for Financial and Emotional Suffering from Fraud
The principle of restitution is an integral part of virtually every
formal system of criminal justice. It holds that, whatever else society
does to punish its wrongdoers, it should also insure that the criminal
is required, if possible, to restorethe victim to his or her prior
state of well-being.
The payment of restitution by perpetrators can mark the end of a
financial nightmare for fraud victims. It not only serves to right
a wrong, it often allows them to return to whatever level of financial
security they enjoyed before the crime. The biggest dream for those
who have suffered from financial crime is getting some money back,
preferably from the people who stole it from them.
However, in reality, very few fraud perpetrators actually pay restitution.
Many perpetrators will have spent the money and have no discernible
resources with which to repay victims. In other cases, perpetrators
will have placed assets in the names of others or hidden money in
offshore accounts, so victims usually collect only pennies on the
dollar of what they are owed, or get nothing at all.
One telemarketer recently told a prosecutor:
"I'd rather spend a million dollars fighting extradition
than paying it back in restitution to the victims".
There have been attempts to deal with this problem by assigning
fraud investigators to track the assets of suspected perpetrators
before they are indicted.
Most restitution payments begin only after the defendant is released.
So even if the court orders full restitution to victims, the collection
and distribution of payments is often difficult, especially if perpetrators
are sentenced to long periods of incarceration.
Additionally, victims not officially included in formal indictments
are ineligible to receive any restitution unless their repayment
is part of a plea negotiation.
Some losses may at least be tax-deductible so consult a qualified
tax advisor or the taxation department to see if your losses qualify.
U.S. courts must order restitution for federal fraud crimes committed
after April 24, 1996, regardless of the defendant's ability to pay.
The court sets the amount of restitution, the order in which victims
will be paid (if there are multiple victims, usually those with the
most pressing financial needs are paid first), and conditions for
repayment. Even the process of having to notify all the victims in
a big fraud case is an overwhelming undertaking.
You will be required to submit a documented account of your financial
losses before the judge orders restitution. So the
first thing you should do is collect and save any paperwork that
directly relates to your loss.
Seasoned litigators know that it is one thing to obtain a judgment
and quite another to collect it.
As a tool to preserve wealth, offshore trusts are effective because
a creditor with a U.S. judgment will still face significant hurdles
before actually being able to get any of the trust's assets. Because
some jurisdictions will not recognize foreign judgments, the creditor
may be forced to re-litigate its entire case against the trust locally.
Also restrictive for a creditor is the fact that these havens do
not allow lawyers to take matters based on a contingency fee. Worse
still, they then provide that the losing party to a lawsuit must
pay all of the victor's expenses, including attorneys' fees.
As such, the process may prove prohibitively expensive for an individual
creditor when the potential reward is so uncertain. The effectiveness
of offshore trusts for asset protection purposes remains clear and
explains how settlements, if offered at all, range from only 20-50
cents on the dollar.
Seizure and Forfeiture of Assets.
Within the federal prosecutor's office, the Financial Litigation
Unit (FLU) works to uncover any assets the crook may have that could
be sold, seized, or forfeited to satisfy the restitution debt. Liens
on assets are enforceable for twenty years from the time they are
released from prison. Some scammers try to use bankruptcy protection
to make it harder for their victims to collect anything but under
federal law, they cannot file bankruptcy to discharge their legal
obligation to pay court-ordered restitution or civil judgments.
What is civil forfeiture?
There are two kinds of forfeiture: criminal and civil. The former
is part of a criminal case against a defendant. The other is an entirely
separate civil action.
While there is a parallel criminal arrest and prosecution, in the
overwhelming majority of civil forfeiture cases, there are important
reasons why the government must have civil forfeiture, in addition
First, criminal forfeiture is unavailable if the defendant is dead
or is a fugitive. There is simply no criminal case in which to pursue
Second, a majority of forfeiture cases are uncontested, often because
the defendant sees no point in claiming property that connects him
to the crime. Civil forfeiture allows disposal of these cases administratively.
Third, criminal forfeiture statutes are not comprehensive. Some
cases must be done civilly simply because there is no criminal forfeiture
Fourth, criminal forfeiture in a federal case requires a federal
conviction. If the defendant was convicted in a state case, the federal
forfeiture must be a civil forfeiture.
Fifth, criminal forfeiture is limited to the property of the defendant
himself, not associates or family members who may have taken possession
of the assets.
Proceeds of Charity Scam Go to Children in Need
The civil forfeiture of $61,039 from an alleged charity granting
the last requests of dying children was seized and given to real
charities doing such work.
United States Returns $11 Million to Victims of Lottery Scheme
A fraud ring fraudulently marketed foreign lottery products to the
elderly, some of whom lost tens of thousands of dollars. Civil forfeiture
laws were used to seize approximately $12.4 million they had hidden
in U.S. investment accounts held in the names of Cayman Island corporations.
Civil forfeiture statutes were the only means available for immobilizing
these assets to preserve their availability for restitution to victims,
because a criminal indictment could not be filed until evidence located
in foreign countries was obtained through painfully difficult and
time consuming requests to foreign governments (Canada, Barbados,
Switzerland, Cayman Islands, and Jersey).
The crooks were subsequently indicted and pled guilty and as a result
of the combined use of the criminal sentencing and civil forfeiture
procedures, restitution was available for the majority of the most
severely affected elderly victims.
Forfeiture Saves Elderly Woman From Destitution
A 94-year old widow was stripped of her home and her life savings
by her home health care aide. The aide looted her bank accounts then
sold her home out from under her, while she was living at a nursing
home, by having an impostor impersonate her at the closing.
She then moved the proceeds to a personal account and booked four
suites on a New Years Eve cruise to the Panama Canal, sending a check
for $25,000 drawn on the victim's account with a forged signature.
Using the forfeiture laws, federal agents seized her bank accounts
as well as a GMC Yukon, which was bought with $32,000 of the victim's
money, along with tens of thousands of dollars worth of clothing.
$2.3 Million Returned to Victims of Fraud Scheme
About 15,000 victims who lost over $8 million in an international
securities fraud scheme were told that their monies were needed to
fund legal and investigative efforts to release a billion dollar
fortune being held by European banks following the death of a British
Although the cons had squandered most of the proceeds the forfeiture
allowed officials to recover and sell numerous vehicles, parcels
of real estate, and businesses linked to the fraudulent proceeds.
Approximately $2.3 million will be disbursed to victims who filed
Forfeiture Nets $4.0 Million for Victims of a Ponzi Scheme in Texas
Federal prosecutors filed a civil forfeiture action against a $4.3
million mansion, held in the name of a British Virgin Islands entity
and a $1.1 million bank account from scammers who collected more
than $25 million in fifteen months by touting "prime bank" financial
instruments that supposedly returned an annual profit of 240%.
After payment of lien holders and other non-culpable claimants,
the net proceeds of sale of forfeited property will provide a pool
of approximately $4 million from which to compensate the more than
Something Better Than Nothing
In the criminal prosecution of a Canadian gemstone scheme, United
States v. Euro-Can-Am et al., the Office of Foreign Litigation
brought an action that succeeded in freezing assets in Canada until
the defendants reached a global settlement with the U.S. government.
The resolution of the prosecution included not only guilty pleas
by defendants, but a $1 million payment to the United States for
partial restitution to the scheme’s victims.
Civil Recovery for Fraud Victims
Although many crime victims and their families have some knowledge
about the legal system, they are often unaware that there are two
systems of justice available in which to hold the offender accountable—the
criminal justice system and the civil justice system.
Civil recovery is another option for recovering your financial losses,
especially those not considered in the criminal justice system. Civil
recovery is an action separate from the criminal prosecution, and
filing a civil action does not preclude you from requesting restitution
in the criminal case. So, if you believe the fraud perpetrator has
assets, you may be able to recover some losses through a civil lawsuit.
Civil cases are private matters. You have to initiate the action
and hire a lawyer at your own expense. Contact your state or local
bar association or the National Crime Victim Bar Association www.victimbar.org for
the names of attorneys who specialize in this area of law to determine
if your case is appropriate for civil action.
Unlike the criminal justice process, the civil justice system does
not attempt to determine an offender’s guilt or innocence,
or to incarcerate the offender. Rather, civil courts attempt
to ascertain whether an offender or a third-party is civilly liable for
the injuries sustained as a result of the crime.
The civil legal system offers crime victims another opportunity
to secure what they seek most – justice. Regardless of whether
there was a successful criminal prosecution–or any prosecution
at all–victims can bring their claims before the court and
ask to have the responsible parties held accountable. In the civil
justice system, offenders are held accountable, not to the state,
but to the victims who suffered the direct impact of the crime. While
money awarded in civil lawsuits can never fully compensate a victim
for the trauma of victimization or the loss of a loved one, it can
provide valuable resources to help crime victims rebuild their lives.
If your loss is small, you may want to investigate filing a claim
in small claims court where you do not require a lawyer.
There is a common thread that links many "membership" businesses
such as campground membership resorts, resort membership resale businesses,
travel clubs, video dating services and some "business opportunities".
The consumer is sold a future service contract (membership) and
told that they have three days in which to cancel.
Actually, where there is a statutory cancellation period, the statute
allows the consumer to cancel within 3 (or 7 or 10 depending on the
statute) without paying ANY damages whatsoever. The 3-day period
is a "super remedy" that doesn't allow the business to
keep any money. After three days, normal contract damage law still
If the consumer hasn't caused $5,000 in damages, they are not obligated
to pay a $5,000 sales price, or the business is not allowed to keep
the full $5,000 if already paid. The business can only keep actual
damages (for instance, the cost of a 1 hour sale pitch and a glossy
Many consumers are really beat up with this misrepresentation. Many
state Assistant AGs, and at least one FTC attorney, has said that
after three days, that's it, you lose everything.
Mark Fleming, a class action attorney from Seattle has yet to find
a judge that agrees.
Leisure Time Resorts of America (now Thousand Trails), paid out
over $1,000,000.00 in consumer refunds in a class action lawsuit
he finished last year. LTRA said the consumer had to pay the full
sales price whether the consumer wanted to keep the membership or
The judge disagreed and the consumers won.
The court ruled that a business that requires full forfeiture on
a future services contract has engaged in a deceptive trade practice.
As a matter of common sense, the business has been relieved from
performing years of membership services. Therefore, how can it be
entitled to full payment?
Nor does it make sense for the business to argue that the consumer
should be forced to remain a member against their will. Unfortunately,
we are used to the concept of having to pay in full on a contract
because we have driven the vehicle off the lot, taken the TV home,
When "you have the goods," you pay the price. When it's
a future services contract, you only pay the damages (if any).
It was discovered from reviewing financial statements that the campground
membership industry considers its satisfied customers as "loss
leaders." The profit is in the ones who are disgusted with misrepresentations
made at the point of sale, or move, and simply walk away from their
money because of the "no refund" language in the contract.
Fleming feels that one area that doesn't get enough press is the
successful individual consumer lawsuit. If an individual sues, proves
a deceptive trade practice, and gets their money back, nobody really
Only appellate cases are reported so that other attorneys can find
them, and a business is not likely to appeal and have everyone know
that one of its business practices is deceptive.
Consumers are constantly "reinventing the wheel" when
it comes to proving that a particular business practice is illegal.
Many "traditionally suspect businesses" (membership sales,
furnace installers, dating services, etc.) do not even show up to
defend a lawsuit.
They will pound their chests until the day of trial and then not
Bank Refunds of Mis-Endorsed Payments
Payments by telemarketing victims are sometimes processed through
Montreal 'money-marts' that do not vet their clients as carefully
as they could have and may have a liability under the Bills of Exchange
Act as well as in negligence.
While researching one telemarketing fraud case it was discovered
that about 40% of the bank drafts deposited in Quebec were cashed
by unknown parties. Thanks to a helpful Canadian Supreme Court decision
(the Boma case), one law firm was able to convince several banks
to simply refund their clients' monies.
The banks didn't lose any money on these refunds. They simply turned
around and charged-back these monies to the telemarketers, some of
whom live in the poshest areas of Montreal. More recently, victims
have also been using the Small Claims courts to recover monies back
from allegedly negligent banks. Examples are viewable at Horvath and Rabko.
Fraud victims or their families should be able to take these steps
without getting a lawyer involved.
- Victim should go back to his or her bank to ask for "endorsement
copies" of bank drafts, certified cheques and money orders
sent to these telemarketers.
- Determine if the endorsement shows a "Club Insta Paie Inc" stamp
indicating that the payment was encashed through the Bank of Montreal
at St. Laurent, Quebec. If it does, the victim should send a written
demand (via registered mail) for a return of the money from these
- Bank of Montreal, Law Department, 21st floor, 1st Canadian
Place, Toronto, Ontario, M5X 1A1
- Club Insta Paie Inc., 6617 Chemin de la Cote de Nieges,
Montreal, Quebec, H3S 2B3
- The written demand should state that the victim believes that
the endorsement is either invalid, a forgery, or does not match
the name of the intended payee.
- The victim should go back to his or her bank with a copy of the
registered letters and ask that the draft be re-routed back for
New and important case law may also hold the vendor of drafts and
money orders liable in small claims court. This case law is Bank
of Nova Scotia v Toronto Dominion Bank (2000) O.J. No. 1829 Court
File No. 99-CV-169831SR Ontario Superior Court of Justice, the Honourable
Cameron, J. released May 26, 2000.
This case may make it possible to recover money where a proper endorsement
is missing, for example where only a number has been stamped on the
back of the draft; or, where the endorsement differs ( even slightly
) from the payee's name.
The individual below can provide victims with some helpful documents:
(Please email him your request. The documents will be sent as TIF
files, or alternatively, by fax, if you provide a fax number. There
is no charge.)
- Example of such payments mentioned above.
- A letter from the Bank of Montreal indicating the procedure of
how a victim can obtain his refund.
- Supporting case laws, including a Supreme Court of Canada ruling.
Bob Salvador is a consumer-rights paralegal interested in helping
Canadians recover their losses from white-collar thugs. He can
be contacted at paralegal777\\justice.com.
In the last year alone, millions in unclaimed money from class-action
suit settlements has gone back to the wrongdoing companies because
people didn't know to collect it.
While attorneys have to notify the class members, they usually run
an ad in USA Today, but if you aren't reading it on that certain
day, you miss it. It is up to the consumer to come forward from that
a Web site with information on class-action lawsuits and product
Users can also submit information online to an attorney for a free
evaluation or to determine whether award money is due. It will provide
references to attorneys filing suits and, for a fee, even provide
forms to people filing class actions of their own.
A site geared towards stock fraud information is www.stockfraudnewswire.com
Legally Freezing the Scammer's Assets - Canadian Courts
Canadian lawyers have been successful in obtaining Court Orders
granting relief to victims of fraud when the perpetrator sends their
money to financial institutions located outside of Canada.
For many years, it has been possible for a victim of fraud to obtain
a "Mareva injunction" which is an Order of the Court that
freezes the assets and prevents the scammer from accessing them pending
the final disposition of the victim's recovery proceedings.
Such Orders are typically served upon financial institutions and
others having control over the stolen assets and it is a contempt
of Court for any person notified of an injunction to knowingly assist
in or permit a breach of the Order.
Traditionally, the Mareva Order was only effective within the territorial
jurisdiction in which the Order was obtained but in appropriate circumstances,
Canadian Courts will now grant so-called "worldwide" Mareva
injunctions to preserve assets which are physically located outside
of the Court's jurisdiction.
The guidelines which are considered by the Court on a Mareva injunction
motion are as follows:
- The victim must make full and frank disclosure of all matters
in his or her knowledge which are material for the Judge to know
in relation to the fraud;
- The victim must give full particulars of his or her claim against
the scammer, stating the grounds for and amount of the claim and
fairly stating the points which would be made against the claim
by the scammer;
- The victim must give some grounds for believing that they have
- The victim must give some grounds for believing that there is
a risk of the targeted assets being removed or dissipated before
the judgment or award is satisfied or that a Mareva injunction
is necessary to prevent a fraud on the Court or the adversary;
- The victim must undertake to be responsible for any damages which
the scammer may incur as a result of the Mareva injunction in the
event that it is subsequently determined by a Court that the Mareva
injunction ought not to have been granted.
Where, for example, a fraudulent investment scheme is perpetrated
outside of the Canadian Court's jurisdiction or where the scheme
is one which leaves open to question the location of the monies invested,
Canadian Courts have held that a worldwide Mareva injunction is appropriate.
A worldwide Mareva Order will have the effect of freezing the rogue's
assets wherever they may be, but once obtained, it is still necessary
to move before the Court in the foreign jurisdiction in order to
enforce the Order there.
The procedure for doing so will differ from jurisdiction to jurisdiction
and it will often be necessary to consult local counsel in that regard.
Once the foreign Court orders that the Mareva Order may be enforced
there, the Order may be served on asset holders.
Canadian Courts have even held in certain circumstances that the
scammer must provide the victim with a sworn "disclosure Order" affidavit
containing the particulars of all of his assets as a necessary adjunct
to the Mareva Order. Such an affidavit also enables the victim to
avoid freezing assets which have a greater value than their claim.
A Mareva Order should also include an Order requiring any financial
institutions served with a copy of the Order to produce to the victim
information and documentation regarding the scammer's accounts with
Such an Order will assist in tracing the stolen funds, often to
foreign destinations. Another important adjunct to the Mareva Order,
in cases where there is a pending police investigation into the fraudulent
activities, is an Order for production of any documentation in the
possession of the police. This will allow potential access to sources
of information regarding the assets which might not otherwise be
It is of the utmost importance for a victim to obtain a Mareva Order
at the earliest possible opportunity in the context of a victim's
recovery efforts in order for such an Order to be truly effective
in preventing the dissipation of the assets.
Initially, such an Order can be obtained without notifying the fraudster.
In such a case, it remains in force for a maximum period of 10 days,
unless a further Order of the Court is obtained. A victim must then
move before the Court, on notice to the scammer, to obtain an Order
extending the Mareva injunction until the trial or other final disposition
of the proceedings.
Whenever a victim suspects that his or her assets have been removed
from the jurisdiction, the victim should immediately seek legal advice
from a lawyer experienced in dealing with cases involving international
fraud in order to ascertain whether the facts of the situation support
the granting of a worldwide Mareva Order.
Excerpted from the work of Jim Patterson and Denise
Borden Ladner Gervais LLP, Fraud Law Group
IRS warns about returns
The Treasury Department will not allow any 'frivolous' deductions
on returns, such as claiming your money was stolen if you lost it
in an investment bought on the stock exchange.
BY HARRIET JOHNSON BRACKEY - 03/28/04 - Miami Herald
Investors who feel they've been robbed by Enron, WorldCom and other
corporations caught in fraud and accounting scandals won't get any
sympathy -- or tax deductions -- from the Internal Revenue Service.
Your money was not stolen if you lost it in an investment bought
on a public stock exchange, the Treasury Department warned. Some
promoters have been trying to make that claim to get bigger and faster
tax deductions for investors. But the IRS said it will disallow any
such deductions it finds on returns.
In the rush toward April 15, the Treasury put out warnings in two
releases this week against what it said were media reports and anecdotes
concerning "frivolous" deductions.
"We want to make sure people aren't mislead by theories," Acting
Assistant Treasury Secretary for Tax Policy Greg Jenner told The
Another idea making the rounds that Jenner said won't fly: Taxpayers
who exercise stock options can avoid income tax or the alternative
minimum tax. "Taxpayers should be very cautious about claiming
refunds on this basis," Jenner said.
As for Enron and WorldCom, "It wasn't the companies that robbed
you of the money, it was the market," said Martin Nissenbaum,
national director of personal income tax planning at Ernst & Young.
What's not clear is what will happen to investors who have been
scammed, by pyramid or ponzi schemes or South Florida's notorious
boiler-room operations. Those sorts of issues, attorneys said, have
to be well-documented and may end up in tax court for a final decision.
A tax consulting firm, J.K. Harris, promoted the idea that these
losses can be treated as theft under Section 165 of the tax code.
The firm takes a fee, based on the loss, for its services, which
include gathering background material for the taxpayer and agreeing
to represent the taxpayer in the case of an IRS audit.
Richard Kess, head of client services for J.K. Harris in Tampa,
said his company has helped 500 injured taxpayers seeking $25 to
$30 million in such deductions in the last two and a half years.
Beverly Joyce Barea is one. She said Friday that she's waiting for
a $16,000 tax refund. She lost more than $200,000 in an investment
scam about four years ago, had to go back to teaching to make ends
meet and during it all, survived a bout with cancer in her thyroid.
"I never thought I'd get anything after what happened," said
the 69-year-old widow who lives in the central Florida town of Avon
She still may not.
For scammed investors, Jenner said there's only a possibility of
a legitimate deduction. "You can never say never, but it seems
very very unlikely," he said.
Martin Press, an attorney at Gunster, Yoakley & Stewart in Fort
Lauderdale, said he's handled cases in which the investment advisor
said he was going to buy securities or put money into tax shelters,
but never did.
Press called that embezzlement, and the IRS has agreed, he said. "Let
me tell you what these taxpayers have to prove: That the investment
never took place," he said.
What's the reason people want to call investment losses a theft?
It's a better deal in terms of tax breaks.
Taxpayers can deduct all of a theft loss on investment property
in one year against your ordinary income tax, which can run at rates
up to 35 percent.
If instead the taxpayer deducted investment losses, there are annual
limits. First, the amount of capital losses is used to offset any
such capital gains as profits on the sale of other stocks. Second,
the tax deduction is worth less, because the tax rate on capital
gains is a maximum of 15 percent.
If the taxpayer has more losses than gains, the extra losses can
only be used up at a rate of $3,000 a year to offset ordinary income
taxes. If it takes years to use up the extra amount, that's the way
it goes, according to IRS rules.
State law has to define something as a theft in order for taxpayers
to deduct it from their federal income taxes when they efile.
Nissenbaum noted that the legal idea of theft includes a direct
connection between the robber and the one whose property is lost.
"Whoever pleaded guilty at Enron would have to pocket your
money directly," he said. "Unless state law starts to treat
that as theft from you, you have to say the market ran away with
Fraud victims may be
eligible for tax relief - article
Tax Treatment for Theft Losses a
The advantageous tax
treatment available for theft losses related to a non-business,
for-profit transactions, is one of the best-kept Internal Revenue
Code secrets, according to Bart Siegel, an independent investment
and tax expert retained by 165 Services, LLC.
According to Siegel, instead of taking a loss using the more familiar
IRC § 1211 capital loss treatment, commonly at the rate of 15 percent,
victims of investment fraud may qualify to reduce their ordinary taxable
income, which may be taxed at rates up to 35 percent, by using the IRC § 165(c)(2)
Siegel says they may even be able to recapture previously paid taxes,
and/or avoid future taxes.
“Losses due to theft, not related to a non-business, for-profit transaction,
are still deductible under § 165, but they do not enjoy some of the beneficial
aspects of a §165(c)(2) loss," said Siegel, who is a Certified Financial
Planner, CPA and Certified Fraud Examiner. “Many tax practitioners are
unfamiliar with the special tax privileges allowed under §165(c)(2)."
Siegel says that tax practitioners may become intimidated by the relatively
high burden of proof required to demonstrate that the loss is eligible
for this treatment. Tax preparation software often does not adequately
address this deduction. Losses that qualify for tax treatment under IRC §165(c)(2)
frequently triggers IRS oversight. As a result many tax practitioners
defer to the more familiar IRC §1211 capital loss treatment to the
detriment of their clients.
For IRC §165 to be applicable, Siegel cautions, there must have
been a specific intent to defraud. The taxpayer needs to have purchased
the investment from the person, or agent of the seller, or entity, who
made the misrepresentation, or committed the malfeasance. The theft loss
is deductible in the year the theft is discovered by the taxpayer, and
determined to be unrecoverable.
Scam victims to receive first payments from
By Ed White - The Grand Rapids Press
01/05 - GRAND RAPIDS -- The trustee overseeing the cleanup of West Michigan's
largest investment fraud is poised to make the first payment to people
who lost money.
The trustee's legal team has $15 million available to investors with
approved claims. The plan, which awaits a bankruptcy judge's OK, is to
pay 30 percent of each claim, perhaps in February.
The ultimate goal is to return 80 percent for each dollar lost with Dan
"We are very pleased to make this distribution, and we have every belief that
there will be additional distributions," said Steven Rayman, co-counsel for bankruptcy
trustee Tom Bruinsma.
Broucek is serving a seven-year prison sentence for fraud. For a decade,
he paid high rates of interest to people who lent money to his business, Pupler
Distributing. The Grand Rapids man said he was buying and reselling
large loads of household goods but it was a sham.
He collected more than $130 million, though much of it went to investors
as interest or commissions. The amount of approved losses is $35 million.
Bruinsma's legal team has been gathering money
by suing investors who finished in the black when the scheme
collapsed in November 2002, even if they were unaware of fraud.
Those profits are being shared with the losers.
"We know exactly who each claimant is and the right amount of their claim," Rayman
Collecting judgements from stock fraudsters difficult for securities
03/06 - How do you get money from a scofflaw? That is the vexing
problem confronting the B.C. Securities Commission when it comes
to collecting fines and costs from stock market offenders.
To date, the commission's collection record is not good: Of the
nearly $21 million it has assessed in financial penalties since April
1995, only about 40 per cent has been recovered. That leaves $12.7
million still owing by 175 persons or companies.
That does not mean, however, that the commission is doing a bad
job. As the saying goes, it is difficult to get blood from a stone.
Some of the more notable stones are Eron Mortgage Corp. scamsters
Brian Slobogian and Frank Biller.
Slobogian owes $309,525 and Biller $169,842, but both are bankrupt
and in jail. In addition, their Eron-related companies (Eron Financial
Services Ltd., Eron Investment Corp., Eron Mortgage Corp and Capital
Productions Inc.) each owe $100,000, but all these companies are
dead. And if any of these entities ever get into a solvent position,
the commission has agreed to postpone its claims to Eron victims,
who are owed millions. So the chance of any recovery is remote.
Others, such as former Abbotsford businessman Ken Erickson, have
flown the coop. Erickson was assessed $119,351 in 1999 after he claimed
to have access to "old gold" plundered by Japanese soldiers
during the Second World War and buried in the Philippine countryside,
with the implausible premise that the gold could be acquired at a
discount and sold at world market prices. According to a former associate,
Erickson is now living in the Philippines, well out of the reach
of the commission.
Some of the people on the debtor list have always lived out of province,
or out of country, making collection nearly impossible. An example
is Tri-West Investment Club, a Belize-based Internet scam that promised
monthly double-digit returns returns but delivered little or nothing.
The companies involved (Tri-West, Haarlem Universal Corp.) and the
people (Alyn Waage, Cary Waage, James Webb and "individuals
holding themselves out" as Alex Haarlem, Mark Goldman, Jason
Kingsley, Alan Richards) were assessed a total of $962,778 in 2001,
but the commission hasn't been able to collect a cent.
In October 2004, commission staff reported that Webb and the two
Waages had confessed to the Tri-West fraud and had been imprisoned
in California. They had also revealed that Jason Kingsley, Mark Goldman,
Alan Richards and Alex Haarlem were fictitious names used to effect
the scheme. The BCSC order was never changed, however, so these fictitious
people still appear on the debtor list.
The biggest real-life deadbeat is Paul Maudsley, a former White
Rock mutual fund sales rep who defrauded 23 clients -- many of them
elderly and several of them disabled -- out of $1.6 million. With
the proceeds, he bought cocaine and booze, and gambled away the rest.
In September 2005, a BCSC hearing panel fined him $250,000, the
maximum for an individual. It also fined his private company, Shaylor
Management Ltd., $500,000, the maximum for a corporation. With costs,
the total assessment was $807,960.
However, there was no discussion of Maudsley's ability to pay, which
was virtually non-existent. The hearing panel, it appears, was simply
intent on sending a message. As this file has unfolded, commission
staff have only been able to collect $63,728.
Another big debtor is Vancouver lawyer Michael Seifert, who agreed
in 1999 to pay $450,000 to settle allegations that, while a director
of several pubic companies, he dealt stock through secret offshore
After paying half that amount, he went to court, arguing that the
total amount was more than the maximum allowable fine. Last month,
the court rule against him, saying that, in lieu of going to a hearing
-- where maximum fine limits would definitely apply -- respondents
are free to enter into whatever voluntary settlements they like.
Presumably Seifert will now pay the remaining $225,000.
Some on the list profess to have no ability to pay their fines.
An example is Michael Ruge of Victoria, who ruthlessly bilked investors
-- some of them fellow Rotarians -- out of $1.2 million. In May 2005,
he agreed to pay $150,000 to settle the matter, but has so far paid
Asked Thursday why he hasn't paid the rest, Ruge replied, "Because
I'm insolvent. I don't have any money." Asked how he lives,
he replied, "Not very well. I can eat, but other people take
care of that. I'm not on the street, at least not yet."
However, he recently published a book called Quote-a-Quote To Your
Success, which he touted as a huge success, and has been holding
self-improvement seminars featuring Chicken Soup for the Soul author
Mark Victor Hansen.
Judging by his biography, which is published on the Quote-Quote
website, life is good:
"Michael E. Ruge is a successful entrepreneur, expert negotiator
and dynamic community leader," it states. "As founder of
several enterprises, his strong, interpersonal leadership style has
positively influenced the bottom line of many companies. ...
"An inveterate traveler, Michael jaunts around the world to
benefit various charity causes. In his spare time, Michael operates
an adventure tour company, BigFoot Safari, from a lakeside home on
Vancouver Island where his wife, Elly, operates three luxurious bed
and breakfasts that are used for weddings, family reunions and business
Confronted with this information, Ruge insisted that he has not
taken any "jaunts" lately.
Vancouver promoter Ray Dabney was suspended for five years and ordered
to pay $30,000 last November for telling outrageous lies about his
company, Xraymedia Inc., which trades on the U.S. over-the-counter
market, but so far he hasn't paid a cent. Why is not clear. I visited
his office on Friday, but his staff said he was in Los Angeles for
two weeks on business.
Marino Specogna was fined $57,608 in 1996 for goosing up the drilling
results of his junior exploration company, Doromin Resources, and
manipulating the share price. He hasn't paid a cent, but he could
have. In March 2005, Canada Revenue Agency accused him of defrauding
taxpayers out of more than $1 million in a GST scam, which may explain
how he was able to finance his stable of thoroughbred race horses.
In December, a trial jury found found him guilty of obtaining or
attempting to obtain $348,258 in illicit refunds. He will be sentenced
on March 31. The Crown is asking for a jail term "of some length," so
unless he earns a lot of money making licence plates, his debt to
the commission will remain outstanding for some time to come.
The two men who ran the Burns Lake "bank" -- Glenn Anderson
and Doug Montaldi -- were each assessed $115, 567 in late 2004 after
investors lost millions of dollars in their dubious investment scheme,
but the commission hasn't collected anything. As in the case of Biller
and Slobogian, it has postponed its claims in favour of victims.
Montaldi is not exactly indigent. An accountant by profession, he
owns and operates Marmon Financial Management Co. Ltd., which has
offices in Burns Lake and Houston. If his business is earning any
money, it is not clear whether any is going to his victims. He refused
to discuss the matter. "If I felt it was any of your business,
I would tell you, but I don't think it is."
Jack Weatherell also didn't want to discuss his outstanding fine.
He was assessed $33,219 in 2000 for running an illegal stock boiler
room. He has not paid a cent even though he works as a publicist
for Hollywords, which provides investor relations services for several
John Hinze, the commission's chief financial officer and the person
in charge of collections, said the BCSC "makes every attempt
to collect these outstanding amounts." He said that, among other
collection tools and tactics, the commission:
- Hires outside lawyers and collection agencies to pursue defaulters,
as it has in the case of Maudsley.
- Registers its decisions against real property, as it has done
against the home of Kelowna securities offender Jack Klippenstein,
who owes $120,000.
- Garnishees wages and freeze assets, as it has done in the case
of Parksville financial predator Paul O'Connor, who owes $248,368.
- Petitions debtors into bankruptcy, as it has done in the case
of Kamloops offender Ronald Barker, who owes $279,423.
- Pursues the estates in cases where debtors die.
Hinze also noted that stock market suspensions do not expire until
fines are paid, which is an inducement for people who want to legally
return to the market to pay up.
"The commission is very concerned about these amounts outstanding," Hinze
said. "The list is reviewed every quarter by the audit committee.
We obviously want to increase the amounts that we collect."
The Vancouver Sun
Restitution to Fraud Victims a Factor in Determining Jail Sentence
03/06 - Michigan - A key player in an investment scam that bilked
more than $1 million from area seniors is off to prison, while two
others have 11 months to pay more than $900,000 in restitution before
they learn how long they'll spent behind bars.
Jonathon Brzezinski, 25, of Traverse City, was sentenced to 24 to
60 months in prison by 13th Circuit Court Judge Philip Rodgers Friday
for his role in a scam cooked up by Estate Growth Management of Traverse
City and its owners, Gary Singer and Margaret Zimmerman.
"From day one, I have wanted to tell the truth and make things
right," a tearful Brzezinski told Rodgers.
Brzezinski pleaded guilty last year to attempting to embezzle more
than $20,000 from a vulnerable adult - a local elderly woman - in
a relationship of trust and agreed to pay $260,000 restitution after
reaching a deal with the state attorney general's office.
"I can't help to think of this lady and all that she lost," Rodgers
told Brzezinski before he departed upward from a state sentencing
Brzezinski worked for Singer and Zimmerman, who each received delayed
sentences of 11 months from Rodgers on Friday. The delay allows them
an opportunity to pay restitution of approximately $930,000.
Both Singer, 54, and Zimmerman, 48, who each face a maximum of 10
years in prison, pleaded guilty in January to charges of using false
pretenses to lure investors into investment schemes.
Singer pleaded guilty to two counts of false pretenses over $20,000,
while Zimmerman admitted to two counts of embezzlement, both over
$20,000, as part of the deal.
Assistant state Attorney General Scott Teter told Rodgers his main goal
was to recover as much money for the victimized families.
Both Zimmerman and Singer told Rodgers they would work hard to make
full restitution within the time frame, but Teter said if the figure
is not met he would ask the court to sentence both of them "for
as long as allowable in the statutory maximum."
"I want you to know that I am taking this extraordinarily seriously," Rodgers
warned Singer and Zimmerman. "If you want to make a serious
effort of avoiding prison time, make a serious effort to raise $900,000."
Traverse City Record-Eagle
Is Justice Potential Restitution or Certain Retribution?
01/07 - TRAVERSE CITY — They scammed nearly $900,000 from
area senior citizens
in a so-called "Ponzi” scheme and had almost a year to repay
But Gary Singer and Margaret Zimmerman, former principals in Grand
Traverse County-based Estate Growth Management, so far have repaid
only a fraction of the looted funds.
They face a court hearing next month that could result in lengthy
prison terms for both.
Singer, 55, and Zimmerman, 49, are due back in court Feb. 16, 11
months after 13th Circuit Court Judge Philip Rodgers delayed sentencing
on their felony convictions. They are obligated to pay $860,000 restitution,
and authorities warned they'll seek serious penalties if they haven't
done so by then.
By late last week, Zimmerman had paid $5,050 and Singer, $2,850.
Estate Growth Management made one payment of $203,095 in June, court
"They are all bound to the total amount. If Estate Growth is
now defunct and does not pay its portion of the restitution, the
burden still falls upon Zimmerman and Singer to pay back the full
amount,” said Matt Frendewey, a spokesman for the state attorney
"We will ask and we will push for serious prison time if they
show up Feb. 16
without the full restitution paid,” Frendewey said.
Several local residents who were victimized by the pair declined
on the upcoming hearing.
Zimmerman awaits sentencing on one count of false pretenses over
and another count of embezzling from a vulnerable adult over $20,000.
Singer faces two counts of false pretenses over $20,000. Both could
be sentenced to up to 10 years in prison. Estate Growth Management
was convicted of embezzling from a vulnerable adult over $20,000
and uttering and publishing.
Zimmerman and Singer currently are on probation and cannot leave
the state, according to the Department of Corrections Web site.
As part of the plea agreement, and if restitution was paid, the felony
counts against Singer and Zimmerman would be replaced with one five-year
sentence each, which likely would result in some jail time and probation,
Through Estate Growth Management, Zimmerman and Singer convinced
14 victims to invest about $1 million in California- based companies
that used the money to pay other investors.
Several others were investigated in the scheme, including area resident
Johnathon Brzezinski, who in March was sentenced to 24 to 60 months
Their looming convictions have made it difficult for Singer and
Zimmerman to repay their victims, but they have paid off more than
the commissions they made from the scam, said Gerald Chefalo, attorney
for Estate Growth Management and Gary Singer.
"It is just a daunting and monumental restitution,” Chefalo
said. "Maggie has been working two jobs and Gary has started
his own company to pay back their restitution. They are not working
in the financial industry, plus they have the convictions on their
record so it's challenging to make the payments.”
Chefalo contends that sending Singer and Zimmerman to prison wouldn't
be in the victims' best interests.
"I am just wondering how much restitution gets paid off when
someone is in prison. I think none,” he said.
"They are guaranteeing their victims no money if they ask for
a prison sentence.”
Traverse City Record-Eagle
This is a copy of a lost resource originally provided to the public by lawyer James E. Miller of California. I hope that it might still prove useful for victims.
There are only three remedies after the fact: (1) File a complaint with the police, sheriff or district attorney, (2) file a civil suit and hope to collect on the judgment, (3) self-help. It's not legal advice; go see a lawyer for legal advice.
QUICK FIRST STEPS
DO NOT blame or feel sorry for yourself. DO NOT go into a mental slump. DO NOT do nothing. GET IN GEAR!
- DIARY, GATHER EVIDENCE
Quickly, compile a list of hard evidence-- mostly paperwork--, pictures, etc., in a diary. Using three hole punched school notebook paper, write the date in the upper right hand corner of every date something happened. Write out on that sheet what happened, who said what to whom or did what to whom.
If there is a relevant document, reference it in the diary and mark the document with the corresponding date and start your evidence file. Put all diary sheets in chronological order and place in a red or yellow loose leaf, snap ring binder. Put the evidence in date order in either a notebook or expanding file. Never loan either book to anyone, but make copies for them.
- FILE CRIMINAL COMPLAINT.
File a written complaint with your local law enforcement agent -- within 24 hours of your discovery; the sooner the better. Get a copy of the police report, if available.
- FILE INSURANCE CLAIM
If it is even remotely possible that you have insurance, file a written claim, certified mail, with the carrier.
- KEEP YOUR OWN COUNSEL
Keep all of your investigation to yourself; don't go blabbing to every friend of yours. You think they will give you help? Forget it, they will think you were nuts to trust the person who ripped you off-- why should they help you when you were so ignorant?
- HIRE A COMPETENT ATTORNEY
If civil legal suits will help you get your money back, then find a good trial attorney with a proven track record in civil fraud work. Get copies of judgments he or she has obtained for other clients and call the plaintiffs in those cases and check out the attorney.
WHAT TO DO NEXT
You need to follow-up on the criminal investigation every day or two by providing the investigating office with "new" information and insight. Same for your civil attorney. Do everything in writing so they cannot later say, "Oh, I never got that information." Explain the significance and relationships of each new piece of information.
- BUILD YOUR CASE
Continue your research, building your case. Write plenty of explainations on each page and cross-reference other pages and documents. Keep your writing short and to the point, but cover all matters. Keep focused; don't ramble.
- DOUBLE CHECK ATTORNEY WORK PRODUCT
As your attorney proceeds with the case, make sure you read copies of his/her work product for accuracy and omissions. Like most people, attorneys are busy with a flood of cases and it is not uncommon for attorneys to miss the point or forget important facts or confuse events.
- HIRE A DETECTIVE
Hire a private detective. His or her work will be well worth the money. Detectives are skilled in finding information and figuring out what happened. Most people who are defrauded only know about ten or twenty percent of the information needed for a conviction or civil judgment. The detective will fill in the blanks. Do not expect your attorney to be a detective (although some are former detectives). Lawyers deal with courts, rules, laws and otherattorneys, based on facts given them. If you need discovery to get the facts, give your attorney a list of facts needed for discovery and the relationships to the case. Keep on top of this process.
- FOLLOW THE MONEY
At some point you hope to get a civil judgment, or if the purportrator is convicted, restitution. You will need to make a very determined effort to trace assets and "follow the money". These efforts should start early and continue unabated throughout the case. More about this later.
CIVIL REMEDIES -- WHAT WORKS AND WHY
- CHOOSE A COMPETENT ATTORNEY
Most trial attorneys consider their job finished, once they get a judgment. Few attorneys have the experience to ferret out assets and conduct the levies and place the liens necessary to collect. In your selection of attorneys, give serious consideration to hiring an attorney who has had considerable debt collection experience. Call several local collection agencies and get the names of the attorneys they use. Most collection attorneys work on a contingency -- usually 50% of the recovery net of court costs; the latter is advanced by the client and are repaid "off the top".
- ATTORNEY FEES
If you hire an attorney who charges you by the hour and is not good at collecting on the judgment, you will wind-up paying thousands of dollars to get judgment, only to find out that the collection attorney is still going to charge you 50% of the net recovery, and you pay the court costs. Had you gone to the collection/fraud attorney originally, you could have saved some, if not all, of the fees paid to get the judgment. Many collection attorneyswill charge half or less of their normal hourly fee to get the judgment if the case is extremely complex and doubtful and then charge a reduced percentage on actual recovery. If judgment is likely to include punitive damages or attorney fees, consider assigning these items to the attorney as an additional incentive.
- UP FRONT REMEDIES FOR POSSESSION
There are several remedies available. If the fraud involved a physical object which the Perp sole from you, the remedy is "Claim and Deliver". You have to prove you had title and rightful possession and that the Perp took possession illegally. If he/she obtain possession legally (with your consent), you can show withdrawal of consent, breach of contract, demand for the return and failure to return the thing stolen. There are remedies available in advance of the trial, namely a TPO -- Temporary Protective Order-- which purports to "freeze" the asset until a hearing can be held on a TRO -- Temporary Restraining Order. The TRO will deal with the matter of possession up front. If you make a strong enough case, the court can, and usually will order possession returned to you. To get this order, you will have to post a $7,500 bond by either cash, corporate surety or the personal guarantees signed by third parties who are residents of California and have sufficient assets.
- UP FRONT REMEDIES FOR MONEY
If the fraud involved money, and the Perp has assets, such as a bank account, you can obtain early remedies by way of a "Writ of Attachment". Here again, you can get a TPO and a TRO. Similarly, you can get a "turn-over order" if the asset is represented by some type of title document, such as title to a car, to real property, etc. The court can appoint the Clerk of the court to sign the title document if the Perp does not cooperate with the court's order. Again you will have to post a $7,500 bond.
- COLLECTION OF THE JUDGMENT
Once your judgment is entered (30 day wait for small claims judgments), you can have the clerk issue a Writ of Execution, which directs the Sheriff or Marshal of a specific county to levy upon the assets of the judgment debtor. You have to be very specific of the description and location. If the debtor is a going business, the levying officer will install a "keeper" at the till to take in only cash from the customers. This will drive the business owner/debtor nuts. After 72 hours, the levying officer will begin removing physical assets named in the instructions, haul them away, store them and eventually auction them off. Usually the judgment creditor is the only bidder so you will recover only what you net after you sell the stuff.
- JUDGMENT LIENS
Your attorney will also record an "Abstract of Judgment" which has the effect of placing a lien on any and all real property titles in the county, both now and later acquired by the judgment debtor. The credit reporting companies will add the judgment and the abstract to the debtor's credit history file. You should consider having an abstract recorded in every county in which the debtor has or is likely to have real property interests. There is also procedures to record judgments with the California Secretary of State relative to personal property. Other states can enforce your judgment under the "sister state judgment law".
- BLACK HOLE OF BANKRUPTCY
More often than not, you get a fraud judgment and may even get close to the sale date of the sheriff's auction on physical property of the debtor, only to get a bankruptcy notice whereby the debtor intends to discharge (terminate) your judgment. Your attorney will tell you it is very difficult to convince the bankruptcy court to order that your judgment not be discharged. Actually, if you have obtained a judgment after a court or jury trial, in state court, getting the order preventing the discharge is usually a slam-dunk. In the case where you have obtained the judgment by default, you will have to prove to the bankruptcy court, all of the elements of fraud. In the latter case, you will have to try the case the same as if you had tired it in state court. The results are mixed. A good attorney with a strong case can usually get the order declaring the judgment non-dischargeable. Failure to obtain such an order is not uncommon since most bankruptcy judges are debtor oriented.
"DO THE CRIME, DO THE TIME" so says most of today's law enforcement. The Perpetrator ("Perp") can be a stupid, bumbling fool, easily caught and prosecuted, to a very wily individual whose crime was well planned and who was careful to "cover the tracks".
Admittedly, self-help is typically ineffective, after the fact. Also, you run the risk that the Perp (or law enforcement) will gang up on you. Nevertheless, there are a number of things you can do beyond the suggestions made at the beginning of this page.
- CONFRONT THE PERP.
If you confront the Perp, make sure you have your script down pat, you have a witness and a tape recorder. Make your demands and hand him or her a written copy of your demands. Make sure your witness does the handing and fills out a "proof of service" (a form your attorney can give you.) Get a professional to confront the Perp, such as a private detective, law enforcement or other qualified individual. Again, make sure a recording is made or at least a record is made of the conversation.
If the Perp stole physical property, consider taking it back. Remember not to commit any trespassing crimes. Again, have witness ready to testify that you took your property without "entering or breaking" into a house, garage or fenced yard. For example, if your ex-boyfriend has your car, don't break the lock on his garage to get at the car. Have a friend or detective tail him until he drives it to the local market or bar and vacates the car before you jump in.
- COMMUNITY INVOLVEMENT
If the type of crime warrants, get your community involved with Neighborhood Watch, volunteer patrols and even private patrols. One neighborhood beset by drug dealers had as many people as possible taking pictures and video recording the streetside drug dealers, their cars and car licenses. After a week of citizen surveillance, the drug dealers and the customers left the area. Not surprising, the property crime rate also dropped.
- NEWSPAPER AND MEDIA COVERAGE
If the type of crime warrants, get interviewed by the local press, by radio talk shows and other community based groups. Make sure your facts are straight and provable and be prepared for a counter-attack by way of libel suit. Your best defense is the truth.
- ELECT A BETTER SHERIFF OR DISTRICT ATTORNEY
Sheriffs and DAs typically stand for election every four years. They spend considerable time and money keeping their jobs by baffle and bulls....., an occasional bit of good luck and some, by actually doing their job well. If the DA or the Sheriff in your county is not doing a good job, in your opinion, you need to help build the case for a change in the office holder. Whoever challenges the Sheriff or DA at the next election will have to be well armed with hard facts showing that he or she can and is determined to do a better job. Encourage others to address this issue head-on and create a web site which can track cases rejected by the law enforcement system which should have been taken and prosecuted.
- PREVENTIVE MEASURES --- NEXT TIME
It is human nature to want to trust the other guy. This "failing" is true for most of us. However, the Perp does not share that same feeling toward you since he or she regards you, your business or your friends or relatives, as "meat on the hoof". The Perp will use your natural inclination to trust him or her against you. The basic guidelines are that in all maters of business and property, put every decision and writing and everyone a party to the deal signs it. Make sure you are the last person to sign and keep a copy of what you signed before letting loose of the pen. It is all to easy for the Perp to fill-in the blanks to change what it is that you signed. Car dealers are notorious for this trick. Check business out with the Better Business Bureau. Don't trust the BBB since they have been known not to report "dings" against member businesses. Check with the local chamber of commerce. Check with other customers, vendors and others who are likely to have a continuing relationship. If you are buying, use your credit card so that you can reverse the transaction if it goes bad.
- FROM HOPELESS TO HOPEFUL
At the outset, you may feel hopeless about recovering your loss. As time and effort moves forward and with the help of good attorney, you will move toward hopeful. In the meantime, begin building your nest egg again and substituting other goals for your immediate attention and activity. Start reading books on financial planning, getting a new job or new friends. Join clubs and organizations of your liking. Do good works for your neighbors and community. Remember, we all pay tuition for our learning. The Perp will soon be out of the money or property he or she stole and, having no other ability or inclination, is likely to steal again. Those patterns are hard to break. The older they get, the greater the chance they will land in jail for their efforts. If they are prosecuted later for some other crime, make sure you acquaint the cops and DA with your case. The statute of limitations for minor financial crimes is one year and for major financial crimes, generally five years.