Articles Tagged with Ponzi Scheme

Stoltmann Law Offices, P.C. is a Chicago-based securities and investor rights law firm that offers representation on a contingency fee basis to victims of investment fraud nationwide. On August 20, 2021, the Securities and Exchange Commission (SEC) filed a complaint in United States District Court for the Northern District of Georgia (Atlanta) alleging that John Woods “has been running a massive Ponzi scheme for over a decade.” That is the first line of the complaint, which goes on to allege that more than 400 investors are owed over $110,000,000 on alleged investments in Horizon Private Equity Group, III, LLC.  The complaint also names Livingston Group Asset Management Company, d/b/a Southport Capital, which is a registered investment adviser firm owned and controlled by John Woods.

The sales pitch for these investments in Horizon promised returns of 6-7% interest guaranteed for 2 or 3 years.  These are not the sort of huge returns typically promised in a Ponzi scheme. In fact, these are pretty low returns when compared to the rate of return on the S&P 500 or even alternative investments like non-Traded REITs.  Ironically, now disgraced GPB Capital – which is also alleged by the SEC to be a massive Ponzi scheme, promised returns of 8%.  This sort of Ponzi scheme is more incendiary and falls into the Bernie Madoff category of promising lower, but consistent, rates of return. Investors who are victims of a Ponzi scheme promising 6-7% returns cannot say they should have known better because it was too good to be true.  Woods and his RIA represented that they would take investor funds and invest them in government bonds, stocks, and real estate projects. Investors were never told their money would be used to pay interest to earlier investors, which is what the SEC alleged they did on a massive scale. Horizon did not earn nearly enough returns through legitimate investments to pay investor interest payments and as such had to rely on new investor money to maintain those interest payments – a hallmark of a Ponzi scheme.

Victims need to look to potentially liable third parties for recovery while the SEC freezes Woods’ and Horizon’s assets and begins an accounting process that will likely take years.  The first target could be Oppenheimer.  According to the SEC complaint and FINRA, Woods was a registered representative for Oppenheimer until he was “asked to resign” in 2016 for failing to accurately disclose his involvement with Southport and Horizon. Many of his Oppenheimer clients invested in Southport and Horizon and unless Oppenheimer reached out to each of those clients and warned them that what Woods was doing was, at a minimum, not fully disclosed to Oppenheimer in violation of FINRA rules, then Oppenheimer could have liability to victims here.  Further, the SEC complaint states that Horizon primarily used two banks to move money, Bank of America and Iberiabank. They also used a custodial trust company.  These entities, depending on the details of their involvement, could also have liability to victims of this scam.

Chicago-based Stoltmann Law Offices, P.C., has represented hundreds of investors over the years in both arbitration and litigation against LPL Financial. Many of these claims involved situations where the financial adviser sold the investor an investment that ended up being a Ponzi-like scheme. Rhett Bedwell, it would seem, falls into that category of former LPL brokers who sold clients fraudulent investments.

According to published reports, Rhett Bedwell, of Rogers, Arizona, while a registered broker with LPL Financial allegedly transferred a client’s IRA to an IRA custodian, using forged documents, and invested the client’s IRA in a Ponzi scheme. According to regulatory documents filed by LPL Financial, Bedwell was under an internal investigation at the firm at the time he was “permitted to resign” and was also subject to customer complaints, event though there is only one customer complaint disclosed on his FINRA BrokerCheck Report.   On February 10, 2021, Bedwell signed a FINRA Acceptance, Waiver, and Consent (AWC) which barred him for life from the securities industry. By failing to respond to FINRA’s request for information in connection with a regulatory investigation, Bedwell sealed his professional fate.

In circumstances like this, investors need to realize the brokerage firm with whom the broker was registered, in this instance, LPL Financial, is legally responsible for his misconduct under two independent legal theories. First, as a licensed, registered financial adviser, anything Bedwell did as a financial adviser, is part of the scope and course of his agency with LPL Financial. Investors don’t sue the brokerage firm when brokers cause property damage, for example, because LPL is not responsible for what the firm’s brokers do outside of providing financial and investment advice. But in this circumstance, surely from the investor’s perspective, Bedwell was providing financial and investment advice at all times.  The second road that should be taken is a direct claim against LPL for negligent supervision.  The securities rules are clear and the obligations are rock solid that LPL must maintain adequate supervision and compliance over its brokers in order to prevent and to deter violations of state and federal securities laws. Either way, LPL can be liable for the misconduct of its brokers.

Chicago-based Stoltmann Law Offices has represented investors in cases against securities brokers and has been investigating claims against LPL and filing arbitration complaints for investors. Can securities brokers who’ve been fleecing investors somehow keep working in the industry? If a firm’s records systems are poorly managed, sadly, the answer is yes. Sometimes they slip through the cracks and continue to steal customers’ funds and place them in bad or fraudulent investments that turn out to be Ponzi schemes.

That was the case with former LPL broker James T. Booth, who worked for the firm from 2018 through 2019. Booth pled guilty to one count of securities fraud in October, 2019, and was barred from the industry by the U.S. Securities and Exchange Commission (SEC). LPL was also cited for “supervisory deficiencies” by FINRA, the industry regulator, in connection with Booth stealing “at least $1 million of LPL customers’ money as part of a multi-year Ponzi scheme,” according to thediwire.com. The regulator fined LPL $6.5 million.

There was a bigger problem at LPL, though: FINRA claims that LPL’s recordkeeping system failed to report millions of customer communications. The firm’s failure “affected at least 87 million records and led to the permanent deletion of more than 1.5 million customer communications maintained by a third-party data vendor. These included mutual fund switch letters, 36-month letters, and wire transfer confirmations that were required to be preserved for at least three years.”

Chicago-based Stoltmann Law Offices has represented investors who’ve suffered losses from dealing with broker-advisors affiliated with the Cetera financial group.  The securities regulator FINRA recently fined three Cetera Financial Group broker-dealers $1 million, claiming that Cetera’s “supervisory systems and procedures were deficient when handling securities transactions.”

Like many advisory firms, Cetera employs representatives who are “dually registered,” meaning they are broker-dealers and registered investment advisers. In the Cetera case, their representatives managed more than $80 billion in assets across 47,000 accounts. According to U.S. Securities and Exchange Commission (SEC) exams conducted in 2013, 2015 and 2017, Cetera was “aware of the supervisory deficiencies.”

Without admitting or denying the allegations, Cetera recently signed a FINRA letter of Acceptance, Waiver, and Consent and agreed to FINRA’s sanctions, which included a censure and an agreement that they would review and revise, as necessary, systems, policies and procedures related to the supervision of dually-registered reps’ securities transactions, according to ThinkAdvisor.com.

Chicago-based Stoltmann Law Offices has represented hundreds of investors who have been victims of one of the most egregious investment frauds: Ponzi schemes. These swindles promise quick riches and rely upon an increasing number of “investors” to keep the operation going, sometimes over a period of years. The schemes eventually blow up when new investors can’t be found to perpetuate it or promoters are outed by investors or associates for faking returns.

The most famous Ponzi scheme – and perhaps one of the largest – involved broker-money manager Bernie Madoff. Over a period of 17 years, Madoff defrauded thousands of investors, lying about profitable trades. In 2009, he was sentenced to 150 years in prison, after pleading guilty to a $65 billion swindle of some 65,000 victims around the world. Many of Madoff’s victims, which ranged from non-profit organizations to celebrities, were financially ruined. A court-appointed “Madoff Victims Fund” has distributed nearly $3 billion to investors. His sons, who worked for their father’s firm, turned Madoff into authorities when they learned of the scam.

Despite the notoriety of the Madoff swindle, Ponzi schemes are still ensnaring innocent investors. As one of the oldest investment fraud vehicles around, the Ponzi scheme has two selling points: Promoters promise outrageous returns in a short period of time and rely upon continuing stream of new victims to “pay off” early investors in fake profits. This perennial false promise of easy riches makes it one of the most durable schemes for dishonest brokers, who continue to sell them — until the frauds collapse.

LPL terminated financial advisor Dain F. Stokes on August 28, 2019 for selling unregistered promissory notes to clients that purported to invest in a project in Africa allegedly sponsored by Taylor Swift. According to InvestmentNews, Stokes converted at least $576,000 from two clients, whom he solicited to invest in this phony charity project, which he sold as being created by Swift to help needy people in Africa. Stokes claimed to have a close relationship with Swift, telling clients that she personally hired him to manage the finances of the Africa project and to promote a new song release by her in June 2019. He also told clients that Bill Gates was involved in the project.

The State of New Hampshire Department of State Bureau of Securities Regulation filed a petition and order against Stokes after an investor (“Investor #1”) invested $201,000 in the Africa Project between August 1, 2018 and January 25, 2019. Stokes used promissory notes to facilitate these investments. According to the promissory notes, Investor #1 would receive the return of his entire principal plus 20% interest by making this investment. Payment on the first promissory note was initially due by November 8, 2018, however the due date was continually pushed back by Stokes. At one point, he even told his client that President Donald Trump allegedly froze his assets. Stokes was ordered to pay $201,000 plus interest in restitution to Investor #1 and a $20,000 fine for violating New Hampshire Blue Sky Laws, which prohibit the fraudulent sale of securities (RSA 421-B:5-501) and the sale of unregistered securities (RSA 421-B:3-301(a)). To date, a second investor who invested $375,000 has come forward.  The New Hampshire Department of State Bureau of Securities Regulation has since frozen Stokes’ assets and issued an injunction prohibiting him from speaking with those who invested in this scam.

New Hampshire authorities interviewed Stokes, who refused to provide any details about the African charity, claiming that all information, including the name, was privileged. He also refused to reveal whether the checks, which were made payable to him personally, were invested in his personal accounts.

If you lost money with Puerto Rico financial advisor Pedro Gonzalez-Seijo, Stoltmann Law Offices may be able to help you recover these losses. Gonzalez-Seijo, a registered representative of Transamerica Financial Advisors, Inc. from September 1991 through May 2016, solicited clients to purchase variable annuities, but instead deposited their money into his personal bank account. The Securities and Exchange Commission barred Gonzalez-Seijo from the securities industry on July 5, 2019. Through its investigation, the SEC found that he stole $480,813.15 from five clients between 2013 and 2016. He pled guilty to one count of bank fraud in the criminal action that was pending against him in the United States District Court for the District of Puerto Rico on January 31, 2019.

Rather than terminate Gonzalez-Seijo, Transamerica gave him a slap on the wrist when they discovered “unauthorized check withdrawals” in client accounts and permitted him to resign. He did not register with any other broker dealer after resigning from Transamerica in May 2016 and, given the bar imposed by the SEC last week, he will no longer be allowed to work in the securities industry in any capacity. According to his FINRA BrokerCheck Report, Gonzalez-Seijo also sold life insurance and annuities through PGS Insurance, Inc. There are two client complaints disclosed on his BrokerCheck report for this scheme, one has been closed and one is pending.

Stoltmann Law Offices is highly experienced in representing investors who lost money in similar theft and selling away, or “Ponzi” schemes. You can find information on just a few of those cases in which Stoltmann Law Offices successfully recovered their clients’ stolen assets, and in some cases attorney’s fees, costs, interest and punitive damages on our website. “Selling away” is when a broker sells an investment to clients that is either unregistered, or not approved by the brokerage firm. Common forms of these alleged investments are promissory notes, bonds, and limited partnerships. Often times the advisor uses a shell company to misappropriate client funds. In some cases the advisor will even represent that he is investing the money in publicly traded stocks and mutual funds and will go as far as creating phony account statements to hide the theft. If the broker is not properly supervised by his firm, he can engage in this scheme for a long enough time period to abscond with the money, leaving their clients with nothing by the time they discover that the investment was fake.

AdobeStock_99700100-2-300x200Nickolas Godfrey was accused of operating a ponzi scheme through his company, Coast to Coast Business Funding, which he falsely represented was successful and generating revenue by providing short-term cash advances to businesses. He allegedly collected more than $1 million from 20 victims and attempted to solicit more funds. He was also purportedly involved in a tax evasion scheme from 2008 until 2015. He owned NJ Holdings, which he used in connection with Coast to Coast to operate his scheme, according to court documents. He also owned and operated Alter Ego Salon and Day Spa and Blis Day Spa and Salon in Charlotte. Court documents state that he “engaged in a scheme and artifice to defraud victims by making a series of false and fraudulent representations and deceptive half-truths of material facts, and concealing material information about his business, Coast to Coast.” He told his victims they would earn as much as 73.5 percent if they invested, and that would be used to fund the cash advances. Instead, he used victim money to pay personal expenditures and to make payments on his other businesses. He also “created bogus financial statements” in December 2012. He is also accused of failing to pay the IRS a substantial amount of employment taxes from Blis and Alter Ego employees. He is subject to forfeiture in the amount of at least $484,322.58, according to the indictment.

AdobeStock_77502568-1-300x199A former broker from Boise, Idaho, Rodney Allen, is wanted after being indicted on 10 counts of wire fraud on suspicion of heading a scam against at least 70 investors. Allen went missing after he learned of the investigation against him, accusing him of orchestrating and leading a ponzi scheme. Allen and his company, KA Investments Inc. were sued by the Idaho Department of Finance, alleging that he lied to investors, illegally diverted their funds, and was not licensed to sell securities. Beginning in 2009, the lawsuit claimed that Allen sent his investors “dummied-up account statements, showing ridiculous annual returns of up to 36 percent.” In April 2017, Allen had $7 million from investors, $2.9 million of which he took for his own personal use. On April 20th, Allen’s wife told a friend that he had taken his passport, cash and a gun from their safe in their home. His pickup was found abandoned April 22nd along the Snake River, by his home.

The Stoltmann Law Offices Commercial Litigation Group filed a Class Action Complaint in the Northern District of Indiana Federal Court seeking in excess of $5,000,000 in damages against First Baptist Church of Hammond who allegedly assisted in a Ponzi Scheme called Sure Line Investments operated by a Church Deacon Thomas Kimmel who was retained by the church to teach financial responsibility and provide secret kickbacks to Pastor Jack Schaap totally 1% of the stolen funds.

Kimmel, was sentenced in 2014 to 22 years in prison and ordered to pay more than $16.5 million in restitution after being convicted in federal court in Raleigh, North Carolina of defrauding hundreds of investors. Schapp is now serving a 12-year sentence for having sex with child who was also a church member.

The federal indictment against Kimmel characterized Sure Line Investments as a Ponzi scheme where investors were paid their interest from new investor money.

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