After Madoff: Most Notable Ponzi Scams

Photo: Jan Stromme | Stone | Getty Images In 2009 the term "Ponzi" became a buzzword again thanks to the collapse of Bernard Madoff's $50 billion plot.Tens of thousands of investors, some of them losing their life's savings, watched more than $16.5 billion disappear like smoke in 2009, according to an Associated Press analysis of scams in all 50 states.While the dollar figure was lower than in 2008, that's only because Madoff — who pleaded guilty and is serving a 150-year prison sentence — was arrested in December 2008 and didn't count toward the 2009 total.It was that same year that billionaire investor Warren Buffett sagely observed, "you only find out who is swimming naked when the tide goes out."In all, more than 150 Ponzi schemes collapsed in 2009, compared to about 40 in 2008, according to the AP's examination of criminal cases at all U.S. attorneys' offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state levels.Similar comparative numbers are not yet available for 2010, but the SEC says that there were 47 Ponzi enforcement cases in fiscal year 2010 (through Sept. 30) as compared to 54 for fiscal year 2009. Essentially, the numbers are still up and recent court cases show it.Here, we take a look at some of the most notable Ponzi schemes discovered since the Madoff case.By Constance Parten, Senior ProducerUpdated 18 April, 2011

Photo: Alberto E. Tamargo | AETphoto Nine people in South Florida are facing bank fraud conspiracy charges for their alleged roles in a $12 million scam to obtain commercial lines of credit.Federal prosecutors said in early February the case stems from a $40 million Ponzi scheme operated by 38-year-old Luis Felipe Perez of Fort Lauderdale. Perez pleaded guilty last year to securities fraud and is serving a 10-year prison sentence.The latest charges involved an accountant who worked with Perez. Prosecutors say the accountant prepared false loan applications, tax returns, personal financial statements and other documents to help others fraudulently obtain loans from Wells Fargo Bank.The accountant, 61-year-old Berta Sanders, also previously pleaded guilty and is awaiting sentencing.Source: The Associated Press

Photo: Marc A. Hermann | NY Daily News via Getty Images This money manager who claimed to have ties to Belgian royalty pleaded guilty in early February to running a Ponzi scheme that resulted in the theft of more than $7 million, according to Manhattan's district attorney.He was sentenced in March to between three and nine years in prison. He was also ordered to pay more than $6 million in restitution.De Chimay, 47, was convicted of soliciting people to invest in a "bridge loan facility" designed to fund real estate projects and generate guaranteed rates of return, but never followed or intended to follow through on the promised investments.To give credence to his supposed royal lineage, de Chimay provided bogus Bermudan bank statements showing account balances topping $10 million, and falsely told victims he controlled more than $100 million of "family money" associated with the Chimay royal family of Belgium, Vance said.Investigators said de Chimay used stolen money to pay for a mortgage on a luxury home, a summer rental home in the Hamptons, divorce lawyers, car payments, credit card bills and other investors. The U.S. Securities and Exchange Commission filed last June a related civil lawsuit against him.Source: Reuters

Gerard Cellette Jr., 46, was sentenced to eight years in prison in December, 2010 after pleading guilty earlier in the year to 36 counts of securities fraud in a scheme linked to phony contracts for his printing business. But in an unusual arrangement, he willingly went into custody in 2009 to begin his sentence.Cellette approached prosecutors after "investors" in California started asking questions about his business. At the time, Cellette told authorities he had run a $53 million scheme, according to report on StarTribune.com. He apparently decided to shut the business down himself and make complete disclosure to the authorities.According to prosecutors, Cellette solicited investments in fictitious printing contracts for his company, Minnesota Print Services Inc. A number of people recovered their investments, but the money came from new investors, not from printing contracts or services.As part of his plea bargain, Cellette agreed to let the judge choose a sentence between six and 10 years in prison.Fabel said Cellette had worked to recoup investors' money, but questions remain about $2 million in cash withdrawals he took over the five years he ran the scheme. Source: StarTribune.com

An Asheville, N.C., businessman was charged in early February with running a Ponzi scheme that cheated investors out of $13 million over the last decade.James W. “Bill” Bailey Jr., who operated Southern Financial Services, was charged with securities fraud, mail fraud and filing false tax returns. He is accused of taking money from investors and paying returns with money from subsequent investors — not from actual profits.A report in the Asheville Citizen-Times said Bailey "did not have a license to trade securities and fabricated returns using money from other investors despite telling his customers their investments were earning interest, according to federal prosecutors in court papers."He also offered “self-directed” IRA accounts. He created limited liability companies for his clients in this scheme and purchased real estate through the companies, according to the report.The alleged fraud scheme collapsed last November when Bailey bounced three checks worth $4.8 million.Source: Asheville Citizen-Times

American Greed: Scott Rothstein's $1.2 Billion Scam South Florida attorney Scott Rothstein was the mastermind behind the biggest Ponzi scheme in that state's  history. Known for his lavish spending and charitable contributions, Rothstein also helped raise money for 2008 Presidential hopeful John McCain.In June of 2010, he received a 50-year prison sentence for running a $1.2 billion investment scam through his firm Rothstein Rosenfeldt Adler. Rothstein said he didn't deserve more than 30 years because he pleaded guilty, spilled his guts to the feds and participated in an FBI sting that took down a reputed Italian Mafia figure. But federal prosecutors, while recognizing his cooperation, weren't willing to be so generous. They wanted the 47-year-old, who is expected to enter a federal witness protection program, to serve 40 years behind bars.Rothstein's former partner, Russell Adler, reached a $500,000 settlement with the Rothstein trustee in January regarding the bankruptcy case involving his former defunct firm. The deal, a clawback claim, avoided Adler going to trial. It provided that if he pays the first $350,000 of the settlement within 2 1/2 years, he won't have to pay the entire $500,000.Adler claims he never knew about Rothstein's $1.2 billion Ponzi scheme.Source: Miami Herald

A federal court has frozen assets held by New York firm Liquid Capital Management after the U.S. futures regulator said it fraudulently solicited $2.1 million in investments in a commodity futures pool.The U.S. Commodity Futures Trading Commission said it filed a complaint Feb. 15 accusing CNBC contributor Brian Kim and Liquid Capital of failing to disclose substantial losses — more than $293,000 in 2010 alone — between March 2009 and October 2010. The CFTC said the firm paid investors using $300,000 from a different fund in a way that resembled a Ponzi scheme and falsely claimed a successful investment track record.The agency also said Liquid Capital improperly spent more than $800,000 on groceries, personal shopping excursions, trips to Atlantic City and Vermont, and other expenses. Kim, also of New York, was also accused of stealing more than $400,000 in 2008 from his condominium association to recoup trading losses, according to the CFTC's statement.The U.S. District Court for the Southern District of New York scheduled a March 2 hearing on the CFTC's motion for a preliminary injunction against the firm, the CFTC said.Kim remained at large at the time of this writing.Source: Reuters

Photo: CNBC Nicholas Cosmo, the Long Island man accused of running a $380 million Ponzi scheme was arrested in January, 2009, on one count of mail fraud. He and a cadre of brokers at Agape World allegedly persuaded over 1,000 investors to give them money in exchange for returns of up to 60 percent.C osmo has said that money was used in turn to provide short-term loans to businesses to cover their credit card receivables and to real estate developers through Agape. Thus far, only Cosmo and former Agape World executive Richard Barry have been charged in the scheme. At the time of this writing, Cosmo still awaits sentencing. Federal judge Denis Hurley postponed the sentencing that was scheduled for mid-February until May 20. This is not Cosmo's first brush with the law. He served 21 months in prison starting in 1999 for financial fraud.

Former GFX Capital director Terry Freeman, 61, was arrested in February, 2009, for setting up a scheme that defrauded investors out of $22.4 million.In early 2011, he admitted to fraudulent trading and a string of other offenses. He was sentenced in mid-February to eight years in jail. The judge said that, while the case was "not a classic ponzi-type fraud" it was "one of the most serious cases of this type" he had encountered.Freeman is accused of promising investors no risks and high returns on the foreign exchange markets. Instead, he used their money to pay for holiday homes in Cyprus and France and gifts for his wife — including a $187,000 diamond ring.

Photo: Getty Images An Amish man accused of defrauding members of his church and community in what amounted to a long-running Ponzi scheme reached a settlement with the Securities and Exchange Commission in early February.Beachy is accused of raising at least $33 million from more than 2,600 investors between 1986 and 2010, and telling them he was putting their money into risk-free government securities when in fact he was trading junk bonds and other high-risk instruments.Beachy filed for bankruptcy in June 2010, shocking investors who had received falsified monthly investment statements showing healthy returns for years.The scandal, which has resulted in an estimated loss of $18 million, has roiled the Amish community of Sugarcreek, Ohio, whose members shun technology and travel by horse and buggy.In March, investors filed a request with the court asking that the judge allow them to resolve the situation among themselves, saying that resolving financial disputes through the courts is contrary to their faith. The judge rejected the request, citing separation of church and state, saying it would be unconstitutional for the court to dismiss the case and cede control to a religious group.Under the terms of the settlement, the SEC will not seek a financial penalty from Beachy, 77, provided he abides by federal securities law in the future.Source: Reuters

The CFTC filed a complaint in 2008 against Charles Hays charging that he and his company, Crossfire Trading, solicited about $40 million for trades on stock index and crude oil futures.Hays did make some trades. But he also spent his clients' money on personal expenses, including a $4 million yacht. In the end, he lost or misappropriated about half of his clients' money, StarTribune.com reports.Hays admitted to creating a Ponzi scheme by repaying earlier investors with funds from incoming ones. He said he misrepresented the performance of the commodity pool he was investing in, created bogus financial statements for his customers, and diverted client funds for personal use.Hays was sentenced to 117 months in prison and ordered to pay more than $21 million in restitution in the criminal case. Earlier this year, U.S. District Judge Donovan Frank approved a motion by the U.S. Commodities and Futures Trading Commission to impose a civil fine on Hays equal to three times the restitution amount: nearly $64.8 million.Source: StarTribune.com

Photo: Eliza Wiley | Independent Record Arthur L. Heffelfinger, a former broker with KMS Financial Services, pleaded guilty in July, 2010, to theft and to operating a Ponzi scheme. The scheme ran from February 2001 to September 2009 in at least seven Montana counties.Heffelfinger was accused of using $739,724 of his clients' investment money for his personal use. In January, he was sentenced to 10 years in prison for the Ponzi scheme. He also was ordered to pay nearly $1 million in restitution to his victims.Heffelfinger also was found guilty in November of stealing about $390,000 from a woman in her nineties who suffered declining health and cognitive impairment and lived in a Helena nursing home. She died in 2009.Heffelfinger pleaded not guilty to a felony charge of exploitation of an elderly person, saying he didn't know the woman's mental abilities were declining. On Tuesday, Seeley sentenced him to 10 years in prison on the exploitation charge. The term will run concurrent to his other sentences.Source: The Associated Press

Photo: NBC Chicago Former Webio executive David Hernandez was sentenced in January to more than 16 years in prison for swindling 250-plus investors out of $6.4 million in a Ponzi scheme.Hernandez, 50, reportedly ran the fraud for two years before it collapsed in June 2009.  He approached more than 300 people to invest $13 million via his business, NextStep Financial Services. He used the funds in part for a highly-publicized Chicago Internet radio venture, Webio, which also went bust.Hernandez was arrested last year in a Normal, Ill., hotel room following a failed suicide attempt.According to a statement by U.S. District Judge Robert Gettleman, Hernandez's victims likely will never be repaid, because he has no assets.Source: NBC Chicago

Photo: Getty Images Arthur Nadel, a fund manager whose $168 million fraud was one of several that collapsed in the declining economy and left hundreds of investors without their money, was sentenced to 14 years in prison in October, 2010.Nadel, 77, dubbed "mini-Madoff" in his home state of Florida, was excoriated as "evil" and "a loser" by one of his victims during the sentencing proceeding in U.S. District Court in New York.The Sarasota-based fund manager obtained more than $300 million from investors across the United States in managing six different funds, stealing about $168 million between January 1999 and January 2009.The scheme crashed with the declining economy in 2008 when more investors demanded redemptions, similar to the fate of New York financier Madoff's unprecedented multibillion-dollar investment fraud. Nadel disappeared for two weeks after his fraud was revealed in January 2009. He has been jailed since then and denied bail.In early April, jewelry owned by Nadel and his wife was auctioned, netting more than $600,000 for the victims of Nadel's scheme. Nearly half of theauction money came from the sale of an 8.48 carat diamond ring.Source: Reuters

Photo: Getty Images Two years after the Securities and Exchange Commission accused the Stanford Financial Group of running a $7 billion global Ponzi scheme, only about $188 million has been recovered for investors—or about two-and-a-half cents on the dollar—according to a new report by the attorneys who are rounding up the assets.The report, filed in federal court on behalf of court-appointed receiver Ralph Janvey, identifies hundreds of millions of dollars more in pending claims, but still not nearly enough to make Stanford's 28,000 investors whole.What's more, the report notes, "the amount that the Receiver is ultimately able to collect from the defendants is uncertain and in all probability will be less than the amount claimed."The SEC sued Stanford and its multi-billionaire founder R. Allen Stanford on February 16, 2009, alleging a massive fraud involving bogus certificates of deposit sold by Stanford's offshore bank in Antigua. A federal judge in Dallas froze all Stanford's assets, as well as the savings of thousands of Stanford investors, and appointed Janvey of the Dallas law firm Krage & Janvey as receiver.Stanford's case is on hold while he's being treated in a federal prison hospital in Butner, N.C., for an anti-anxiety drug addiction he developed while jailed in Houston.

Arthur Nadel conjures a $330 million hedge fund.  In the blink of an eye, he disappears and leaves clients without their life savings.American Greed profiles a multi-million dollar Ponzi scheme!Premieres Wednesday, April 27th 10p | 1a ETAmerican Greed website

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