After Madoff: Notable Ponzi Schemes
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 Producer
Updated 18 April, 2011
Luis Felipe Perez
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
Guy Albert de Chimay
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.
Gerard Cellette Jr.
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.
James W. "Bill" Bailey Jr.
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
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.
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.