FRAUD FILES 2

Back by popular demand…I give you our latest edition of the Fraud Files. This is a very small sampling of the scams that we encounter on a daily basis.

Target Your Fellow Churchgoers.

Tom Matkin, a lawyer and stake holder in the Church of Latter day Saints complained to authorities about what he suspected to be a ponzi scheme. Matkin had learned of as many as 150 of the town’s residents investing more the 1 million dollars in a company that had all the underpinnings of an affinity ponzi scheme. “I think like you, I believe like you, therefore you can trust me,” is the ploy of the affinity con-artist. This particular scheme used statistics such as 10 percent monthly interest to entice new investors; they subsequently used the money paid in by new investors to pay off old ones. If you do the math at 10 percent interest a month a 5000 dollar investment would turn in to more than 20 quadrillion dollars in just 25 years. These con-artists should get a job with the government; their assumptions would fit right in. More than 60 million dollars were lost to the phony investment corporation; authorities now list defendants all over the world in Canada, the US, Australia, New Zealand, Ireland and Mexico as well as five banks. More than 100 million dollars in damages are being sought in this case.

Serpent and the Rainbow Part II

Rather than blow white powder in the faces of victims to make them appear dead, then bury them alive only to watch them claw themselves out and appear to everyone as the walking dead; Barry Stokes, formerly affiliated with AIG Financial Advisors Inc. stole more than 19 million dollars from investors 401 (k)’s, health savings accounts, and dependent care accounts. This story takes an interesting turn when you start to look into Mr. Stokes defense strategies, if you can call them that. Mr. Stokes spent his free time making voodoo dolls of his clients in order to ward off their damaging testimony. He also paid a psychic to give him readings while in jail. To cap it all off he was allegedly lighting candles and throwing salt over his shoulder to keep critics and creditors at bay. No word on whether Stokes will get promoted up to AIG’s derivatives trading department.

Phillip’s Porno Ponzi Ploy (say it five times fast)

Brooklyn money manager Phillip Barry and several of his firms defrauded some 800 investors in a $40M ponzi scheme. Barry allegedly promised investors that their money was being used for safe quality investments (prophylactics?) when instead he was using it to buy real estate (San Fernando Valley?) and fund a mail order pornography business (people still buy porn through the mail?). Barry told his investors that they could expect to earn 21% a year on their investments and that his investments would help to protect their principle. Barry has sold funds through his firms, The Leverage group, Leverage Option Management Co. Inc, and North American Financial Services. Neither Barry nor any of his firms is registered with the Securities and Exchange Commission. No word on whether Ron Jeremy worked as an analyst at the firm.

Billionaire Boys Club

The Securities and Exchange Commission recently charged the Billionaire Boys Club investment firm with running a 53 million dollar ponzi scheme. First off, I thought this was a joke when I first looked in to this. Did people really give their hard-earned money to a company called the Billionaire Boys Club, who would do that? The scam is really no different than the countless others we encounter with just a rap song name. The investment firm promised high annual returns and charged absolutely no management fee; money could be withdrawn at any time. Did their chotchkies include Cognac and Champagne like in the rap videos, because that is certainly better than the stupid golf crap that Merrill Lynch and Morgan Stanley hand out? The two men in charge of the operation certainly lived the lives of rap stars. John Bravata and Richard Trabulsy were living the dream. Expenses include $90,000 for gambling in Vegas, Ferraris, a $6 million vacation home, a $500,000 catamaran and nearly $30,000 dollars for anti aging treatments. According to the SEC these men have run BBC into the ground (what a surprise) using the 11.3 million dollars in recent investments to pay off previous returns and owed over 128 million dollars on leveraged properties. These men particularly preyed on elderly retirees (who knew that senior citizens were in to rap music) urging them to use their IRA’s to fund investments. Bravata and Trabulsy told the SEC that the safety of their investor’s money comes first, and compared their investment strategies to those of John D. Rockefeller.

From Limo Driver to Hedge Fund Mogul

In a story that sounds a lot like a bad movie starring a Saturday Night Live cast-off; Alan Fishman, a 50-year-old native of the Ukraine and former limo driver pled guilty to swindling nearly $20 million from investors. The Securities and Exchange Commission stated that Fishman somehow made an extraordinary career move from limo driver to hedge fund manager, mislead investors and cheated them out of millions of dollars. First off, I find the SEC’s citing that Fishman’s leap from limo driver to hedge fund manager was extraordinary, to be very unsettling. You cannot hold all limo drivers responsible for the actions of one. I think limo drivers as a whole, especially owner operators, could do no worse than many of the Ivy League educated hedge fund operators that blow up their funds with great regularity.

Anyway…In 2000 Mr. Fishman’s job was driving investment bankers and corporate lawyers to their meetings, gentlemen’s clubs and back to their luxury homes. When Fishman’s nephew decided to try and start a hedge fund he looked to Fishman to become president, even though he had no prior experience managing money. What’s the big deal? Wall Street and Washington are chock-full of people with no experience that manage great sums of money. As the new president of A.R Capital Global Fund, Fishman and his nephew were able to lure In around 70 investors who gave them around 20 million dollars to invest in foreign real estate, commodities, gas, oil, and currencies. Instead the money was invested in three Ukrainian stocks and some of it was placed into a Ukrainian money market fund. Millions more were wired to several bank accounts in Lithuania. The funny thing is that I would not be surprised to find out that Fishman outperformed the “masters of the universe” he drove around.

Morgan Stanley pulls a Bill Belichick

Taking a page out of Goldman Sachs playbook, Morgan Stanley is now accused of creating a group of investments doomed to fail just a year before the subprime mortgage market collapsed. Morgan Stanley then proceeded to bet against their own investment offerings, setting themselves up to make money when their investors lost money. Officials say that even if default rates stayed at a relatively low level the Collateralized Debt Obligation (CDO) had no chance of survival. The 167 million dollars of synthetic collateral debt obligations were not designed to curtail their bets on mortgage bonds as the home loans were paid down, but instead to keep wagering as if the risk factor had not changed. This is an unusual trait for a CDO and definitive cause for an SEC investigation. According to documents relating to the case, investors of the Baldwin 2006-III would start to lose money if only 235 million dollars of the 2.3 billion dollar portfolio of mortgage bonds went down hill, and investors would be completely wiped out after only 18 million more in losses. If you are surprised by this story and the conduct of Morgan Stanley, you have not been reading this newsletter and/or listening to the radio show for very long.

Who’s Your Monkey?

The box office flop Who’s Your Monkey, a dark comedy which played in only a few cities, was financed by investors who thought they were putting their funds into conservative investments. Thomas Fink, and his son were indicted by federal prosecutors for using investments made by their clients to finance their own personal ventures, including the production of the film Who’s Your Monkey. Instead of investing client’s funds into diversified portfolios of bonds and stocks, these two financial wizards/movie moguls decided it would be much more prudent to produce a low budget film. The Finks also diverted nearly $4.5 million of their client’s funds to be used for their own personal expenses. To keep investors at bay, the Finks sent out fraudulent statements from their firm TTF Strategic Growth Partners. TTF was actually paraded to be a conservative investment company that focused on investing client’s money in blue chip stocks and bonds.
Starr Struck

Kenneth L. Starr, the CEO of Starr Investment Advisors and of Starr & Co. LLC was charged with wire fraud, investment advisor fraud and money laundering. Starr abused his position as a financial advisor to steal more than $30 million in client funds. Starr’s client list included many famous actors and actresses which he used to recruit other wealthy people. Starr had carte blanche discretionary authority over most of his clients gaining full control over all aspects of their financial lives. Mr. Starr funneled money from clients’ accounts to himself, family, friends, and politicians. Data provided by the SEC shows that Starr and his two investment entities had over 175 clients with over 700 million dollars in assets under management. When these clients sought payment for their investments, Starr simply transferred money from other client’s accounts. Seven million dollars of the money that Starr stole from these accounts were used to purchase a five-bedroom town house in Manhattan with a 35-foot granite pool and a 1500 square foot garden.

Poetic Justice

Stockbroker Steven Mandala will be leaving his brand new $245,000 Ferrari behind as he heads away to serve his prison sentence. Mandala tricked Merrill Lynch into giving him an unprecedented $780,000 hiring advance, which he promptly used to buy his new shiny sports car. The reason that Merrill Lynch agreed to such a large advance was that Mandala claimed that he took home over $760,000 and that he managed more than 300 million dollars as a partner at his previous employer Maxim Group. Every part of his story was fabricated except for the fact that he had worked at Maxim Group. The reality was that he only made $100,000 dollars a year as a low level advisor to the group. You would think a sophisticated firm might actually check a new hires resume and credentials, but then again considering their track record…maybe not.

Steal Big

Apple Valley, Minnesota resident Trevor Cook’s investment-con empire has finally collapsed. Cook was nailed for managing another investment Ponzi scheme that stole more than 190 million dollars of his clients’ money. Trevor Cook, 37 was like a mini Madoff. He used his clients’ funds to purchase a mansion, personal submarine, thousands of dollars in gift cards, 3500 dollar Bon Jovi tickets, and a 60 foot houseboat. Cook also supposedly transferred large amounts of money to family and friends and the courts have authorized the search of the home owned by him and his wife so that his personal possessions can be catalogued. Following this search the receiver authorized the removal of two Lexus’s, a BMW, Cooks collection of Faberge eggs, a number of watches, and an exercise machine. More than 1000 investors were duped in this scam, many of them losing their life savings. Officials say that Cook and his partner put 109 million of their clients’ money into banking and trading accounts, and then used the rest for their own expenses, a whopping 81 million dollars.

Dirty Rotten Scoundrels II

In a story that could be the screenplay for Dirty Rotten Scoundrels II, con-man Nicholas Smirnow portrayed himself as an investor advocate. He mocked ponzi schemes on his website, the “Pathway to Prosperity”. He warned people to steer clear of high yield investments and unrealistic returns with little to no risk.

Smirnow is now accused of running just such a scam. He promised outlandish return rates of anywhere between 500 to 17000 percent. His scam has victimized over 48,000 people from all over the world. His take was more than 70 million dollars in what turns out to be a classic ponzi scheme. A simple background check of Smirnow showed that he has quite the criminal past, which includes convictions for burglary and drug trafficking. Smirnow is on the lam, believed to be living in the Philippines but his exact whereabouts are unknown.

Repeat Offender

Ten years ago, Brian Randall, like most brokers working at wirehouse brokerage firms, put his clients’ money into soaring technology stocks. Randall also took it upon himself to conduct many unauthorized trades and he ended up being sued by clients and was forced to face the music when the bubble burst. In order to settle investors’ claims, Merrill Lynch paid out over 1.5 million dollars, and eventually terminated Randall. Randall was also fined 10,000 dollars and was suspended for four months by the Financial Industry Regulatory Authority. Rather than learning his lesson and changing his ways Randall did what most con-artists do; he set up shop somewhere else.

Randall soon moved to Dallas and with the help of his father attracted new clients and began managing money again. Randal is now being charged by federal prosecutors for mail fraud and bank fraud. Authorities say that Randall bilked 30 investors out of 6 million dollars and fraudulently obtained loans from banks totaling $875,000 that he did not repay. Randall told his clients that he was putting their money into a fund that did not exist and provided false statements in order to keep them at bay. We don’t let pedophiles work at Day Care Centers, why in the world do we let proven con-artists to continue to work in the financial services industry?

Wachovia Settles Money Laundering Case

Wachovia bank recently reached a settlement of $160 million with federal prosecutors over allegations that a failure in bank controllers allowed drug traffickers to launder money. Prosecutors say that Wachovia Bank processed $420 billion in transactions without using the proper money-laundering detections. Wachovia admitted that it failed to identify, detect and report these transactions, and says that they have made significant enhancements to their anti-money laundering compliance act. Between May 2004 and May 2007 Wachovia accounts took in more than $373 billion in wire transfers made from a Mexican currency exchange house that authorities have repeatedly warned could be used by drug traffickers. In addition to this, Wachovia accepted more than $4 billion dollars in bulk cash that was shipped from the exchange house. Wachovia also operated a “remote deposit capture” service that took in an additional $47 billion. Some of this money was used to buy airplanes for trafficking. These planes were seized by investigators with more the 20,000 kilos of cocaine on board. Wachovia will pay $110 million to the US Justice Department and another $50 million to the US Treasury. If anyone thinks that individuals at Wachovia didn’t know exactly what they were doing and who they were doing business with you are nuts! It’s really nice that they collected some fines, but why no jail -time? If an individual laundered billions of dollars for drug cartels, what do you think would happen?

Is It Contagious or Is It Something In The Water ?

Donald Anthony Young is the investment advisor in charge of Acorn Capital Management LLC; he is also the neighbor of Bernie Madoff. Young is now being charged with running a $25 million ponzi scheme, which allegedly solicited more than $95 million dollars from investors. Young diverted more than $25 million of this money to fund the purchase of homes in Pennsylvania, Maine and Florida, as well as other personal belongings. When investors requested their money Young paid them with money collected from other clients. Young also lied to the US Securities and Exchange Commission during an investigation last year and refused to provide the agency with any documents. If convicted Young faces a maximum penalty of 30 years behind bars.

Krause, Peter Ex-Ohio Man Charged With Bilking Investors to Finance Movie ‘Who’s Your Monkey’ The Plain Dealer 03/01/10

Bray, Chad Adviser Starr Charged With Fraud The Wall Street Journal 05/27/2010

Suhr, Jim Feds: Nicholas Smirnow, Global Ponzi Scheme Head, Warned Clients To Avoid Obvious Ponzi Schemes The Huffington Post 05/31/10

Italiano, Laura Stockbroker Steven Mandala Sentenced For Merrill Lynch Theft New York Post 06/02/10

Scannell, Kara Ex-Merrill Broker to Plead Guilty to Running Fraudulent Investment Scheme The Wall Street Journal 05/18/10

Perez, Evan and Mollenkamp, Carrick Wachovia Settles Money-Laundering Case The Wall Street Journal 03/17/10

Bloomberg Adviser (And Bernie Madoff’s Neighbor) Charged With $25M Fraud Investment News 04/01/10

Shenn, Jody and Moore, Michael Morgan Stanley’s Doomed Baldwin CDOs Thwarted ‘Natural Process’ Bloomberg 05/15/10

Donnelly, Francis Billionaire Boys Club Execs Accused in $53M Ponzi Scheme The Detroit News 06/10

Asci, Sue SEC Busts Brooklyn Money Managerin $40M Porno Ponzi Scheme Investment News 09/08/09

Wilton, Suzanne and Rassel, Jason Church Leader Blew Whistle On Alleged $60M Ponzi Scheme Calgary Herald 03/30/10

Kelly, Bruce Ex-AIG Adviser Who Practice Voodoo On Victims Gets 12 Years For Fraud Investment News 09/08/09

Elstein, Aaron Limo Drive-Turned-Hedgie Faces Long Stretch In Prison Investment News 03/10/10