Ira J. Pressman was charged today by information in connection with a Ponzi scheme that defrauded 20 investors out of more than $6 million, announced United States Attorney Zane David Memeger. The charges include one count each of wire fraud, mail fraud, and money laundering. The information alleges that since 2006, Pressman ran a company called PJI Distribution Corporation that purported to purchase and sell closeout and overstock merchandise. Pressman solicited individuals to invest in these closeout deals, promising investors no risk returns of up to 100 percent annually. Unbeknownst to the investors, however, most of these closeout merchandise deals were fictitious. Pressman instead used new investor’s money to pay returns to the old investors.

Information Regarding the Defendant
Name: Ira J. Pressman
Address: Bala Cynwyd, PA
Age or Year of Birth: 1947

If convicted of all charges, the defendant faces a maximum possible sentence of 60 years in prison, a fine of $1 million, three years of supervised release, and a $300 special assessment.

The case was investigated by the Federal Bureau of Investigation, the United States Postal Inspection Service, and the Montgomery County District Attorney’s Office. It is being prosecuted by Assistant United States Attorney Leo R. Tsao and Special Assistant United States Attorney Steven Latzer.

SALT LAKE CITY—A detention hearing is set for 11:15 a.m. Wednesday in federal court for John S. Dudley, age 56, of Sandy, charged last week in a 17-count indictment with money laundering and wire and bank fraud in connection with an alleged Ponzi scheme. Wednesday’s hearing will be before U.S. Magistrate Judge Paul Warner.

Dudley had an initial appearance Friday following his arrest on the indictment. He entered a plea of not guilty to the charges. A status conference has been set for Aug. 8, 2011 at 9:15 a.m. The case is being investigated by the special agents of the FBI and IRS Criminal Investigation. Anyone who believes they might be a victim of the scheme alleged in this indictment should call the FBI in Salt Lake City at 801-579-1400.

According to the indictment, Dudley devised a scheme to induce individuals to invest money with him for use in various investment programs, including a foreign exchange trading program, mining speculation, European and domestic stock options and commodity trading, and a human jetpack rocket suit. In January 2007, Dudley began to solicit investors at investment club meetings, sometimes called “bounce nights” or “Tashi group meetings,” in Salt Lake County by representing himself as an experienced and successful investor and describing his investment programs to prospective investors.

The indictment alleges Dudley made a variety of false representations to potential investors, including telling them they could expect monthly returns of 5-10 percent; that he had not suffered a trading loss since 1978; that investors’ funds would be used exclusively for investment purposes; that he had personally done very well in his investments and had never made less than 5 percent per month over the last 30 years; that investors’ money was backed by a “senior life settlement policy” that reduced or eliminated investors’ risk of loss; and that investing with him was an exclusive opportunity with only a limited number of investors allowed to invest with him at one time.

According to the indictment, Dudley advised prospective investors on how to engage in a process he called “equity mining” to borrow money from banks to invest with him. Using this process, he told individuals they could purchase luxury items, such as homes or boats, which would pay for themselves. Using the scheme, individuals would obtain financing from a bank for more than the sale price of the item and then invest the remainder of the loan proceeds in an investment offering that guaranteed a 10 percent return each month.

The indictment alleges Dudley used new investors’ money to pay old investors’ returns in a scheme commonly referred to as a ponzi scheme. Virtually all of the investors’ money was used by Dudley to either pay “returns” to other investors or for his own personal use, including the purchase of two homes—a $1.5 million home in Sandy and a $860,327.63 home in Riverton; a down payment of $28,978.31 for a ski boat; and to pay for meals, airline tickets, and gifts for his family.

Around 75 to 100 investors gave Dudley more than $12 million from about January 2007 to March 2010, the indictment alleges.

The potential penalty for each of the 10 counts of wire fraud in the indictment is 20 years in prison and a fine of $250,000. Bank fraud, charged in two counts, carries a potential penalty of 30 years per count and a $1 million fine. The maximum potential penalty for each of the five money laundering counts is 10 years and a fine of $250,000.

Indictments are not findings of guilt. Individuals charged in indictments are presumed innocent unless or until proven guilty in court.

GRAND RAPIDS, MI—Roger Lee Clark, 66, formerly of Wyoming, Michigan, received a sentence of 6 ½ years in prison for committing a multi-million-dollar Ponzi scheme and filing false income tax returns, U.S. Attorney Donald A. Davis announced today. U.S. Attorney Davis was joined in the announcement by FBI Special Agent in Charge Andrew Arena and IRS Criminal Investigation Special Agent in Charge Erick Martinez. Special agents of the FBI and of the IRS Criminal Investigation Division had investigated the case.

The Honorable Janet T. Neff, U.S. District Judge, presided over the sentencing. Judge Neff expressed her concern regarding the seriousness of the “knowing and willing theft” by Clark and the trail of financial ruin he left behind. “The pain of that financial ruin for older people is particularly reprehensible.” In a terse attempt to explain the $9.3 million fraud, Clark said, “things happened.” Judge Neff replied, “Wow, that takes the cake.” Judge Neff also ordered Clark to pay restitution to the victims and serve a combined total of four years of supervised release. Clark also agreed to a money judgment of $9,162,380.99 and the forfeiture of undeveloped real property in Byron Center as well as numerous vehicles.

Clark claimed that he owned and operated CRM Investors Corporation for the past 16 years, despite never having any training in financial planning or any related financial fields. Clark used CRM, along with other fictitious businesses that he created, to hide money and assets from victims and evade his income taxes.

In 2007, Clark instructed a California investor to wire transfer $1,001,500 into a bank account controlled by him. Clark explained to the investor that she was investing in the T-Bill trading program and that her investment was 100 percent secure. Clark admitted that in September and October of 2007, he sent the victim two wire transfers of $180,000 each and lied to her that the payments represented earnings from her investment, when in fact, the first payment came from her own principle and the second payment was from the principle of another investor. On January 29, 2009, Clark e-mailed the California investor indicating that all of her money was lost, but never stated where the money actually went.

Clark filed a 2007 tax return that reported his total income to be slightly over $11,000 when he knew that his actual total income was significantly higher. As part of his sentence, Clark was also ordered to pay total of $163,646.00 in back taxes.

“Investment fraudsters prey on trusting investors by enticing them with a ‘can’t miss’ deal and then stealing their hard earned money,” said Special Agent in Charge Erick Martinez.

“IRS Criminal Investigation is committed to investigating investment schemes in an effort to protect the financial well being of the American investor.”

FBI Special Agent in Charge Andrew G. Arena added, “The public should be aware that even though the FBI continues to vigilantly pursue these types of criminal violations, we live in a buyer-beware investment environment. Investors should vigorously investigate the background information of all investments and the individuals handling them.”

ST. LOUIS—The United States Attorney’s Office announced the guilty pleas of Joshua Gould, a former financial representative with Woodbury Financial Services, Inc. and affiliate of Spetner Associates; and David Rubin, employee and operator of two local offices of Coral Mortgage Bankers Corporation.

According to court documents, between May 2007 and December 31, 2010, Gould and Rubin embezzled approximately $1,500,000 from a retired individual solicited by Rubin to provide funds for operating capital for Coral’s St. Louis operations. The individual was assured that the funds would not be spent, would be held in a secure trust account, used only as collateral for Coral’s operations, and that the individual would receive regular interest payments. Between May 2007 and December 2008, the client provided Rubin approximately $1,200,000 from his and his wife’s life savings. Despite his representations that the funds would not be spent, Rubin used approximately $250,000 of the funds for operating expenses, including payment of his own salary. Rubin transferred the balance of the funds to Gould. Gould used those funds for personal expenses including car payments, mortgage payments, payment of substantial personal credit card bills, the renovation of his personal residence, jewelry, and adult entertainment, including substantial expenses at the Penthouse Club and PT’s. Gould also used the money to finance start-up costs and operational costs of several business ventures including The Sports Nook, True Hockey, and Free Poker Experience. Gould and Rubin prepared and gave the individual victim false account statements, including statements falsely representing to the victim that as of September 30, 2010, he had $1,126,365 in his Investment Fund and $217,123 in his Family Charity Fund, when in fact all of the funds had been embezzled, diverted and stolen by Gould and Rubin.

In addition, Gould embezzled approximately $3,500,000 from numerous brokerage clients as well as the beneficiaries of the RARJI Trust. These brokerage clients were, for the most part, senior citizens and retirees. In his position as head of Spetner Associates’ Financial Services Division, Gould solicited clients of the Spetner Associates insurance agency to move their investment portfolios and retirement accounts from other brokerages to his management. According to the indictment, on multiple occasions, Gould processed trades and the redemption of securities held in client accounts and accounts of the RARJI Trust without the knowledge, approval, and authorization of the account holders, and had the proceeds transferred into his own personal bank accounts. Also, as part of the scheme, Gould falsely represented to his clients that Pacific Mutual Alliance, LLC and Apex Alliance LLC were legitimate investment securities, when they were actually shell companies that he had established and controlled.

Gould used the stolen, diverted and embezzled funds for personal expenses including car payments, mortgage payments, payment of substantial personal credit card bills, the renovation of his personal residence, jewelry, and adult entertainment including substantial expenses at the Penthouse Club and PT’s. Gould also used the money to finance start up costs and operational costs of several business ventures including The Sports Nook, True Hockey and Free Poker Experience. Gould also engaged in a Ponzi type scheme by using client funds to pay off other clients’ trade requests after he had liquidated their securities without their knowledge.

Gould, 32, University City, Missouri, pled guilty to one felony count of wire fraud and one felony count of mail fraud; Rubin, 47, Chesterfield, Missouri, pled guilty to one felony count of wire fraud. Both defendants appeared before United States District Judge Rodney W. Sippel.

Sentencing for both defendants has been set for July 22, 2011.

Additionally, the defendants are subject to a forfeiture allegation, which will require them to forfeit to the government all money derived from their illegal activity.

Each count of the indictment carries a maximum penalty of 20 years in prison and/or fines up to $250,000. In determining the actual sentences, a judge is required to consider in an advisory capacity the U.S. Sentencing Guidelines, which provide recommended sentencing ranges.

This case was investigated by the Federal Bureau of Investigation, the Postal Inspection Service, and the United States Secret Service. Assistant United States Attorney Hal Goldsmith is handling the case for the U.S. Attorney’s Office.

SOURCE: FBI

A Staten Island man was arrested earlier this morning on charges arising out of his alleged operation of a $12 million Ponzi scheme from 2007 to 2010. Joseph Mazella, the founder and president of the Great Atlantic Group, Inc., a Staten Island-based real estate and financial consulting company, was charged with securities fraud, wire fraud, and money laundering in a federal indictment that was unsealed earlier today in federal court in Brooklyn. The case has been assigned to Chief United States District Court Judge Carol B. Amon. The defendant is scheduled to be arraigned later today before United States Magistrate Judge Lois Bloom at the United States Courthouse, 225 Cadman Plaza East, Brooklyn, New York. The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and Janice K. Fedarcyk, Assistant Director in Charge of the Federal Bureau of Investigation, New York Field Office.

As alleged in the indictment, Mazella solicited investments in Third Millennium Enterprises, Inc. and 150 West State Street Corp., both of which were associated with the Great Atlantic Group that supposedly invested in real estate projects and provided private mortgages. Mazella told prospective investors that he would invest their money in real estate projects, including projects in Trenton, New Jersey, a warehouse in Utica, New York, and a golf course development project. From approximately January 2007 until approximately December 2010, investors contributed a total of nearly $12 million to Third Millennium and 150 West State Street. As of December 2010, the combined closing balance of the bank accounts associated with the two companies was less than $15,000.

According to the indictment, Mazella described the investments as an opportunity to receive the returns of mutual funds and stocks, without any significant loss of liquidity, and at a fixed rate during the entire time period of investment. Solicitation materials distributed by Mazella characterized the investments as “geared toward individuals who are interested in earning more than traditional bank savings and CD rates but without the risk of the stock market.” Some investors were encouraged to obtain mortgages on their homes and to invest the mortgage proceeds with Third Millennium or 150 West State Street, and other investors, typically senior citizens, were encouraged to apply for reverse mortgages on their residences and to invest the proceeds with the two companies.

The indictment charges that, by as early as January 2007, Mazella had virtually stopped investing in real estate projects, and instead operated Third Millennium and 150 West State Street as a Ponzi scheme, in which he paid returns to investors from existing investors’ deposits or money paid by new investors. Many of the properties in which the companies held any mortgage or ownership interest were abandoned and in various states of disrepair, and the property taxes owed on several of those properties had fallen into arrears. Mazella also allegedly used investors’ money to pay his personal expenses, including payments for a Porsche, a mortgage on his personal residence, and family expenses.

“Perhaps the most egregious aspect of this case is that the defendant allegedly encouraged victims—some, senior citizens—to obtain mortgages on their homes and to invest the proceeds in what the indictment charges was nothing more than a Ponzi scheme,” stated United States Attorney Lynch. “We will aggressively investigate and prosecute those who perpetrate these crimes.” Ms. Lynch thanked the United States Postal Inspection Service, the Financial Industry Regulatory Authority, the Internal Revenue Service, and the Department of Housing and Urban Development (OIG), for their assistance.

FBI Assistant Director in Charge Fedarcyk stated, “Mazella lured investors with the promise of steady rates of return without market risk. In fact, because the investment scheme allegedly was an investment scam, the only one guaranteed to get rich quick was Mazella himself. The FBI is committed to protecting the investing public.”

If convicted, Mazella faces a maximum sentence of 20 years’ imprisonment for each count of securities fraud, wire fraud, and money laundering.

The government’s case is being prosecuted by Assistant United States Attorneys John P. Nowak and Evan Weitz.

The FBI has established a telephone hotline for victim investors in Third Millennium Enterprises and 150 West State Street Corp. The number is 212/384-1300.

The Defendant:
JOSEPH MAZELLA
Age: 52

A Staten Island man was arrested earlier this morning on charges arising out of his alleged operation of a $12 million Ponzi scheme from 2007 to 2010. Joseph Mazella, the founder and president of the Great Atlantic Group, Inc., a Staten Island-based real estate and financial consulting company, was charged with securities fraud, wire fraud, and money laundering in a federal indictment that was unsealed earlier today in federal court in Brooklyn. The case has been assigned to Chief United States District Court Judge Carol B. Amon. The defendant is scheduled to be arraigned later today before United States Magistrate Judge Lois Bloom at the United States Courthouse, 225 Cadman Plaza East, Brooklyn, New York. The charges were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and Janice K. Fedarcyk, Assistant Director in Charge of the Federal Bureau of Investigation, New York Field Office.

As alleged in the indictment, Mazella solicited investments in Third Millennium Enterprises, Inc. and 150 West State Street Corp., both of which were associated with the Great Atlantic Group that supposedly invested in real estate projects and provided private mortgages. Mazella told prospective investors that he would invest their money in real estate projects, including projects in Trenton, New Jersey, a warehouse in Utica, New York, and a golf course development project. From approximately January 2007 until approximately December 2010, investors contributed a total of nearly $12 million to Third Millennium and 150 West State Street. As of December 2010, the combined closing balance of the bank accounts associated with the two companies was less than $15,000.

According to the indictment, Mazella described the investments as an opportunity to receive the returns of mutual funds and stocks, without any significant loss of liquidity, and at a fixed rate during the entire time period of investment. Solicitation materials distributed by Mazella characterized the investments as “geared toward individuals who are interested in earning more than traditional bank savings and CD rates but without the risk of the stock market.” Some investors were encouraged to obtain mortgages on their homes and to invest the mortgage proceeds with Third Millennium or 150 West State Street, and other investors, typically senior citizens, were encouraged to apply for reverse mortgages on their residences and to invest the proceeds with the two companies.

The indictment charges that, by as early as January 2007, Mazella had virtually stopped investing in real estate projects, and instead operated Third Millennium and 150 West State Street as a Ponzi scheme, in which he paid returns to investors from existing investors’ deposits or money paid by new investors. Many of the properties in which the companies held any mortgage or ownership interest were abandoned and in various states of disrepair, and the property taxes owed on several of those properties had fallen into arrears. Mazella also allegedly used investors’ money to pay his personal expenses, including payments for a Porsche, a mortgage on his personal residence, and family expenses.

“Perhaps the most egregious aspect of this case is that the defendant allegedly encouraged victims—some, senior citizens—to obtain mortgages on their homes and to invest the proceeds in what the indictment charges was nothing more than a Ponzi scheme,” stated United States Attorney Lynch. “We will aggressively investigate and prosecute those who perpetrate these crimes.” Ms. Lynch thanked the United States Postal Inspection Service, the Financial Industry Regulatory Authority, the Internal Revenue Service, and the Department of Housing and Urban Development (OIG), for their assistance.

FBI Assistant Director in Charge Fedarcyk stated, “Mazella lured investors with the promise of steady rates of return without market risk. In fact, because the investment scheme allegedly was an investment scam, the only one guaranteed to get rich quick was Mazella himself. The FBI is committed to protecting the investing public.”

If convicted, Mazella faces a maximum sentence of 20 years’ imprisonment for each count of securities fraud, wire fraud, and money laundering.

The government’s case is being prosecuted by Assistant United States Attorneys John P. Nowak and Evan Weitz.

Dante DeMiro, 43, of Milford, pled guilty today to five counts of bank and wire fraud, United States Attorney Barbara McQuade announced. Joining in the announcement was Special Agent in Charge Andrew Arena, Federal Bureau of Investigation (FBI).

According to court documents, DeMiro was an investment adviser to various municipalities, credit unions, school districts, and trade unions through his Southfield-based companies MuniVest Financial Group and MuniVest Services LLC. From August 2007 to September 2010, DeMiro used the MuniVest entities to operate a bank and wire fraud Ponzi scheme. DeMiro falsely promised investor clients that he would invest their funds in various certificates of deposit. He did not invest their funds as promised, but instead, used their funds to purchase personal items and real property, to gamble, to make payments to other investors in the same scheme, and to make loans to several individuals and a local jewelry store. DeMiro stipulated that the loss caused by his fraud exceeds $7 million, and that he abused a position of trust in his fiduciary capacity as an investment adviser.

“We have seen more and more of these investment schemes, which prey upon school districts, municipalities, and unions,” McQuade said. “Our hope is that cases like this one will deter other investment advisors from stealing from these vulnerable investors.”

Special Agent in Charge Arena stated, “Today’s swindlers artfully conceal their greed with sophisticated marketing and numerous misrepresentations. Investors and pension plan participants must remain diligent in following their money.”

Sentencing is scheduled for July 12, 2011 at 10:00 am before the Honorable Lawrence P. Zatkoff in Port Huron.

The case is being prosecuted by Assistant United States Attorney Erin Shaw.

LOS ANGELES—The promoter of a bogus investment scheme that promised quick returns through the resale of office equipment was sentenced today to 108 months in federal prison for orchestrating a Ponzi scheme that caused victims across the United States to lose more than $8 million.

Peter Jerald Frommer, 35, of Santa Barbara, was sentenced by United States District Judge George H. Wu. In addition to the prison term, Judge Wu ordered Frommer to pay $8.1 million in restitution.

Frommer pleaded guilty in November to wire fraud, money laundering, and three counts of failing to file federal income tax returns for the tax years 2004 through 2006.

Frommer operated a bogus investment scheme under the names “Cap Exchange” and “Cap X,” companies that he falsely claimed traded in surplus property of defunct companies. Frommer told numerous victims throughout the United States that he used commercial auction websites to purchase large lots of equipment for resale at higher prices.

>From early 2004 through August 2006, Frommer solicited more than $13 million from more than five dozen victims by promising “guaranteed” returns of up to 15 percent in as little as six weeks. Frommer obtained money from 64 investors throughout the United States. Frommer claimed that he would use victims’ money to buy the distressed assets for Cap X, and then would share profits from the subsequent sales. Instead, Frommer used the victims’ money to make Ponzi payments and to maintain a lavish personal lifestyle, which included a $20 million Malibu mansion, parties that featured celebrity performers, and luxurious personal travel and automobiles.

Additionally, Frommer convinced many investors to put money into other bogus ventures that he pitched, including a wireless Internet company, a high-end automobile parts venture, real estate deals, and other investments beyond Cap-X.

In a series of filings made in relation to today’s sentencing hearing, prosecutors focused on the impact Frommer had on his victims. “Plainly put, Frommer’s greed led to pain, distress, and a terrible disruption of the lives of his victims,” according to one of the government’s briefs.

In one of the filings, prosecutors quoted extensively from a series of letters sent by victims who urged Judge Wu to impose a stiff sentence. Those comments included:

“The effects of Peter Frommer’s crimes have been devastating for me. The only event in my lifetime that was worse was the death of my child.”

“He is the West Coast version of Bernie Madoff.”

“I am sorry to admit my family was victimized by Peter Frommer. A close relative of ours introduced us when my family and I were in California seeking cancer treatment for our youngest son. In a moment of weakness, when we were struggling with the cost of his cancer treatment, we were duped and convinced ourselves, our adult children, and a sister that this was a smart and safe investment. We made a terrible mistake.”

“My son values his education and was very intent on attending a prestigious California university. Unfortunately, he has not been able to attend that college because of the change in financial circumstances caused by Peter Frommer’s actions. What value do you put on the quashing of a teen’s dreams?”

Judge Wu ordered Frommer to begin serving his sentence on May 31.

The investigation into Frommer was conducted by the Federal Bureau of Investigation and IRS-Criminal Investigation.

NEWARK, NJ—The former chief financial officer (CFO) and an accountant with Capitol Investments USA, Inc., admitted today to assisting Nevin Shapiro in the operation of an $880 million Ponzi scheme linked to a fictitious wholesale grocery distribution business, New Jersey U.S. Attorney Paul J. Fishman announced.

Roberto Torres, 76, of New York, formerly of Lighthouse Point, Fla., and his son, Alejandro Torres, 39, of Boca Raton, Fla., each pleaded guilty before U.S. District Judge Susan D. Wigenton to a count of securities fraud.

According to the informations to which the defendants pleaded guilty and statements made in Newark federal court:

Roberto Torres, the CFO of Capitol Investments USA, Inc. (“Capitol”), and Alejandro Torres, an accountant at Capitol, used the company to assist Shapiro in fraudulently obtaining approximately $880 million between January 2005 and November 2009. The Torreses admitted that Capitol had virtually no income-generating business during that time, and that they assisted Shapiro in operating the Ponzi scheme by using new investor funds to make principal and interest payments to existing investors and to fund Shapiro’s lavish lifestyle.

In particular, the defendants admitted to creating, or directing others to create, fraudulent documents which falsely touted the profitability of Capitol’s fictitious grocery diversion business. The Torreses admitted that those documents included: profit and loss figures fraudulently representing that Capitol’s wholesale grocery business was generating tens of millions of dollars in annual sales; personal and business tax returns for Shapiro and Capitol also fraudulently reflecting those sales; and numerous invoices fraudulently reflecting transactions between Capitol and other companies in the wholesale grocery business.

The Torreses admitted that more than 50 victim investors lost a total of between $50 and $100 million as a result of the scheme. Beginning in January 2009, Shapiro and Capitol began failing to make required principal and interest payments to investors. Shapiro and Capitol were forced into bankruptcy in November 2009. At that time, they owed more than $100 million to victim investors.

Shapiro pleaded guilty to one count of securities fraud and one count of money laundering on September 15, 2010. Shapiro’s sentencing is currently scheduled for May 13, 2011.

The securities fraud charge to which Roberto and Alejandro Torres pleaded guilty carries a maximum potential penalty of 20 years in prison and a $5 million fine. Sentencing for Roberto and Alejandro Torres is scheduled for July 12, 2011.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, and special agents of IRS – Criminal Investigation, under the direction of Special Agent in Charge Victor W. Lessoff, for the investigation which led to today’s guilty pleas. He also thanked the Securities and Exchange Commission’s Miami Regional Office, under the direction of Eric Bustillo.

The government is represented by Assistant U.S. Attorneys Jacob T. Elberg and Justin W. Arnold of the United States Attorney’s Office Criminal Division in Newark.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

ORLANDO, FL—United States Attorney Robert E. O’Neill announces that David A. Smith, (41, a Jamaican citizen) who was living in the Turks and Caicos Islands, today pleaded guilty to four counts of wire fraud, one count of conspiracy to commit money laundering, and 18 counts of money laundering. The wire fraud counts carry a maximum penalty of 20 years in federal prison, a fine of $250,000, and a term of supervised release of not more than three years. In addition, for each count of wire fraud the fine may be assessed at twice the amount of gross gain or loss.

Last year, Smith pleaded guilty to fraud and conspiracy charges filed in the Turks and Caicos Islands arising from his investment scam there, and he was sentenced to serve six-and-a-half years in prison.

An information charging Smith with these offenses was filed by the United States Attorney on August 18, 2010. In November 2010, he was brought to the United States. His initial appearance in Federal District Court in Orlando was on November 19, 2010. The case was set for trial in April 2011.

According to the plea agreement, for more than three years, Smith executed a Ponzi scheme to defraud over 6,000 investors located in the Middle District of Florida and elsewhere out of more than $220 million. Smith led investors to believe that he was investing their money in foreign currency trading, earning 10 percent per month on average. In fact, he was not trading their funds. Foreign currency trading is a highly volatile and risky investment vehicle that is regulated in the United States by the Commodity Futures Commission and the National Futures Association.

In addition to defrauding those investors, Smith conspired to launder the proceeds that were received in his scam, and he participated in the laundering of millions of dollars of proceeds that were obtained as a result of wire fraud.

The four counts of wire fraud are based on Smith’s transmitting false and fraudulent account statements to several investors through email and the OLINT Internet website.

Smith also conspired with others to launder approximately $128 million of proceeds that were obtained as a result of the wire fraud scheme, and he in fact laundered those millions of dollars. The purpose of the money laundering engaged in by Smith and his conspirators was to conceal and disguise the nature, the location, the source, the ownership, and the control of the proceeds of the wire fraud.

During the entire time that Smith operated his Ponzi scheme, the only source of income for he and his wife was from investors’ funds. Smith’s operation of the Ponzi scheme effectively ended on July 15, 2008, when the Royal Turks and Caicos Police Force, Financial Crimes Unit, executed search warrants at Smith’s place of business and residence in Providenciales, Turks and Caicos Islands.

The U.S. Attorney’s Office wishes to acknowledge that considerable investigative support has been and continues to be provided by foreign law enforcement agencies and governments, including the Financial Crimes Unit with the Royal Turks and Caicos Police Force, the Financial Services Commission in Jamaica, the Special Investigation and Prosecution Team in Turks and Caicos, and the governments of the United Kingdom, Turks and Caicos, and Jamaica. Additional support has been provided by the United States’ Commodity Futures Commission and the National Futures Association.

Any person who believe to be a victim and wishes to submit a claim for restitution may contact the U.S. Attorney’s office through a special e-mail account: usaflm.david_Smith_ponzi@usdoj.gov.

This case was investigated by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), the Internal Revenue Service, and the Federal Bureau of Investigation. It is being prosecuted by Assistant United States Attorney Bruce S. Ambrose.

Ordered to Pay $1.79 Million in Restitution to Victims

SPRINGFIELD, IL—U.S. District Judge Richard Mills today sentenced James U. Dodge, 72, of Springfield, Ill., to a term of 63 months (five years, three months) in federal prison for operating a Ponzi fraud scheme that defrauded more than 50 victims over a six-year period beginning in 2004. Following completion of the prison sentence, Dodge, of the 4800 block of Johanne Court, was ordered to remain under supervised release for a period of six years. Dodge was ordered to pay restitution in the amount of $1,797,328 to the victims. Dodge was allowed to self-report to begin serving his prison sentence on a date to be determined by to the federal Bureau of Prisons.

On Sept. 2, 2010, Dodge pled guilty to one count each of mail fraud and money laundering. According to court documents and statements during court appearances, from at least June 2004 through April 2010, Dodge defrauded more than 50 investors of $1,000,000 to $2,500,000. Dodge admitted that he made false statements and submitted fraudulent information to obtain money from individuals in the guise of ‘financial investments.’ Dodge represented to investors that he used an “algorithm” to trade on the stock market, a system that he represented guaranteed him at least a 6 percent return or profit per month. Dodge further represented that he would split this profit with investors and they would receive payments of 3 percent of their investment each month, for a total 36 percent return per year. Some investors opted to receive this ‘return’ monthly in the form of a check while others opted to roll over their investment ‘return.’

According to court documents, Dodge is a retired pharmaceutical sales representative and is not registered as a broker or as an investment advisor with the Illinois Secretary of State, Illinois Securities Department.

Agencies conducting the investigation include the Internal Revenue Service – Criminal Investigation; Illinois Securities Department, Illinois Secretary of State’s Office; the Federal Bureau of Investigation; and the U.S. Postal Inspection Service. The case was prosecuted by Assistant U.S. Attorney Patrick D. Hansen.

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ROCKFORD—PATRICK J. FITZGERALD, United States Attorney for the Northern District of Illinois, and ROBERT D. GRANT, Special Agent in Charge of the Chicago Division of the Federal Bureau of Investigation, today made the following announcement:

Today in federal court, ALGIRD NORKUS, 66, of Aurora, Illinois, formerly of Sugar Grove, pled guilty to mail fraud that involved his operation of a Ponzi scheme in which he fraudulently obtained money from a number of investors who were promised extraordinary returns from his company, Financial Update, Inc. (hereafter “Financial Update”). A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.

According to the plea agreement, Norkus offered and sold approximately $9,000,000 of investments in Financial Update, misrepresenting to investors and potential investors that the funds invested would be used by Financial Update to purchase lists of prospective customers. To evidence the investments, Norkus issued promissory agreements or other similar titled documents to investors. However, Norkus admitted that beginning in 1998 he did not intend to purchase lists of prospective customers with monies he sought and received from investors, but instead commingled the investment monies he received from investors and at times misappropriated them, in part to make Ponzi-type payments to investors and in part to benefit himself. In addition, Norkus admitted he made further misrepresentations to investors regarding the expected return on investments, the risks associated with investments, the status of investments, and the use of proceeds obtained from investments. For example, Norkus falsely represented to investors that Financial Update earned so much from the use of the lists that it could afford to pay interest on invested money at a rate much higher than could be obtained from many other types of investments.

In pleading guilty, Norkus further admitted that he provided checks to certain investors drawn on bank accounts that contained insufficient funds to lull them into the belief that their investments had been used as represented, were causing Financial Update to earn money, and that the money earned on the investments was used to pay interest on the investments. To further this belief by investors, Norkus admitted he also annually provided investors with Internal Revenue Service Form 1099-INT report of interest income. Norkus also admitted that in approximately January 2010, he mailed, or had another person mail, an Internal Revenue Service Form 1099-INT report of interest income to an investor for delivery to the investor’s home address in Rockton, Illinois.

Sentencing for Norkus will be conducted on June 23, 2011, at 2:30 p.m. Norkus faces a maximum potential penalty of 20 years in prison, up to three years of supervised release following imprisonment, a fine of up to $250,000, or twice the gross gain or gross loss resulting from that offense, whichever is greater, as well as any restitution ordered by the court. The actual sentence would be determined by the United States District Court, guided by the United States Sentencing Guidelines.

The case was investigated by the Rockford Resident Agency of the FBI, with the assistance of the United States Securities and Exchange Commission. The case is being prosecuted in federal court by Assistant United States Attorney MICHAEL D. LOVE.

Juan Rangel Targeted Spanish-Speaking Victims in $30 Million Ponzi Scheme and in Second Scheme to Steal Savings and Properties from Distressed Homeowners

LOS ANGELES—A Downey man was sentenced today to 22 years in federal prison for running two fraud schemes—a Ponzi scheme that took in at least $30 million from more than 500 victims, and a mortgage fraud scheme that preyed on working-class homeowners by stealing the equity from their homes and secretly taking title to their properties.

Juan Rangel, 47, who has been in federal custody since August 2008, pleaded guilty on October 27 to one count of mail fraud and one count of money laundering. In the plea agreement the led to Rangel’s guilty pleas, federal prosecutors and Rangel agreed to a 15-year prison sentence, but United States District Judge S. James Otero said a 22-year sentence was needed based on the devastating impact Rangel’s actions had on his victims.

More than a dozen victims addressed the court during today’s five-hour hearing, including an investor who had been convinced to invest money she received after her son was killed while serving as a Marine in Iraq. Judge Otero said that Rangel had shown a “callous disregard in taking investment money from the mother of a fallen soldier.”

The mail fraud count to which Rangel pleaded guilty related to a $30 million Ponzi scheme in which Rangel and his company, the Commerce-based Financial Plus Investments, recruited investors through advertisements in Spanish-language newspapers, as well as in infomercials broadcast on television. Rangel and Financial Plus promised to pay investors annual returns as high as 60 percent, claiming Financial Plus’ real estate investments and lending business generated substantial profits. However, Rangel admitted in his plea agreement that Financial Plus did not realize any profits from real estate or lending. Rangel instead used victims’ money to make Ponzi payments to prior investors and for his own personal use, including the monthly mortgage payments on his $2.5 million mansion and monthly payments for his Lamborghini sports car.

The investment fraud scheme resulted in losses of approximately $20 million. Rangel also admitted that he and others operated a mortgage fraud scheme targeting Latino homeowners facing foreclosure. Rather than assisting the distressed homeowners, Rangel took titles to their homes and drained the equity out of the properties. As part of this scheme, Rangel arranged to sell the homeowners’ properties, usually without their knowledge, to straw buyers. He then applied for loans in the straw buyers’ names, and used a variety of falsified documents to ensure that the fraudulent loans were approved.

Rangel “targeted the most vulnerable members of his community—homeowners who had fallen behind on their mortgages. These families came to his company for help, and he took advantage of them for his own profit. These victims lost the equity they had built up in their properties, and many of the victim homeowners have lost their properties or are in foreclosure,” prosecutors said in court papers. Court documents filed by prosecutors noted a pre-sentence report prepared in this case called Rangel’s actions “depraved.”

Rangel admitted that the mortgage fraud scheme caused lenders to fund more than $10 million in fraudulent loans.

In documents filed in relation to today’s sentencing hearing, prosecutors argued that Rangel’s “investment fraud scheme and related mortgage fraud scheme involved a high degree of sophistication and went far beyond a typical fraud case.” Utilizing dozens of employees, Rangel had recruiters sign up new investors, he conducted monthly investment seminars and he sent Spanish-speaking “street teams” into neighborhoods to target homeowners who were behind on their mortgage payments. Rangel also bribed a manager at a Bank of America branch to provide false documents and to release holds on checks he deposited into his accounts—conduct for which he was convicted at trial in a separate case in May 2009.

Rangel’s “fraud had a devastating impact on the families who invested with Financial Plus,” according to the government’s sentencing position memorandum, which details the impacts felt by several victims, which include bankruptcies and losing homes. “The victim investors were mostly working-class families, and nearly all of them invested money that they could not afford to lose. [Rangel] encouraged them to invest as much as possible and advised people against putting their money in the bank.”

The government is asking Judge Otero to order Rangel to pay a substantial amount of restitution to his victims. Judge Otero has scheduled a hearing for May 6 to determine how much Rangel will be ordered to pay back to his victims.

In relation to the mortgage fraud scheme, a federal grand jury also indicted Javier Juanchi, 42, of Sherman Oaks, a vice president at Financial Plus; and Pablo Araque, 40, of Downey, who owns the Downey-based tax preparation and bookkeeping company A-One Tax Pros. Juanchi and Araque are currently scheduled to go to trial before Judge Otero on March 29.

Rangel’s son, Harold Rangel, was indicted along with his father in the case involving bribery of a bank officer. A warrant was issued for Harold Rangel’s arrest when he failed to appear at a pre-trial hearing in 2009. His photo and description can be found at: http://www.fbi.gov/wanted/wcc/harold-rangel.

The case involving Financial Plus is the result of an investigation by the Federal Bureau of Investigation, the United States Postal Inspection Service and IRS-Criminal Investigation.

ALBUQUERQUE—Douglas F. Vaughan, 63, has been indicted by a federal grand jury on charges stemming from a fraudulent investment operation that was actually a multi-million-dollar Ponzi scheme. The 30-count indictment generally alleges that, between 2005 and 2010, Vaughan operated a promissory note investment program, which he marketed as a means of generating revenue to grow his real estate business, as a Ponzi scheme. It further alleges that Vaughan owed more than $76 million in unpaid principal and interest payments to approximately 600 investors when the fraudulent scheme collapsed in early 2010.

United States Attorney Kenneth J. Gonzales said that the indictment is the result of a joint federal-state investigation that was initiated by the Securities Division of the New Mexico Regulation and Licensing Department in September 2009, and later expanded to include the Federal Bureau of Investigation (FBI); U.S. Postal Inspection Service, and U.S. Secret Service.

The indictment was unsealed this morning by the United States District Court for the District of New Mexico after law enforcement officers arrested Vaughan at a residence in Albuquerque’s North Valley. It charges Vaughan with three counts of wire fraud, 17 counts of mail fraud, five counts of money laundering, and five counts of false writings and documents. If convicted, Vaughan faces a maximum penalty of 20 years in prison on each of the wire and mail fraud counts, a maximum of 10 years in prison on each of the money laundering counts, and a maximum of five years in prison on each of the false writings counts. The indictment also seeks forfeiture of a residence in Las Vegas, Nevada, as well as a money judgment in excess of $74 million.

Vaughan is scheduled for an initial appearance at 2:00 p.m. this afternoon before Chief United States Magistrate Judge Richard L. Puglisi in Albuquerque federal court.

As used in the indictment, a Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. According to the indictment, Vaughan was the chairman, chief executive officer, president, and majority shareholder of Vaughan Company Realtors (VCR), a business that operated primarily as a residential real estate brokerage and was at one time the largest independent residential brokerage in New Mexico. In spring 1993, Vaughan allegedly began a promissory note investment program (Promissory Note Program) to generate revenue to grow VCR’s business. The typical note had a three-year term, an interest rate ranging from 8 percent to 40 percent per year, and provided for interest to be paid in monthly installments. At the end of the note’s term, Vaughan either paid off the principal or offered the investor the opportunity to “roll over” the principal into a new note. Vaughan allegedly signed each promissory note on behalf of VCR.

The indictment alleges that Vaughan led investors to believe that their investments in the Promissory Note Program were actually or virtually risk-free because they were guaranteed by VCR, Vaughan’s personal guarantee, and a $2.5 million deed of trust on certain real estate. Vaughan allegedly marketed his Promissory Note Program by representing that the invested funds would be used to purchase real estate and to acquire smaller real estate companies. Instead, Vaughan used the Promissory Note Program funds primarily for three undisclosed purposes: (i) to pay the interest and principal on promissory notes taken out by earlier investors; (ii) to pay himself, under the guise of salary, bonuses, or some other personal transfers; and (iii) to subsidize the operation of VCR, which was generating insufficient “legitimate” revenues to sustain itself.

According to the indictment, by 2005, the Promissory Note Program was the primary source of revenue for VCR and, without the infusion of capital generated by new Promissory Note Program investors, VCR was insolvent. Despite this, Vaughan allegedly continued to distribute the same marketing materials for the Promissory Note Program, sign the same promissory notes, and make the same corporate and personal guarantees. Although Vaughan represented to investors that he would not extend more than $2,500,000.00 in promissory notes, financial records allegedly reflect that the aggregate principal balance owed to note holders far exceeded this amount:

2004 – $24,351,605.00
2005 – $32,299,363.37
2006 – $39,969,110.68
2007 – $49,984,845.80
2008 – $62,844,445.57
2009 – $74,386,623.38.

From at least 2005 through February 2010, Vaughan allegedly used funds from new Promissory Note Program investors to make interest payments to existing note holders and thus lulled existing investors into believing that they were being paid returns from VCR’s legitimate business revenues. However, VCR’s corporate tax returns reflected the following annual losses:

2004 – $4,041,048.00
2005 – $5,595,285.00
2006 – $7,461,409.00
2007 – $9,913,893.00
2008 – $13,313,323.00
2009 – $13,907,738.00

As alleged in the indictment, when his Ponzi scheme began to collapse and he became unable to meet the monthly interest payments to note holders, Vaughan made false and misleading excuses to investors and failed to disclose that VCR had insufficient revenue to make the interest payments. In February 2010, when Vaughan filed for personal and corporate bankruptcy, the aggregate principal balance owned to approximately 600 note holders was approximately $74,745,723.93 and the interest expense owed to note holders exceeded $1 million per month.

In announcing the indictment, United States Attorney Gonzales said, “The case against Vaughan is fundamentally about deceit. Vaughan allegedly misrepresented to investors their guaranteed rate of return, the safety of their investments, and even what it was they were investing in. People who trusted Vaughan ended up losing a lot of money, in some cases, their life savings. My office will diligently and aggressively prosecute Vaughan and others like him who seek to defraud people out of their hard earned money. I commend the Securities Division of the New Mexico Regulation and Licensing Department, the FBI, the Postal Inspection Service, and the Secret Service for the persistent and thorough investigation that led to this significant indictment, and their ongoing efforts to protect the public by detecting and stopping these fraudulent investment schemes.”

Carol K.O. Lee, Special Agent in Charge, Albuquerque Division of the FBI said, “I would like to commend the work of all the investigators and the FBI agents involved in this case for making today’s indictment possible. The FBI is committed to vigorously investigating Ponzi schemes and other types of investment frauds. Besides inflicting serious economic harm on individual victims, these crimes also undermine confidence in our financial markets.”

“Utilizing its specialized expertise and experience, the securities division fights fraudsters across the state of New Mexico every day, by investigating and prosecuting,” said New Mexico Regulation and Licensing Superintendent J. Dee Dennis Jr. “By perpetrating an alleged $76 million fraud, Doug Vaughan has the dubious distinction of being the largest alleged Madoff-like Ponzi schemer in New Mexico history. Our highly dedicated staff will continue to regulate the securities industry, educate the public, and enforce the law to protect the investing public from financial predators,” said Dennis.

“Doug Vaughan’s arrest brings to a close a Ponzi scam that financially devastated as many as 600 victims, many of them New Mexico residents,” said Fort Worth Division Inspector in Charge Randall C. Till. “Consumers have the right to receive mail free of fraudulent promises and deliberate misrepresentations. Before even Charles Ponzi gave the scam its name in the early 20th century, Postal Inspectors vigorously investigated these types of frauds and remain committed to defending innocent consumers against those who would abuse the U.S. Mails to further their criminal enterprises.”

“Cooperation and partnerships among federal and state investigators, allows us to combine not only our resources, but also our expertise, to combat fraudulent investment Ponzi schemes,” Richard Ferretti, Resident Agent in Charge, Albuquerque Resident Office of the U.S. Secret Service commented.

United States Attorney Gonzales has assigned Assistant United States Attorney Gregory J. Fouratt to prosecute the case.

An indictment contains only charges and is not evidence of guilt, and the defendant is presumed innocent unless and until proven guilty.

This case was brought in coordination with the President’s Financial Fraud Enforcement Task Force, which includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes. The task force is also making the public aware of resources available to protect against these types of fraud and how to report fraud when it occurs. To learn more about investment scams, how to take steps to protect yourself from scams or how to report investment fraud if you believe you have been victimized, the task force recommends that you visit its website, www.StopFraud.gov.

United States Attorney John E. Murphy announced the return of a federal grand jury indictment in Austin charging a former Austin businessman in connection with a Ponzi scheme which victimized more than 300 individuals and resulted in a total estimated loss to investors of $41 million.

The 39-count indictment, returned late yesterday afternoon, charges 43-year-old Kurt Branham Barton, founder, president, and CEO of Triton Financial, L.L.C., with conspiracy to commit wire fraud, make false statements to secure loans from financial institutions, and money laundering. Barton is also charged with multiple substantive counts including one count of securities fraud, 15 counts of wire fraud, five counts of making a false statement related to the acquisition of loans, and 17 counts of money laundering.

The indictment alleges that between December 2005 and December 2009, Barton devised a scheme to obtain money from investors under false pretenses. Barton allegedly represented to investors that Triton was purchasing properties, businesses, and other assets with their funds when, in fact, he was using their money to satisfy the needs of other ventures and the need to pay quarterly dividends or redemptions to prior investors. According to the indictment, Barton used prominent former National Football League players and Heisman Trophy winners to solicit and encourage additional investors. To conceal his scheme, Barton allegedly presented fabricated and fictitious versions of his E*Trade monthly account statement to financial institutions, commercial lenders, and potential investors.

Upon conviction of all charges, Barton faces up to life in federal prison as well as restitution.

This investigation was conducted by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation. Assistant United States Attorney Mark Lane is prosecuting this case on behalf of the Government.

An indictment is merely a charge and should not be considered as evidence of guilt. The defendant is presumed innocent until proven guilty in a court of law.

ORLANDO, FL—United States Attorney A. Brian Albritton announces that U.S. District Judge Anne C. Conway today sentenced Ramon Cendana (age 48, of Orlando) to more than six years in federal prison for his role in a mortgage fraud scheme. The court also ordered Cendana to pay in excess of $240,000 in restitution to his victims. Cendana had pleaded guilty on January 27, 2010.

According to court documents, Cendana owned and operated a title company, a mortgage company, and two investment companies. Through those companies, Cendana operated a Ponzi-type scheme soliciting investors (who were often refinancing their own homes to obtain investment proceeds), promising high rates of return on their investments, and then paying early investors with the investments of later investors. The proposed investments, however, never generated any revenue. When investor funds ran low, Cendana used the identification information of his investors to apply fraudulently for loans and lines of credit in the names of those investors. Further, near the end of his scheme, as both investor funds and the proceeds from the fraudulently-obtained loans and lines of credit ran low, Cendana used his mortgage and title companies to create fictitious mortgage closings, directing the customers who trusted him to refinance their homes to wire him funds to facilitate closings that never occurred.

The court sentenced the defendant based upon over $1.7 million in fraud loss.

This case was investigated by the United States Secret Service, the United States Postal Inspection Service, and the Federal Bureau of Investigation. It was prosecuted by Assistant United States Attorney Daniel C. Irick.

This case is part of the Middle District of Florida’s Mortgage Fraud Surge, a joint effort by the U.S. Attorney’s Office for the Middle District of Florida, the investigative agencies named above, and numerous other federal, state, and local law enforcement agencies. The surge focused intensive investigative and prosecutorial resources on the mortgage fraud crisis that plagues middle Florida and has contributed to the current economic situation nationwide. The surge accelerated mortgage fraud cases to bring perpetrators to justice quickly and provide maximum deterrence. It was the first step in the Middle District of Florida’s Mortgage Fraud Initiative, an ongoing effort to prosecute mortgage fraud of all types throughout the district. For more information on the Middle District of Florida’s mortgage fraud prosecutions, please contact Steve Cole, Public Affairs Officer for the United States Attorney’s Office.

Defendants Spent Millions of Dollars of Investor Funds to Employ Chauffeurs and Maintain a Fleet of Luxury Cars; Travel in Luxury to the Super Bowl and All-Star Game; Pay Off Prior Investors as Part of a Ponzi Scheme; and Fund a Failed Investment Venture and Undisclosed Third Party Businesses

GREENBELT, MD—A federal jury convicted Michael Anthony Hickson, age 48, of Commack, New York; Isaac Jerome Smith, age 48, of Spotsylvania, Virginia; and Alvita Karen Gunn, age 33, of Hanover, Maryland today of fraud conspiracy, wire fraud, and conspiracy to commit money laundering in connection with their participation in a massive mortgage fraud scheme which promised to pay off homeowners’ mortgages on their “Dream Homes,” but left them to fend for themselves. In addition to the above described convictions, Hickson, chief financial officer of Metro Dream Homes (MDH), was also convicted of making a false statement in a federal court proceeding.

The convictions were announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; Special Agent in Charge Rebecca Sparkman of the Internal Revenue Service – Criminal Investigation, Washington, D.C. Field Office; Maryland Attorney General Douglas F. Gansler; and Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation.

“The defendants used slick marketing to conceal empty promises,” said U.S. Attorney Rod J. Rosenstein. “They convinced many victims to invest at least $50,000 by refinancing their existing homes or buying new homes at inflated prices, while claiming that Metro Dream Homes would repay the mortgages with revenue from profitable businesses. There was no revenue, however, to pay the mortgage payments. Instead, the conspirators used some of the investors’ money to repay earlier investors in the Ponzi scheme and spent the remainder on themselves.”

“It is exactly this type of fraud that has the attention of federal law enforcement,” stated Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation. “Cases like this that involve false promises, misleading information and fraudulent sales pitches that lure unsuspecting citizens into giving up their hard earned savings are being aggressively pursued across Maryland and the United States and will continue to be a major focus of the FBI.”

“The IRS-Criminal Investigation, along with our fellow law enforcement partners, is committed to following the money trail,” stated Rebecca Sparkman, Internal Revenue Service-Criminal Investigation Special Agent in Charge, Washington, D.C. Field Office. “This verdict shows that the appearance of success can be a mask wherein the underlying structure can fall apart at any time and leave investors in financial ruin.”

“The Federal Deposit Insurance Corporation Office of Inspector General is pleased to join the United States Attorney for the District of Maryland, Federal Bureau of Investigation, Internal Revenue Service Criminal Investigation Division, and Maryland Attorney General in announcing these convictions today. We are committed to our partnerships with others in federal, state, and local law enforcement organizations as we address mortgage fraud cases throughout the country. The American people need to be assured that their government is working to ensure integrity in the financial services and housing industries and that those involved in criminal misconduct that undermines that integrity will be held accountable.”

According to evidence presented at the six week trial, beginning in 2005, the defendants targeted homeowners and home purchasers to participate in a purported mortgage payment program called the “Dream Homes Program.” In exchange for a minimum of $50,000 initial investment and an “administrative fee” of up to $5,000, the conspirators promised to make the homeowners’ future monthly mortgage payments and pay off the homeowners’ mortgage within five to seven years. Dream Homes Program representatives explained to investors that the homeowners’ initial investments would be used to fund investments in automated teller machines (ATMs), flat-screen televisions that would show paid business advertisements, and electronic kiosks that sold goods and services. To give investors the impression that the Dream Homes Program was very successful, Metro Dream Homes spent hundreds of thousands of dollars making presentations at luxury hotels such as the Washington Plaza Hotel in Washington, D.C.; the Marriott Marquis Hotel in New York, New York; and the Regent Beverly Wilshire Hotel in Beverly Hills, California.

Trial testimony showed that in February 2007, the Dream Homes Program added a second program called “POS Dream Homes” that offered similar promises of paying off investor mortgages in five to seven years in exchange for an up-front investment of $50,000 or more. Collectively, these programs had offices in Maryland, the District of Columbia, Virginia, North Carolina, New York, Delaware, Florida, Georgia, and California.

According to trial testimony, the defendants failed to advise investors that: the ATMs, flat-screen televisions, and kiosks never generated any meaningful revenue; the defendants used the funds from later investors to pay the mortgages of earlier investors; and MDH had not filed any federal income tax returns throughout its existence. The defendants also failed to advise investors that their investments were being used for the personal enrichment of select MDH employees, including the defendants, to: pay salaries of up to $200,000 a year, as well as their mortgages; employ a staff of chauffeurs and maintain a fleet of luxury cars; and travel to and attend the 2007 National Basketball Association All-Star game and the 2007 National Football League Super Bowl, staying in luxury accommodations in both instances. Nor were investors told that investor funds were used to: pay off investors in a prior failed ATM investment venture called Bankcard Group; make multiple donations of up to $50,000 each to charitable organizations to give MDH the appearance of being financially successful; and transfer millions of dollars in investor funds to third-party businesses for purposes not disclosed to investors.

Trial testimony showed that the defendants arranged for early Dream Homes Program investors, whose monthly mortgage payments had been paid by MDH using the funds of later Dream Homes Program investors, to attend recruitment meetings to assure potential investors that the Dream Homes Program was not a fraud. MDH used a third party company to pay investors to advertise the Dream Homes Program to friends and family. MDH encouraged homeowners to refinance existing mortgages on their homes in order to withdraw equity and generate the funds necessary to enroll their homes in the Dream Homes Program.

On Aug. 15, 2007, the Maryland Securities Commissioner issued a cease-and-desist order to MDH and other related companies directing them to immediately cease the offering and sale of unregistered securities in connection with their promotion of the Dream Homes Program. However, the defendants thereafter called meetings in which investors were told that MDH was earning up to $10 million in one month and that the company’s legal difficulties were the result of either misunderstandings or racial animus against company leaders.

On Sept. 4, 2007, the defendants filed a legal challenge in federal court in Maryland to the cease-and-desist order. Trial testimony established that at a hearing on Sept. 12, 2007, Hickson testified that the financial success of the Dream Homes Program did not rely upon new investor funds, when in fact Hickson knew that the sole source of meaningful revenue for MDH was new investor funds.

As a result of the scheme, more than 1,000 investors in the Dream Homes Program invested approximately $78 million. When the defendants stopped making the mortgage payments, the homeowners were left to attempt to make the mortgage payments MDH had promised to make in full.

All three defendants face a maximum sentence of 20 years in prison for the fraud conspiracy; 20 years in prison on each of the 15 counts of wire fraud; and 20 years in prison for conspiracy to commit money laundering. Hickson also faces a maximum sentence of five years in prison for making false statements.

U.S. District Judge Roger W. Titus scheduled sentencing for Michael Hickson on July 1, 2011 at 11:00 a.m., Isaac Smith on June 27, 2011 at 1:00 p.m., and Alvita Gunn on June 27, 2011 at 2:00 p.m.

Carole Nelson, age 52, of Washington, D.C., the chief financial officer of POS Dream Homes, previously pleaded guilty to money laundering, and Charlotte Melissa Josephine Hardmon, age 39, of Bowie, Maryland, pleaded guilty to conspiracy to commit wire fraud in connection with their participation in this scheme. Both await sentencing on a date to be scheduled.

This prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state, and local law enforcement agencies in Maryland, Washington, D.C., and Northern Virginia. The task forces were formed to promote the early detection, identification, prevention, and prosecution of various kinds of mortgage fraud schemes. This case, as well as other cases brought by members of the task forces, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and help to ensure the integrity of the mortgage market and other credit markets. Information about mortgage fraud prosecutions is available on the Internet at http://www.usdoj.gov/usao/md/Mortgage-Fraud/index.html.

United States Attorney Rod J. Rosenstein praised the FBI, the IRS – Criminal Investigation, the Maryland Attorney General’s Office – Securities Division, and the Federal Deposit Insurance Corporation – Office of Inspector General for their investigative work. Mr. Rosenstein thanked Assistant U.S. Attorneys for the District of Maryland Jonathan C. Su and Bryan E. Foreman, who are prosecuting the case.

CHICAGO—A Chicago options trader was taken into federal custody today after he turned himself in for allegedly engaging in an investment fraud scheme in which he swindled more than $600,000 from approximately 10 victims who invested with him. The defendant, Kent R.E. Whitney, was charged with wire fraud in a criminal complaint filed in U.S. District Court on February 14, 2011, announced Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; and Robert D. Grant, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation.

According to the criminal complaint Whitney, 29, of Chicago, obtained over $600,000 from approximately 10 investors since 2009, both for a purported commodity pool investment, and for trading in futures accounts to be held jointly between Whitney and the victims. He returned approximately $200,000 as so-called investor redemptions and misused most of the remaining funds for his own benefit and for the benefit of acquaintances. Whitney appeared this afternoon before U.S. Magistrate Judge Jeffrey Cole and was released on bond.

The CME Group, Inc. (CME) owns and operates the three U.S. futures exchanges that formerly went by the names Chicago Mercantile Exchange, Chicago Board of Trade, and New York Mercantile Exchange. Prior to and during 2009, Whitney had trading privileges on CME markets.

According to the charges, from mid-2009 through late 2010, Whitney made false representations to investors concerning, among other things: (1) the use of investors’ funds; (2) the returns investors could expect to make, and already had made, on their invested funds; and (3) the risks involved in the investments. According to the charges, Whitney misappropriated most of the invested funds and concealed his misappropriation by creating and distributing phony account statements and making Ponzi-type payments of returns to investors.

In October 2009, one victim invested $40,000 with Whitney to trade options through Lone Star. According to the charges, Whitney told the victim that Whitney would earn a 50 percent annual return trading options, and Whitney deposited the victim’s $40,000 check into a Lone Star bank account. Whitney gave the victim a phony document that purported to be a Lone Star account statement showing that the victim’s investment had grown to $47,250 in just over one month. Whitney did not use the victim’s funds to trade options, but instead used the funds for his own purposes, and ultimately most of the funds were used to buy a Maserati M128 GT Coupe.

In December 2009, another victim invested $15,500 from her daughter’s college fund in Lone Star through Whitney. According to the charges, Whitney told the victim that Whitney had earned approximately 22 percent to 26 percent per month trading her funds in Lone Star, when he actually misappropriated most of the funds.

Between January and November 2010, the CME Group suspended Whitney from trading on CME markets three times as a result of his unrelated options trading activity. Each trading suspension prohibited Whitney from trading, placing, or taking trading orders for others, or soliciting any business concerning CME products. Nonetheless, according to the charges, Whitney solicited $240,000 from another victim between January 2010 through August 2010, purportedly for Whitney to trade options on behalf of the victim. Whitney did not disclose to the victim that Whitney was currently subject to a trading suspension. Whitney did not use the victim’s funds to trade options. However, Whitney provided the victim with phony documents purporting to be account statements from a trading firm showing the use of his funds to trade options. Whitney returned to the victim approximately $44,000 that Whitney claimed to be “returns” from the trading, but these “returns” were not profits from his trading but rather a return of some of the victim’s own funds invested with Whitney. The remainder of the victim’s invested funds were not traded, but were misappropriated by Whitney and were also used to make Ponzi-type payments to earlier investors.

According to the charges, in July 2010, another victim invested $50,000 with Whitney so Whitney could trade options on behalf of the victim. Whitney did not disclose to the victim that Whitney was currently subject to a trading suspension. Whitney guaranteed a five percent monthly return to the victim, and told him that the only way he would not receive his monthly returns was in the case of a “nuclear war.” Whitney did not trade options with the victim’s funds, but instead misappropriated the funds and used them for his own purposes and to make Ponzi-type payments to earlier investors.

The government is being represented by Assistant U.S. Attorney Clifford C. Histed. The U.S. Attorney’s Office acknowledges the contributions made to this investigation by the CME Group, Inc. and the U.S. Commodity Futures Trading Commission.

Wire fraud carries a maximum penalty of 20 years in prison and a $250,000 fine, and restitution is mandatory. The court may also impose a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. If convicted, however, the court must impose a reasonable sentence under the advisory United States Sentencing Guidelines.

A complaint contains only charges and is not evidence of guilt. The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

CHICAGO—A Downers Grove man who purported to offer financial investment services to the public was sentenced today to 200 months (16 years, eight months) in prison for engaging in a two-year Ponzi scheme that caused more than 250 victims to lose approximately $6.4 million when it collapsed in June 2009. The defendant, David J. Hernandez, fraudulently induced more than 300 victims to invest approximately $13 million through his business, NextStep Financial Services, Inc., and several related companies. Hernandez, 50, pled guilty to mail fraud in January 2010.
U.S. District Judge Robert Gettleman told Hernandez that he “is nothing but a con man and a thief,” who obstructed justice and has engaged in a “long-pattern of deceit,” when he imposed the sentence in federal court. Judge Gettleman also ordered Hernandez to pay restitution of $6.4 million, and a preliminary forfeiture order was entered in which Hernandez agreed to relinquish the same amount, as well as a 2009 Audi and a 2007 Mercedes Benz ML350, and his interest in his suburban home. The judge was informed, however, that Hernandez has no assets and the victims will likely never be repaid.
The sentence was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. Mr. Fitzgerald and Mr. Grant thanked the Downers Grove and Normal, Ill., police departments, as well as the Securities and Exchange Commission, which has a civil enforcement case pending against Hernandez.
Hernandez was charged in June 2009 shortly after FBI agents executed a search warrant at NextStep’s offices on the 22nd floor at 225 West Washington Street. Hernandez fled briefly but was located later that month in Normal, Ill.
Between July 2007 and June 2009, Hernandez defrauded prospective investors and investors in a NextStep Financial Services product described as a “Guaranteed Investment Contract.” He made false representations and promises regarding the risk of investing with NextStep, the manner in which the victims’ funds would be used, the returns that NextStep generated, and his background.
Hernandez falsely promised investors monthly returns of 10 to 16 percent, with no risk of loss to their principal, through investing their funds in Check ‘n Go stores, which offered short-term “payday advance” loans, and which Hernandez claimed were owned or financed by NextStep. In fact, Hernandez knew that no NextStep investor funds were used to purchase or finance the operation of Check ‘n Go stores.
Hernandez also fraudulently represented to investors that their principal was protected through insurance that NextStep obtained from various insurance companies, knowing that victims’ investments were not insured in any manner. And, knowing that victims’ funds were not earning any interest whatsoever, Hernandez converted the investors’ funds to his own benefit and used their money to make Ponzi-style “interest” payments to other NextStep investors.
Hernandez also lied to investors about his background and experience, including falsely representing that he had a law degree and a master’s degree in business administration, and that he had 26 years of experience in the financial industry, while failing to disclose pertinent material information about his personal background, including a previous federal investment fraud conviction.
The government is being represented by Assistant United States Attorneys Brian Hayes and Michael Sterling.

CHICAGO—A Downers Grove man who purported to offer financial investment services to the public was sentenced today to 200 months (16 years, eight months) in prison for engaging in a two-year Ponzi scheme that caused more than 250 victims to lose approximately $6.4 million when it collapsed in June 2009. The defendant, David J. Hernandez, fraudulently induced more than 300 victims to invest approximately $13 million through his business, NextStep Financial Services, Inc., and several related companies. Hernandez, 50, pled guilty to mail fraud in January 2010.
U.S. District Judge Robert Gettleman told Hernandez that he “is nothing but a con man and a thief,” who obstructed justice and has engaged in a “long-pattern of deceit,” when he imposed the sentence in federal court. Judge Gettleman also ordered Hernandez to pay restitution of $6.4 million, and a preliminary forfeiture order was entered in which Hernandez agreed to relinquish the same amount, as well as a 2009 Audi and a 2007 Mercedes Benz ML350, and his interest in his suburban home. The judge was informed, however, that Hernandez has no assets and the victims will likely never be repaid.
The sentence was announced by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation. Mr. Fitzgerald and Mr. Grant thanked the Downers Grove and Normal, Ill., police departments, as well as the Securities and Exchange Commission, which has a civil enforcement case pending against Hernandez.
Hernandez was charged in June 2009 shortly after FBI agents executed a search warrant at NextStep’s offices on the 22nd floor at 225 West Washington Street. Hernandez fled briefly but was located later that month in Normal, Ill.
Between July 2007 and June 2009, Hernandez defrauded prospective investors and investors in a NextStep Financial Services product described as a “Guaranteed Investment Contract.” He made false representations and promises regarding the risk of investing with NextStep, the manner in which the victims’ funds would be used, the returns that NextStep generated, and his background.
Hernandez falsely promised investors monthly returns of 10 to 16 percent, with no risk of loss to their principal, through investing their funds in Check ‘n Go stores, which offered short-term “payday advance” loans, and which Hernandez claimed were owned or financed by NextStep. In fact, Hernandez knew that no NextStep investor funds were used to purchase or finance the operation of Check ‘n Go stores.
Hernandez also fraudulently represented to investors that their principal was protected through insurance that NextStep obtained from various insurance companies, knowing that victims’ investments were not insured in any manner. And, knowing that victims’ funds were not earning any interest whatsoever, Hernandez converted the investors’ funds to his own benefit and used their money to make Ponzi-style “interest” payments to other NextStep investors.
Hernandez also lied to investors about his background and experience, including falsely representing that he had a law degree and a master’s degree in business administration, and that he had 26 years of experience in the financial industry, while failing to disclose pertinent material information about his personal background, including a previous federal investment fraud conviction.
The government is being represented by Assistant United States Attorneys Brian Hayes and Michael Sterling.