997 as operations and accounts manager of Fidelity International Bank, which depended on management services of other banks and entities to operate. The bank was supposedly based on the Caribbean island of Nevis but was actually operated out of Kihei, Maui, by Ziegler and Regale, according to IRS and FBI investigators.

Fay said Ziegler and Regale used "independent contractors" to sell certificates of deposits in Hawai'i and paid them a commission.

"The First International Bank of Grenada is one of the crudest-ever examples of financial crime," said David Marchant, publisher of the Miami-based "Off-Shore Alert," which exposed the scam.

Marchant said Ziegler, with no banking experience, no money and a passport issued by a nonexistent country, "Melchizedek," was able to capitalize a bank using a photograph of a 10,000-carat ruby the bank did not own or possess, and take in more than $100 million in deposits.

Like many white-collar crooks, Ziegler specialized in "ripping off the elderly and the religious" and appeared to have "no conscience about doing so," Marchant said.

(Honolulu Advertiser)

Golden Summit Group Ponzi Scheme

03/08 - (South Carolina) - A Mason County-based investment manager cheated clients out of $21 million by promising mammoth returns while frittering away the money, federal authorities say.

Ralph Gregory Gibbs, 56, of New Haven carried out the fraud through a financial firm called Golden Summit Group, according to a U.S. Securities and Exchange Commission news release Wednesday.

Gibbs agreed to a securities-fraud settlement with the SEC and pleaded guilty to criminal charges filed by the U.S. attorney's office in Alexandria, Va., the SEC said.

From April 2005 through February 2007, the SEC alleges, Gibbs collected the money from at least 150 investors in 25 states, including 15 West Virginians, promising monthly returns of 3 percent to 5 percent on their investments while guaranteeing their principal.

Many of the clients were elderly or otherwise relied on limited incomes, the SEC said, and some cashed out their retirement savings or took out home-equity loans in order to fund their investments with Golden Summit.

Gibbs was actually running a "Ponzi" scheme, creating the illusion of healthy returns by using new clients' investments to pay returns to longer-standing clients, the SEC said. Gibbs allegedly lied to investors about the nature of his investments, the risks involved, the use of investment proceeds, the source of the returns and his trading activities.

Of the $21 million raised, Gibbs put about $8.1 million into a currency-trading account on the Foreign Exchange Market, losing more than $6.3 million of those investments.

Another $2.9 million went to Gibbs' personal expenses, including the construction of a $1.14 million house in New Haven.

Gibbs contacted the clients primarily through mail solicitation, but he also held investment meetings and made phone-call solicitations, said SEC spokeswoman Elaine Greenberg.

Gibbs' settlement requires him to repay all the money, plus interest, which comes to $21,421,418. But his cash assets amount to just $4,142,493. A receiver has been appointed to liquidate the New Haven house as well as another house Gibbs owned and his other non-cash assets.

As part of the settlement, Gibbs neither admitted nor denied the securities-fraud allegations. His guilty plea on criminal-fraud charges will likely draw him multiple years in prison, said Greenberg.

U.S. Department of Justice officials couldn't be reached for comment on the possible sentence.

(The Charleston Gazette)

Ponzi Scheme Investment Scam Nets Scammer High Yield Sentence

09/08 - (RIVERSIDE, Calif.) - Businessman Daniel W. Heath was sentenced Friday to 127 years in prison for running a $190 million investment scam that prosecutors said bilked many elderly investors of their life savings.

Heath, 51, his father and a third man were found guilty of running a Ponzi scheme that funneled money from new investors to pay off people who previously provided money.

The scam spread across half the country and cheated 1,800 people, prosecutors said.

Heath and the other men were convicted on all but one of 400 charges that included fraud and money laundering.

Heath received the maximum sentence in prison. His father, John Heath, 81, was sentenced in February to 28 years in prison.

Prosecutors said the scam dated back to the early 1990s, with Daniel W. Heath & Associates promising clients their money would go into fixed investments with little or no risk.

Instead, it went to money-losing real estate and small business projects controlled by the company that had offices across Southern California.

Many of the investors were retirees who had trusted the company with life savings and retirement accounts. Some lost their homes.

Investors have had some money returned, but a court-appointed receiver estimated they will get only about 22 cents on every dollar.

(AP)

Hedge Fund Ponzi Scheme Investment Fraud

09/07 - (California) - The SEC has charged a San Francisco hedge fund manager with fraud, claiming he used a scheme that drastically overstated the fund's assets and returns. It also claims that the defendant, Alexander James Trabulse, misused fund assets.

In its suit, the Commission claims Trabulse’s lied to investors in his Fahey Fund, via account statements and other materials that included fictional returns. Those returns often exceeded the fund's real returns by as much as 200%. At the same time, he was spending the assets in the fund on cars and shopping sprees for his family members.

Trabulse, 60, created the Fahey Fund in 1997 and has since raised about $10 million from roughly 100 investors, according to the complaint. As part of his pitch, Trabulse told investors the fund invested in stocks, derivatives, and foreign currency. He also boasted of the fund's spectacular past performance

But, the Commission states, Trabulse began his deception at least as early as 1998. And the returns that the fund’s quarterly account statements and fund newsletter claimed bore no relation to its actual performance.

Those bogus materials claimed that the fund, through shrewd investing, had grown to $45 million by the end of 2006. But the SEC claims that the fund, which had initially taken in roughly $10 million, actually only had $13 million in assets at the time.

Trabulse used the false account statements to lure new investments from existing investors, and to get those investors to recommend their friends and relatives to the fund. He also gave prospective investors a list of current investors who would act as references.

"Trabulse encouraged his existing investors to serve as references for new investors. As a result, his false account statements not only lulled existing investors into believing their investments were hugely profitably, but lured new investors into the fraud," said Helane L. Morrison, Director of the SEC's San Francisco Regional Office.

Among the personal expenses Trabulse spent investors’ money on were cars, a home theater system, jewelry, real estate in France and Panama, and a $650,000 allowance for his ex-wife overseas. He used investor assets to start a golf company and to buy a BMW for an employee of that golf company. He also went so far as to give his daughter access to the fund's bank accounts for personal use, according to the Commission.

The Commission's complaint alleges Trabulse violated the antifraud and registration provisions of the federal securities laws. It seeks disgorgement, penalties, and other relief. The regulator also has named as relief defendants several entities associated with Trabulse that received assets through Trabulse's fraud.

"Trabulse betrayed the trust investors placed in him by fabricating performance figures and treating the hedge fund as if it were his own personal bank account," said Linda Chatman Thomsen, Director of the SEC's Division of Enforcement. "The Commission is determined to hold hedge fund managers accountable when they deceive investors."

The SEC’s suit seeks disgorgement, penalties, and other relief from Trabulse. In addition, it has named several entities associated with Trabulse's fraud, namely the Fahey Fund, Fahey Financial Group, International Trade & Data, and ITD Trading, as relief defendants.

When the SEC began its investigation of his hedge fund, Trabulse invoked his Fifth Amendment rights and refused to answer its questions.

Evergreen International Spot Trading Ponzi Scheme

01/06- (New York) - A Point Lookout man who helped mastermind a $100-million investment fraud that was uncovered because of the terrorist attack on the World Trade Center, was sentenced Monday to eight years in federal prison for his role in the scheme.

Justin Fauci, 36, was the last of nine people convicted in the case of Evergreen International Spot Trading to be sentenced in U.S. District Court in Brooklyn. The firm operated from the 15th floor of Tower Two in the World Trade Center and at other locations in Manhattan.

When many of Evergreen's 1,400 investors sought to find out if their money was safe, or to withdraw their funds, after the destruction of the Twin Towers, the fraud scheme unraveled, according to federal prosecutors Cynthia Monaco and Matthew Levine. No employees were injured when the towers collapsed, but there was almost no money in Evergreen's accounts, prosecutors said.

To its operators Evergreen was "just a money-raising and money-spending machine," prosecutor Monaco has said, noting that investors' "money was spent on bonuses, salaries, commissions, apartments, cars, expense accounts and well-appointed offices."

Evergreen had promised investors 25 to 30 percent returns on short-term currency trades that came with so-called professional insurance that supposedly guaranteed against trading losses, according to the federal prosecutors. Evergreen was, in fact, a Ponzi scheme in which the operators did not engage in currency trading, but instead raked off millions to support posh lifestyles, prosecutors said.

The scam included a network of other phony shell firms that were set up supposedly to serve as neutral custodians of investors funds, audit Evergreen's books and trade in European currency.

Many of the victims were from Australia and New Zealand and used to dealing in various currencies. They were far enough away from the United States not to drop in on Evergreen's offices and succumbed to the firm's high-pressure, boiler-room tactics, which questioned victims as to whether they were sophisticated enough to deal with New York-style investing, prosecutors said.

Victims could not be immediately reached for comment.

Three others wanted in connection with the operation of Evergreen have fled the country and are believed to be in former Soviet Union republics, many of which do not allow the extradition of their citizens, the prosecutors said. One of the three, Mamed Mekhtiev of Brooklyn, left several suicide notes, but his body has never been found. Federal officials have said that the suicide was a hoax, and that Mekhtiev had withdrawn $91,000 from his bank account shortly before, the officials believe, he fled to his native Azerbaijan.

The other fugitives are Andrei Koudachev, who set up Evergreen in 1997, and Sergei Habarov, who was identified as an investment adviser at a related company in Hungary. Mekh.tiev was sentenced in absentia to 17½ years in prison, while other defendants have gotten up to 12 years.

Fauci, who made $1 million in the scheme, billed himself as the managing director of Evergreen; he pleaded guilty to conspiracy and mail fraud and was contrite before he was sentenced Monday by U.S. District Judge Carol Amon.

"I'm not only sorry," Fauci said. "I'm ashamed and embarassed and disgusted with myself. My life was a big lie."

Fauci's attorney, Norman Trabulus of Garden City, said of his client, "He is a flawed man ... not one of malevolence, [with an] addictive personality." Underscoring that point, the courtroom was filled with 70 of Fauci's supporters.

One of them, Joe LoCascio of Brooklyn, said Fauci had become a good man. "We all make mistakes," said LoCascio.

(Newsday)