Yesterday, an appeals court upheld Scott’s conviction and sentence, rejecting Scott’s claims that he was unaware of the nature of the OneCoin fraud.

Scott left his international mergers and acquisitions and private equity practice in Biglaw to work at OneCoin, and prosecutors say he had a key role in the plot to launder $400 million from the cryptocurrency. According to the government, Scott created shell companies, offshore accounts, and fraudulent investment funds on behalf of OneCoin to launder money in what has been described as, “classic Ponzi scheme with no blockchain or real underlying technology.”

Prosecutors said Scott made bank for his role at OneCoin, even bragging about making $50 million before he was 50 years old. U.S. Attorney Damian Williams said, “Indeed, Scott accomplished his goal, but by fraud and deception, and will now spend a decade in prison and has been ordered to forfeit all of his illegal proceeds.”

In 2017, as the scheme was unraveling and the investigation into OneCoin was heating up, “Cryptoqueen” Ruja Ignatova (the founder of OneCoin) disappeared after boarding a plane to Athens. Theories have circulated that Ignatova was murdered on the orders of Hristoforos Nikos Amanatidis, known as Taki, an underworld figure also linked to Ignatova’s escape. She remains on the FBI’s 10 most wanted list, and the agency has said they operate on the assumption Ignatova is alive.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

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Other news sources offer their own candidates: “Florida man nicknamed ‘Santa Claus’ pleads guilty to child porn charges,” or “Florida man drives semi-truck through strip club after getting kicked out.”

I mean, seriously, what hedge-fund manager wouldn’t want to live among such fellow citizens?

Suffice it to say, running a Ponzi scheme—even a $300 million Ponzi scheme—is fairly classic Florida, and hardly the kind of thing that would normally put you in the running for peak Florida Man. That being said, there are some notable things about the nine-figure fraud allegedly perpetrated by St. Augustine’s Russell Todd Burkhalter. For one, his Drive Planning’s pitch deck noted that the “bridge loan opportunities” offered were backed by $113 million in cash and real estate—in other words, one-third of the money he raised, such that he could conceivably have actually backed those “opportunities” with that amount of collateral and still had nearly $200 million to spend on Ponzi payments and other things.

And then there are the other things, which really give an insight into Florida Man’s psyche, like the $70,000 at Diamonds Direct, the $8,000 on IV treatments, the three-quarters of a million bucks on cars, the nearly $2 million on crypto, the unspecified assets that the SEC is worried he might transfer to his ex-wife and, of course, a boat.

Last October, Drive Planning transferred $3.1mn from a JPMorgan account to MarineMax for a yacht called “Stillwater”, with at least $2mn coming from investor funds. Burkhalter later renamed the boat “Live More”.

All pretty great Florida Man stuff. Still, he may have been topped by one member of his 100-strong team of sales agents. You see, these men and women funneled some $1 million a day in applications to be allegedly defrauded, with rewards like trips to Mexico, Greece and Canada (the latter presumably for the less-successful ones). And to make those agents seem respectable, they got little bios on the Drive website, which the aforementioned one used to list his or her interests:

Writhing and reading

Florida man accused of running big Ponzi scheme, buying big boat [FT]

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To be sure, FAT wasn’t a total jump in the dark for Chirico: His Jefferies fund, 352 Capital, owned some of the debt that the company hoped to deal with. Still, it seems that Chirico and his new bosses may have had more in common than thought: FAT founder Andrew Wiederhorn and two of his former CFOs were hit with fraud charges for allegedly using the company as a personal piggybank. And it turns out that Chirico may just have looked on 352 in a not totally dissimilar way.

352 sued Chirico claiming he orchestrated an investment of more than $100 million in a Ponzi-like scam. According to the suit, Chirico directed the purchase of a large quantity of bonds issued by a company that claimed to operate thousands of filtered water vending machines. The suit alleges Chirico knew these machines didn’t exist but used 352’s money to help fund the company, in part to recoup his own investment.

Unfortunately for Chirico, that means this particular match (allegedly) made in heaven simply wasn’t to be.

Chirico stepped down as head of debt capital markets to focus on his defense in the litigation brought forward by 352….

Ex-Jefferies Fund Manager in Fraud Suit Quits Weeks Into New Job [Bloomberg via Yahoo!]

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Oh, the irony.

Joshua Goltry, 30, pleaded guilty to one count of securities fraud in New Jersey federal court…. He falsely told investors that their funds would be invested through JAG Capital in "diversified tech opportunities," on which he claimed to have performed "extensive fundamental due diligence…."

”In one set of marketing materials sent to potential investors in or around November 2020, Goltry falsely claimed that JAG Capital's track record included positive returns nearly every quarter from 2018 through mid-2020, with three of those quarters showing returns greater than 50%....” Goltry also hid his misappropriation by providing JAG Capital's fund administrator with fraudulent documents, including documents falsely inflating the value of certain investments….

Now, in fairness, perhaps Goltry did invest some of the $3 million he raised in diversified tech companies. And perhaps he really did do the quite frankly minimal level of due diligence he was so proud of. It’s just that those investments performed exactly as you’d expect if the sole criteria was, “has an accountant and is not an obvious fraud.”

The remainder of the funds were lost on unsuccessful trades and investments, prosecutors say.

Well, it wasn’t just that. It was also that he invested a good deal of the money in himself, and also to keep the Ponzi scheme going.

Goltry diverted and misappropriated a significant portion of the funds to pay back earlier investors or use on personal expenses such as rent for his Manhattan apartment, vacations and to pay personal credit card bills.

Hedge Fund Manager Cops To $3M Fraud Scheme [Law360]

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Heartland Group Ventures and its affiliates took in investments from hundreds of investors promising to put the funds into new projects when, in fact, they were purchasing a plane, helicopter, a beach resort… basically throwing money everywhere except into the ground. The receiver of the defunct entity alleged that Locke Lord should’ve known what Heartland was up to and, had it acted on that knowledge, could have stanched the bleeding earlier.

Per the Receiver’s motion:

After reviewing these documents and researching the law, RCT concluded that there were potentially viable claims against Locke. Specifically, the Receiver is prepared to assert a claim alleging that Locke and its attorneys, as counsel to certain of the Heartland-Related Receivership Parties in connection with oil-and-gas offerings and the Commission’s investigation, knew or should have known that the Heartland-Related Receivership Parties were violating securities laws, were not in compliance with Commission regulations, and were using investor funds to make improper payments, including interest payments to prior investors with new investor funds, undisclosed payments to insiders, and commissions to unlicensed sales representatives. The Receiver would allege that, despite this purported knowledge, Locke, inter alia, negligently advised the Heartland-Related Receivership Parties to maintain the status quo, failed to properly advise the Heartland-Related Receivership Parties of their disclosure obligations to investors, failed to review offering and other key documents for legal compliance for the protection of investors, and failed to advise the Heartland-Related Receivership Parties to cease raising new funds and avoid incurring additional liabilities to investors. The Receiver contends that if the Heartland-Related Receivership Parties had received that advice, they would have stopped raising new funds and would have avoided various categories of damages, including the loss of money through illegal or improper out-of-pocket payments. All of the Receiver’s proposed claims against Locke are referred to as the “Alleged Claims.”

Locke Lord denies that this even amounted to a Ponzi scheme, much less that they contributed to it in any way, but settled in exchange for a release.

Locke Lord and Troutman Pepper are deep in merger negotiations. And nothing makes for an enjoyable merger chat more than the word “Ponzi” coming up twice in the matter of a week.

Texas law firm to pay $12.5 mln over ex-client’s alleged fraud [Reuters]

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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But that wasn’t the end of the matter. As reported by RollOnFriday, the North Yorkshire Police got involved — and uncovered a Ponzi scheme.

Police uncovered complex ‘Ponzi’ investment schemes, similar to ‘pyramid’ schemes, which lured investors, promising huge returns. The arrangement paid profits to early investors using funds from more recent investors.

Denton had been involved in promoting one of the dodgy schemes with a former financial adviser, Simon Oakley. In a trial in January this year, the court heard that Oakley was the “architect” of the original Ponzi scheme, along with Denton.

The investors believed they were dealing with “honest, law-abiding, professional people,” and that they were investing their money “in a safe, virtually risk-free scheme which would net them a large return,” said the police. However, their trust was “abused”.

Many of the victims, who were investing their pensions and life savings, lost everything they had put into the scheme. The effect was “devastating both financially and personally,” said police. Around £30 million in total was believed to be lost.

All told, seven people were convicted for their role in the financial fraud. Denton received the harshest penalty, and will serve 15 years behind bars.

The head of economic crime at North Yorkshire Police, Janine Mitchell, said: “This investigation was a herculean effort and the guilty verdicts and lengthy jail terms given to many of the defendants are a testament to their determination to secure justice.”

“The frauds investigated as part of this operation didn’t just target wealthy investors,” she continued. “Some of the victims were elderly and vulnerable, and others were working people like plumbers, carpet fitters, postal employees and even a retired police officer.”

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon 

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He didn’t have much respect among his neighbors on Mustique, either, according to the man who developed the exclusive private Caribbean island. Apparently, however, the Mustique Company couldn’t do what the Round Hill Club did and simply throw him out. And so Noel was able to live out his final years amidst the celebrity, splendor and luxury that Ponzi paid for before joining his old partner, whose own beachside accommodations were distinctly more modest, in hell.

Walter Noel, who ran the the largest fund to invest with Bernie Madoff and made more than $1 billion in resulting client fees for his firm, has died. He was 93.

He died on Dec. 15 at Yemanja, his family’s property on Mustique, a private Caribbean island, according to his death certificate.

Walter Noel, Who Ran Biggest Feeder Fund Into Madoff, Dies at 93 [Bloomberg]

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Scott left his international mergers and acquisitions and private equity practice in Biglaw to work at OneCoin, and prosecutors say he had a key role in the plot to launder $400 million from the cryptocurrency. Prosecutors said Scott bragged about making $50 million before he was 50 years old. U.S. Attorney Damian Williams said, “Indeed, Scott accomplished his goal, but by fraud and deception, and will now spend a decade in prison and has been ordered to forfeit all of his illegal proceeds.”

As reported by Bloomberg Law, the 10-year sentence Judge Edgardo Ramos imposed was a compromise between what the defense wanted and prosecutors sought:

Scott had sought a sentence of five years of imprisonment in a brief filed on Friday, opens new tab. He said he was a “broken man” who has spent the last four years in home confinement, unable to leave his apartment except for medical or legal reasons.

Prosecutors sought at least 17 years in prison for Scott. He was “motivated by greed” and was not satisfied with the “luxurious lifestyle afforded to him by being an equity law firm partner, living in a $1.5 million condo in Coral Gables and earning upwards of a million dollars a year,” prosecutors said in a court filing, opens new tab.

Additionally, Scott was ordered to forfeit $392,940,000, several bank accounts, a yacht, two Porsche automobiles, and four real-estate properties.

Scott was disbarred by New York state in 2020.

Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.

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It’s also not especially adept at catching the crimes its employees commit: forgery to make those unauthorized accounts happen, collusion to drive down the price of low-income housing tax credits or stealing COVID relief funds.

Nor is it worth a damn for protecting clients from crimes committed against them by someone other than Wells Fargo.

Given all of that, it perhaps shouldn’t be a surprise that Wells (allegedly) isn’t any good at noticing or preventing its customers committing crimes, nor that such a thing is required of banks, nor that it got caught and now faces yet another lawsuit seeking nine figures.

Regulators have issued the bank formal orders to be better at catching criminals who may be using its accounts or products, according to people with knowledge of the matter. At the same time, the bank is facing a lawsuit claiming it allowed an alleged $490 million Ponzi scheme to operate…. The regulators have privately rebuked Wells Fargo multiple times since early last year for improper oversight of criminal activity in its consumer bank, the people said.

Regulators Say Wells Fargo Isn’t Doing Enough to Police Customer Crimes [WSJ]

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This should go swimmingly!

Bankman-Fried has suffered through a grueling case by the prosecution that included his company’s former general counsel saying that the defendant asked him to conjure up a “legal justification” for using client funds and the former head of Alameda Research — and SBF’s former girlfriend — testifying that he “directed” her to steal billions from FTX.

So now SBF is going to take the stand himself to clear his name.

For a preview of how this might turn out, let’s all remember what happened the last time someone pushed him to explain his business model honestly. Bloomberg’s Matt Levine, formerly of our sibling site Dealbreaker, hosted the boy billionaire on the Odd Lots podcast and asked him, “Can you give me an intuitive understanding of farming?”

In response, Bankman-Fried offered a detailed description of a box that does “literally nothing” that people might put money into. He continues:

So, you know, X tokens [are] being given out each day, all these like sophisticated firms are like, huh, that’s interesting. Like if the total amount of money in the box is a hundred million dollars, then it’s going to yield $16 million this year in X tokens being given out for it. That’s a 16% return. That’s pretty good. We’ll put a little bit more in, right? And maybe that happens until there are $200 million in the box. So, you know, sophisticated traders and/or people on Crypto Twitter, or other sort of similar parties, go and put $200 million in the box collectively and they start getting these X tokens for it…. And then everyone makes money.

Levine replied, “I think of myself as like a fairly cynical person. And that was so much more cynical than how I would’ve described farming. You’re just like, well, I’m in the Ponzi business and it’s pretty good.”

Yeah, this cross is going to go great!

Joe Patrice is a senior editor at Above the Law and co-host of Thinking Like A Lawyer. Feel free to email any tips, questions, or comments. Follow him on Twitter if you’re interested in law, politics, and a healthy dose of college sports news. Joe also serves as a Managing Director at RPN Executive Search.

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For five years, Raymond Holcomb Brewer falsely claimed to be an engineer who ran a company that built anaerobic digestion plants, which convert manure into biogas…. “None of this was true,” Phillip A. Talbert, the U.S. attorney for the Eastern District of California, wrote in a sentencing memorandum. “Mr. Brewer did not begin construction on a single digester. He simply took his investors’ money and ran.”

So what kind of shit did Brewer actual buy instead of fermenting feces? Well, you know, the usual stuff. Nothing nearly so creative, playful or inventive as this most Chaucerian of Ponzi schemes.

Mr. Brewer, who pleaded guilty to fraud charges in February, spent the money on a 3,700-square-foot custom home in California, a 12-acre plot of land in Montana and new Dodge Ram pickup trucks

Indeed, as it turns out, it doesn’t require very much inspiration or imagination to run a literal bullshit fraud. You just do the same things as everyone else has in the past, but with cow crap and fragrant field trips.

Brewer took [investors] on tours of dairies where he said he was going to build digesters, and he presented them with fake lease agreements that he said he had reached with dairy owners across California. He obtained stock photographs of digesters and sent them to investors, sometimes altering the images so they would appear to show construction progress. He fabricated a detailed schedule for the project to show purported progress, court filings showed.

And even when he finally got caught, he wasn’t through feeding people even more bullshit, this time in the purely figurative, if still quite noxious and offensive, sense.

Mr. Brewer continued to lie, telling the authorities that they had the wrong man and that he was a Navy veteran hero who had once saved several soldiers from a fire by blocking the flames with his body, Mr. Talbert wrote in the sentencing memorandum. Mr. Brewer has since admitted that these lies were meant to curry favor with law enforcement, Mr. Talbert said.

Hey, you never know who your next mark might be.

Man Is Sentenced in $9 Million Cow Manure Ponzi Scheme [NYT]

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Alas, in our universe, he used those impressive inventive powers to other ends, according to prosecutors.

From at least 2016 through December 2021, PARKET fraudulently obtained over $65 million in short-term loans from individuals and financial institutions by materially misrepresenting his financial condition and pledging fake collateral. Claiming that he needed short-term liquidity for investment opportunities or real estate purchases, PARKET constructed elaborate stories and submitted hundreds of pages of supporting documents to obtain loans he had no intention of repaying. Among other things, he falsified bank and brokerage statements and contracts allegedly reflecting his significant assets and ownership interests in valuable investment accounts. To furnish proof of some of these ownership interests, PARKET also used the names, titles, and forged signatures of actual company executives he falsely claimed were his business associates. He created fake email addresses for them and forged lengthy email correspondence regarding measures supposedly taken by PARKET and his purported business associates to secure the loans.

While Parket’s scam was several orders of magnitude shy of the master’s, surely the founding dean of the Bernie Madoff Institute of Fraud is smiling up at Parket from his special corner of the eighth circle of hell. He’d have been a credit to a faculty that appreciated the Ponzi scheme for the art form it can be at its highest level.

Former Bond Trader And Hedge Fund Founder Jeffrey Soberman Parket Pleads Guilty To $65 Million Ponzi Lending Scheme [press release]
Great Neck Hedge Fund Founder Admits $65M Ponzi Scheme [Long Island Press]

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So Roth fixed it as best he could, hiring architect and interior designer Thierry Despont to do something about the general “lack of style.” And after a tasteful, decade-long pause to allow the reek of fraud to waft out to sea, Roth finally put it on the market five years ago for $21 million.

Alas, the stench lingered. Or the fear of rising waters. Whatever. Point is, there were no takers: Not at $21 million. Not at $19.9 million a year later, nor at $17.9 million a year after that. So Roth took the Steve Cohen approach and pulled the place off the market. Then two years ago, Madoff finally died, and Roth decided to give it a go once more, cheekily seeking $22.5 million for it last spring. Still, even with its infamous former habitué dead and buried (well, actually, dead, cremated and sitting in his lawyer’s office), there were no takers. So Roth, pulling another page from Steve Cohen’s book, threw up his hands and said, “Fine! You can have it for $16.5 million,” which, taking into account the purchase price, presumably pricey renovations, maintenance, high Long Island taxes, opportunity costs of sitting on the place for 14 years and the rest of it, seems unlikely to be much more than Roth invested in it, if that (another Steve Cohen special). He might have done better just investing that money with Bernard L. Madoff Investment Securities back in the day. And that is assuming he even got the $16.5 million.

The final sale price is not yet known.

As are the lucky buyers. But if you aren’t them and still want a piece of the former real-estate portfolio of a “financial serial killer” at a handsome discount, well, you may eventually get your chance.

This month, a penthouse co-op that Madoff owned on the Upper East Side was pulled off the market after seven months without an offer. Real estate investor Lawrence Benenson, who purchased the home for $14 million in 2014 and an adjacent apartment for $4 million, was asking $18.5 million for the pre-war unit.

Of course, if you prefer your residences of historic financiers to be without the taint of scandal, the family of the late hedge-fund mogul Julian Robertson—having unloaded his New Zealand vineyards—might have just what you’re looking for.

An apartment on Central Park long owned by the late hedge-fund founder Julian H. Robertson Jr. is on the market for $30 million…. The full-floor co-op apartment spans about 6,500 square feet, according to a listing description posted by Ms. Douglas. It has a 38-foot-long living room with roughly 18-foot ceilings, and three arched doors that open onto a terrace overlooking Central Park…. The unit is located at Hampshire House, a 1930s-era building known for its steeply pitched copper roof.

Let’s hope whoever winds up with it enjoys it more than the recipients of Robertson’s $200 million art collection.

Someone finally bought Bernie Madoff’s Hamptons home years after forced sale [N.Y. Post]
Steve Roth finally flips Madoff’s former Montauk home [TheRealDeal]
Central Park Home of Late Hedge-Fund Titan Julian Robertson Jr. Lists for $30 Million [WSJ]
Julian Robertson’s Art Bequest Angers Mayor in New Zealand [Bloomberg]

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To which we say: No. Clear the decks for something far more important which just so happens to have dropped today.

Joe Berlinger’s captivating, penetrating, four-part “Madoff: The Monster of Wall Street”…. will be, to no one’s surprise, a complex series and downbeat story, but one that is told with enormous style and narrative energy.

We know: You’re a loyal reader of this website and therefore know everything about him. Still, you’re gonna have to watch it. Unless you’re Jamie Dimon.

One of the novel attractions of Mr. Berlinger’s production is its use of clips from Madoff’s video depositions, which were given during victim lawsuits in 2016 and ’17. Madoff, who died in 2021, is very matter-of-fact about the crimes he committed, dispassionate, even clinical.

JP Morgan Chase, which served as Madoff’s bank for more than 20 years, came to a $2bn settlement with government agencies over its relationship with him. [Director Joe] Berlinger remains sceptical: “JP Morgan Chase: here’s a checking account with billions of dollars going through. If this was an account with a Mexican name on it, they would assume it’s drug cartel money and every $10,000 transaction would be analysed and there would be suspicious activity reports. It’s Bernie Madoff? We’re not going to worry about it.

“I don’t think JP Morgan knew there was a Ponzi scheme going on, but I certainly think they knew something was not right and they just chose to ignore. Everyone chooses to ignore. That wider culpability to me is a story that nobody’s really pulled together to provide this picture of the immense collapse of any kind of oversight and regulation that should have happened.”

And, in case you’re wondering, Berlinger—who’s made “Conversations with a Killer” and “Brother’s Keeper” in addition to the Madoff series—does have a follow-up caper in mind for something of a sequel.

“I feel people should take more responsibility for their personal finance, understand where their money is and understand that this can happen again. And guess what? It just did with FTX and Sam Bankman-Fried.”

‘Madoff: The Monster of Wall Street’ Review: Ponzi Scheme of a Sociopath [WSJ]
‘He’s a financial serial killer’: how Bernie Madoff became the monster of Wall Street [Guardian]

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All of the above are true of D&T Investment’s Austin Delano Page and Brandon Alexander Teague. Indeed, the North Carolina men’s $4 million scam is hardly worth noting beyond how ordinary it is, but for one thing: The men may be guilty of one of the most lavish bits of asset inflation in the history of fraud.

The men created fake documents and promised big payouts with a $16 million brokerage account that was “broke” and had “a balance of under $7.”

Anyway, as ever, if someone comes to you guaranteeing your money plus a 70% cut of profits made thereon, it’s not a bad idea to give your local securities regulator a call before cutting the check.

Officials said that a check of the brokerage with N.C. Securities Division would have steered clients away from the operation…. The men did not have licenses or the background to sell securities.

Kings Mtn. Ponzi scheme duo after scamming $4M from victims [WNCT]

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Then, it seemed all of that may have been a bit of puffery from the Securities and Exchange Commission, which all of a sudden seemed content to settle for about $15 million. Since then, however, things sound terribly serious once again, including from the mouths of the defendants themselves, and even more so from the court-appointed receiver attempting to sort through the mess. Especially now that the Justice Department has asked everyone else to stand aside and let it handle things.

Prosecutors Allison Nichols and Jason Richman said in a court filing Tuesday that three of the defendants in the civil case, Brian Martinsen, Michael Castillero and Francine Lanaia, have used the proceeding’s discovery process to seek documents related to meetings between the Securities and Exchange Commission and Justice Department investigators…. [The prosecutors] added that the SEC’s civil fraud complaint alleges that Messrs. Martinsen and Castillero “deleted subpoenaed emails” of StraightPath sales agents “to thwart regulators….”

In their filing for a stay, the prosecutors said that the underlying facts in the civil case are substantially the same as those involved in the criminal investigation, so putting the civil case on hold would avoid a duplication of court proceedings if criminal charges are brought. The lawyers said the defendants have asked to be heard in the criminal probe before any indictments are sought, and that hearing won’t happen until later this month at the earliest.

Federal Prosecutors Intervene in StraightPath Fraud Case [WSJ]

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One of these games was called “Six Degrees of Kevin Bacon.” This was based on the premise that Bacon was either so prolific an actor or so lacking in discernment (or both) that just about every movie actor in the history of time could be connected to Bacon within six filmic steps. For instance, Mary Pickford—who last appeared in a film nine years before Bacon was born—can be connected to him in just three steps, giving her a “Bacon number” of three. In fact, according to The Oracle of Bacon website (yes, technology has inserted itself even into this extremely stupid game), it’s vanishingly rare to have a Bacon number higher than four: It’s found just over 10,000 actors with fives or sixes, and less than 200 with numbers higher than that—compared to 447,801 with fours or less (including Bacon himself with a Bacon number of zero).

Still, even with those statistics—and even taking into account the broader philosophical notion that all people on earth are connectable within six social connections—there’s someone with the surprisingly low Bacon number of one.

The actor revealed that he and his wife, Kyra Sedgwick, had invested and lost "most of our money" in Bernie Madoff's $50 billion Ponzi scheme during Monday's episode of the SmartLess podcast, hosted by Jason Bateman, Sean Hayes, and Will Arnett.

"There's obvious life lessons there. You know, if something is too good to be true, it's too good to be true," Bacon recalled. "When something like that happens, you know, you look at each other, then you go, 'Well, that sucks. Let's roll up our sleeves and get to work,' you know?"

So, if you were wondering why Bacon said “yes” to the likes of “R.I.P.D.” and “Super” and “Elephant White,” now you know.

Kevin Bacon lost 'most' of his money in Bernie Madoff ponzi scheme [EW]
Kevin Bacon explains how he lost ‘most’ of his fortune to Bernie Madoff: ‘There’s obvious life lessons there’ [CNBC]

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“It’s a Ponzi scheme. It has no real function,” he says. “But there are moments in time when investing in Ponzi schemes is perfectly good. When they’re inflating, they’re very profitable to own….”

“About every 18 to 24 months, one industry freaks out and you get to buy one industry cheap,” Kupperman says. “That’s the story of my life. I’m patient—I wait until they completely lose their minds and then buy it.”

Meet The Investor Willing To Put His Money Into Ponzi Schemes. His Fund Is Up 593% [Forbes]

Well, a court-appointed receiver has had a bit of a look around. It turns out that saying StraightPath sometimes sold more of those shares than it actually had in its possession—a fact that StraightPath itself acknowledges—may have been a rather generous interpretation.

[Reciever Melanie] Cyganowski said it may take the rest of the year or more to sort out a jumble of investments and investors, noting that the Jupiter, Fla.-based firm didn’t compile a single listing of some 600 participants in its latest fund before she took over. She also said that in many cases, the firm obtained shares through unrelated third parties, including via contracts for restricted securities with hundreds of pre-IPO company employees as well as special-purpose vehicles, which now must be contacted to secure the investments.

Ms. Cyganowski said that as a result of these arrangements, the firm’s funds generally don’t hold pre-IPO shares directly and the investors in those funds may only be entitled to cash reimbursements.

A straight path to those lucrative shares, indeed. Not that they’re quite as lucrative anymore.

She noted that the pre-IPO market has changed dramatically in the past year or so….

StraightPath investor Michael Black in Michigan said he initially did well through StraightPath…. But his next round left him holding pre-IPO shares of finance company Klarna Bank AB and other companies that have faced headwinds recently…. The firm allocated Klarna shares to him at a price of $1,900 each in April 2021. Klarna’s enterprise value has since fallen by 85%, Ms. Cyganowski said, citing recent news reports.

StraightPath Funds Don’t Hold Promised Pre-IPO Shares, Receiver Says [WSJ]

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Now, StraightPath and the four have had their say and, well, quite frankly, make the SEC’s case against them look pretty good.

First, on the matter of the pre-IPO shares: The SEC says StraightPath treated them seats on a Spirit Airlines flight and oversold them. To which StraightPath says: Yea, pretty much.

The firm and Mr. Martinsen and the other three defendants acknowledged that the funds sometimes lacked enough shares to cover investor commitments, in their court response filed Friday. But they said they alerted the SEC to this situation in March and denied that the shortfalls were the result of any wrongdoing.

To make up for selling a potentially lucrative investments that it they did not have, the leaders sought to make their clients whole—doing the right thing out of their own pockets. The SEC, noting the tens of millions of dollars they had taken from StraightPath, has a different way of characterizing this: commingling of funds and Ponzi scheme payments.

The defendants said that Mr. Martinsen transferred $3.3 million of his personal assets into the affected funds to cover shortfalls. Also, they said he and defendants Francine A. Lanaia and Michael A. Castillero contributed $15 million between them to an account to cover what the SEC said in May was a $14 million deficit across the funds involving shares from seven pre-IPO companies. The SEC said that the three collectively received about $74 million from StraightPath.

In fairness, however, it must have been an lot for these folks to keep straight just how many pre-IPO shares they had and just where that money came from versus some other money, because two of them couldn’t even keep track of whether they were allowed to be doing it at all.

They often said they didn’t have enough information to determine the accuracy of the SEC’s statements.

In response to an allegation that Ms. Lanaia and Mr. Castillero “were effectively barred from the brokerage industry,” the defendants said that they understood previous settlements didn’t prevent them from serving as consultants to StraightPath.

StraightPath Denies SEC’s Ponzi Allegations Tied to Pre-IPO Shares [WSJ]

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Meanwhile, last week, the EU struck a provisional deal on a groundbreaking set of crypto rules. Known as Markets in Crypto-Assets (MiCA), the landmark law is set to come into effect in 2023 and become the world’s first regulatory framework for digital assets.

[T]he EU’s watchdogs will closely monitor crypto for signs of market manipulation and insider trading to protect investors from Ponzi schemes and so-called “rug pulls”. Crypto providers will have to comply with strict requirements and will be held responsible for any market abuse.

…

On top of that, the European Parliament agreed on a separate set of rules on crypto traceability that imposes traditional finance-like reporting standards on crypto. The bill aims to ensure that all crypto transactions are traceable “from the first euro sent”.

Much like GDPR, I suspect that the EU’s legislating will impact our shores as well. Given that much of the crypto market banks on its untraceability as a major selling point, the coming regulations may put a damper not only on the economic value of the coins, but the philosophic grounding for their use. Such ground was already shaky, anyway.

This Landmark Law Aims To End Crypto As We Know It In 2023- As Price Of Bitcoin, Ethereum, BNB, XRP, Solana, Cardano, And Dogecoin Rebound [Forbes]

Chris Williams became a social media manager and assistant editor for Above the Law in June 2021. Prior to joining the staff, he moonlighted as a minor Memelord™ in the Facebook group Law School Memes for Edgy T14s. He endured Missouri long enough to graduate from Washington University in St. Louis School of Law. He is a former boatbuilder who cannot swim, a published author on critical race theory, philosophy, and humor, and has a love for cycling that occasionally annoys his peers. You can reach him by email at cwilliams@abovethelaw.com and by tweet at @WritesForRent.

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This, of course, was wrong. Not only was it wrong because hedge funds like Blotnick’s Brattle Street Capital were technically, if not practically, ineligible for PPP bailouts. It was wrong because Blotnick had no paychecks to protect.

From April 2020 through March 2021, prosecutors said, Blotnick falsified information about Brattle Street in his PPP loan applications, telling one bank the fund employed 45 people, with a monthly payroll of more than $325,000. In reality, according to the government, Brattle Street paid no wages at all in 2019 or 2020.

And that means, after more than two years of intermittent lockdowns, Blotnick’s getting a few more.

Gregory Blotnick, 35, was sentenced on Tuesday to 51 months behind bars by a federal judge in Newark, New Jersey, and ordered to pay $4.6 million in restitution…. “Mr. Blotnick will serve his time with dignity and looks forward to becoming a contributing member of society when his sentence is completed,” [his lawyer Adam] Kaufmann said.

The bright side is it means Blotnick will at least be getting off Riker’s Island, and probably won’t have to go back.

Blotnick pleaded guilty in October to similar charges brought by the Manhattan district attorney’s office. He faces a possible state court sentencing on Thursday.

Kaufmann said Blotnick is expected to get a sentence of one to three years on the state charges, to run concurrent with the federal term.

Ex-Citadel Analyst Gets Over Four Years in Prison for Hedge Fund Covid Scam [Bloomberg]

That all sounds pretty bad, especially the part in which at least $73 million of the aforementioned $410 million allegedly went straight into the pockets of the aforementioned four. But apparently it’s not, as the SEC seems fairly nonchalant about the whole thing. After all, it’s just the way the industry (allegedly) does business.

StraightPath Venture Partners LLC and the Securities and Exchange Commission have agreed to a resolution of the agency’s civil fraud charges against StraightPath and are working out details, including naming a receiver for the firm, a court document shows.

The agreement also includes the creation of an escrow account of more than $15 million to be supplied by three of the four individual defendants in the case….

StraightPath Poised to Settle SEC Fraud Charges [WSJ]

Marc Rowan, chief executive of Apollo Global Management Inc., recently told analysts that “[t]he trends that we’re seeing in the marketplace, specifically rates up and volatility, historically have been very good for our business.”

The only trouble is, like many things p.e. firms say, that may not actually be true.

Funds launched during the most recent recession weren’t great performers. Private-equity fund vintages from 2007 through 2010 performed worse than funds launched later…. This record doesn’t improve when viewed through the lens of public-market equivalent analysis, which compares the performance of private-equity funds to publicly traded stocks, taking into account the lack of liquidity of the funds. Based on this analysis, private-equity funds launched in 2007, 2009 and 2010 underperformed the S&P 500 index each year, and matched the index’s performance in 2008….

Nor is that the only reason people might want to steer clear of them (although they actually aren’t), for as Leon Cooperman and now asset management giant Amundi say, it’s all a big fat scam.

“We are in a big bubble in the private markets,” [CIO Vincent] Mortier said. “If I take an extreme analogy, for some parts, the private equity market may look like a Ponzi scheme, a pyramid, in a way….”

“The vast majority of deals are currently done between private equity players, “ Mortier said. “One private equity player will sell to another one who is happy to pay a high price because they have attracted a lot of investors….”

“When you know you are able to exit your stake to another private equity house for a multiple of, let’s say, 20, 25 or 30 times earnings, of course you won’t mark down your book,” Mortier said. “That’s why I’m talking about a Ponzi because it’s a circular thing.”

Parts of Private Equity Look Like a Ponzi, Amundi CIO Says [Bloomberg]
Private Equity May Not Be the Defensive Play Some Say It Is [WSJ]

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Of course, while those numbers were real, like every other account statement emanating from BLMIS the Sage’s were fake, because of course Madoff & co. hadn’t actually made any of the trades shown on them. And so the Sages, like many a Madoff “net winner” before them over the last 13 years, have to cough up $16.9 million worth of those “winnings,” which of course weren’t proceeds of trades that never happened but other suckers’ money.

An “unavoidable and unfortunate consequence” of the trustee’s method is that the entirety of the Sages’ investment history will be wiped out, Judge Keenan said. The Sages had argued that thousands of trades in the family account were the product of Malcolm Sage’s directions or authorizations and should have been treated separately from the rest of Mr. Madoff’s scheme…. Based largely on [former Madoff aide Annette Bongiorno’s] testimony, the judge found that more than 5,200 transactions reported in the Sages’ accounts “were fabricated at or near month’s end using historical pricing information.”

Madoff Customers Must Return $16.9 Million for Falsified Trades [WSJ]

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Mr. Beasley and Jeffrey Judd, president of J&J Consulting Services Inc. and two similarly named entities involved in the alleged scheme, were identified as defendants in an SEC suit, along with five men who worked to promote the companies and attract investors in return for commissions…. The SEC said in its complaint that the purchase agreements were fictitious and that those charged allegedly used the bulk of investor money to fund lavish lifestyles including purchases of real estate, a private jet, boats and numerous luxury cars. Mr. Beasley used the cash to pay off gambling debts, according to the complaint.

If it makes you feel any better, Matt, and given the gunshot wounds and probability you’re spending the next few decades locked up, we’re guessing it won’t, just know that you’re not alone. For while the SEC has yet to weigh in on the matter of whether the richest man in the world is subject to its rules, one of Elon Musk’s fellow Twitter shareholders certainly think he should be.

The lawsuit, filed Tuesday in New York by law firm Block & Leviton on behalf of several Twitter shareholders, alleges that Musk was able to buy up more Twitter stock at a deflated price in the period between passing the 5% threshold and publicly disclosing his stake.

Half a dozen legal and securities experts have told The Washington Post that the delay may have helped Musk to net $156 million.

Lawyer Shot in March Standoff Is Sued by SEC Over Alleged Ponzi Scheme [WSJ]
Twitter investors sue Elon Musk for failing to promptly disclose the size of his stake [CNBC]

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[H]e “worked tirelessly throughout his life to build a life befitting the American dream, but made a terrible error in judgment and continued to double down on that mistake.”

Did he ever, because here’s another way of putting it:

“Day in and day out, throughout the course of more than a decade, the defendant abandoned his fiduciary responsibilities as an investment adviser and defrauded IIG funds and investors, causing more than a hundred million dollars in losses to those funds and investors,” prosecutors said in a memo ahead of sentencing.

For those iterative errors in judgment, U.S. District Judge Alvin Hellerstein—who, as far as we know, shares no mutual friends with Hu—decided to impose a bit of poetic justice: Twelve years in prison for 12 years of fraud.

“These kind of crimes are their own set of evil, taking money away from people who have saved it as a way to ease their later years,” the judge said.

Which is, perhaps, why Hellerstein was not particularly interested in easing the later years of the 64-year-old Hu.

[Hu’s lawyers] stressed that his age and health issues meant a lengthy term could become a de facto life sentence.

Don’t worry, Dave: As Raj Rajaratnam can tell you, a spell in the pokey might be just the cure for your particular unique constellation of ailments.

Investment Chief Gets 12 Years for Running $100 Million Scam [Bloomberg]

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Mr. Beasley came to the front door of his Las Vegas home standing sideways. When he turned to face the agents, he was holding a gun to his head.

Then he swung the gun toward the agents, a federal prosecutor said during a court hearing earlier this month. The agents shot him twice, the prosecutor said. Mr. Beasley retreated into his house.

The Federal Bureau of Investigation brought in a hostage negotiator. Mr. Beasley said he wished the agents had killed him—he said he would rather die than go to prison, the prosecutor said.

Bleeding from gunshot wounds in his chest and shoulder, he confessed: The investments were a Ponzi scheme, according to the prosecutor. Check his bank records, Mr. Beasley said, and it will all be clear….

He was charged with assaulting a federal officer.

That seems like the kind of thing that could send you to prison for significantly longer than even a $300 million Ponzi scheme. Not that he’s off the hook for that yet, either.

He hasn’t been charged with any financial improprieties. The FBI continues to investigate the alleged Ponzi scheme, according to people familiar with the matter.

An Alleged Fraud Uncovered by a Short Seller Ends in Gunfire [WSJ]

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An LA actor who orchestrated an elaborate Ponzi scheme that raised $650 million in bogus licensing deals with HBO and Netflix was sentenced to 20 years in federal prison.

In addition to jail time, US District Judge Mark C. Scarsi on Monday ordered Zachary Joseph Horwitz, 35, to pay about $230 million in restitution to more than 250 investors who bankrolled his business venture 1inMM Capital.

That business venture was, of course, a Ponzi scheme. But it wasn’t all bad, for without it, Avery née Horwitz wouldn’t have gotten to practice being behind bars before, you know, actually going there.

Horwitz also used some of the funds to finance low-budget films he appeared in, including “Gateway” and “The White Crow,” according to court documents.

Actor sentenced in $650 million Ponzi scheme involving fake Netflix, HBO deals [N.Y. Post]

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Of course, the SEC didn’t find anything, which is probably because the things that Bass said—notably, that UDF was a Ponzi scheme—rang true, at least to the aforementioned jury.

The federal jury convicted UDF Chief Executive Hollis Morrison Greenlaw and three other executives of 10 counts, including conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and securities fraud…. The U.S. Department of Justice alleged that when developers failed to repay money they borrowed from one UDF fund, the executives transferred money out of another fund to pay distributions to the original fund’s investors without disclosing the transfers to the SEC and investors. The defendants face up to 25 years each in federal prison.

Convictions at Real-Estate Firm Are Win for Investor Kyle Bass [WSJ]

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Over the span of a decade, Marietta-based investment adviser John J. Woods persuaded more than 400 investors in 20 states to trust him with their investments. He and his associates made an attractive offer: a guarantee of 6% to 7% interest for two to three years for investing in a fund called Horizon Private Equity. Investors weren’t told much about how the fund worked, only that money would be put in things like government bonds or small real estate projects…. Now, the Securities and Exchange Commission has accused Woods, 56, of operating a massive Ponzi scheme. By the end of July, according to the SEC, Horizon owed investors more than $110 million in principal alone but had liquid assets worth less than $16 million….

Tuesday, a federal judge froze Woods’ assets, including his minority interest in the Chattanooga Lookouts minor league baseball team.

A Roswell man who went by the name “Quicksilver” as he enticed potential clients has been ordered to pay millions of dollars in restitution and penalties after a federal judge found he and two related companies were liable for fraud and other violations…. The CFTC alleged that more than 9,000 clients purchased access to Mayer’s trading system through two affiliated companies, Silver Star Live Software LLC of Florida and Silver Star FX LLC, which was listed in New Mexico, and went by the name Silver Star Live.

Neither Mayer nor the companies filed an answer in court to the case, and Judge J.P. Boulee issued a default judgment in late July.

For restitution, he ordered Mayer and SSLS to pay about $3.7 million and SSL to pay nearly $200,000. The judge also set civil penalties of more than $1.3 million for Mayer, nearly $9.8 million for SSLS and about $600,000 for SSL.

Marietta man accused of $110 million Ponzi scheme [AJC]
Roswell man ‘Quicksilver’ told to pay millions in fraud case [AJC]

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Alas, this neat trick doesn’t work so well after the whistle has blown, your chief compliance officer has entered a guilty plea and three top executives have been arrested. That means GPB’s gonna have to find the money to keep operating somewhere else, and if you’re in the market for some Northeastern car dealerships but are feeling some sticker shock, does GPB (well, its court-appointed receiver, anyway) have a deal for you.

The New York firm is trying to sell what remains of the Massachusetts-based Prime Automotive Group, which largely consists of dealerships in New England. GPB acquired a majority interest in Prime in 2017, when the group included more than 20 stores, for more than $235 million. The firm made a separate deal for related real estate, a legal filing states…. GPB Automotive, the holding company for the firm’s dealerships, said in an Aug. 16 regulatory filing that it may sell more dealerships to provide operational liquidity. Such sales may be priced below fair value and go on the books as losses, it has said in filings. In some cases, auto manufacturers have forced dealership sales by threatening to terminate supplies.

“They’re running out of money,” said Joseph Sarachek, a lawyer in Scarsdale, N.Y., who represents some GPB investors. He said his clients are “very disappointed” with the pace of government action regarding the firm…. [GPB] sold 14 last year, booking losses on most deals despite reporting net proceeds of about $49.5 million…. Industry leaders say it is a seller’s market for auto dealerships, as values have surged since 2019.

GPB Capital Seeks to Sell Prime Automotive, Sources Say [WSJ]

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The defendants have raised investor funds through Profit Connect while assuring investors that their money would be invested in securities trading and cryptocurrencies based on recommendations made by an “artificial intelligence supercomputer.”

Even before you get to the claims about guaranteed returns of 20% to 30% with compounding monthly interest, the words “artificial intelligence supercomputer” should serve as a sufficient red flag, even when it’s not coming from a person permanently barred from the securities industry. Alas, for at least 277 people, it was not.

The complaint further alleges that the defendants did not use funds received from investors to trade securities, buy cryptocurrencies, or do any of the things that Profit Connect promised its investors it would do with their money. Instead, the complaint alleges that the defendants misused investor money by, among other things, transferring millions of dollars to Joy Kovar’s personal bank account, paying millions of dollars to promoters, and making Ponzi-like payments to other investors…. “Investors should be wary of individuals and firms who guarantee double-digit returns with no risk of loss,” [SEC Los Angeles regional director Michele Wein Layne said.]

Indeed. And yet.

SEC Shuts Down Fraudulent Mother-Son Offering Involving Purported Supercomputer [press release]

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Gregory Blotnick is accused of misrepresenting payroll expenses at his companies Brattle Street GP LLC and BSC Management LLC in applications for five PPP loans between April and August of 2020, each from a different bank. Based on the allegedly false information, the lenders approved a combined $2.4 million in PPP loan funds for the companies.

Prosecutors allege the loans were never used to pay employees, and Blotnick instead funnelled the majority of the funds into personal trading accounts ‘and subsequently lost them in trading activity.’

He is also accused of wiring hundreds of thousands of dollars to a person identified as a previous investor of Blotnick’s investment management firm….

He pled not guilty at his April 16 arraignment, the D.A.’s office confirmed to Citywire.

Hedge fund manager charged with $2.4 million PPP loan scam [CityWire]

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Bernard Madoff, the infamous architect of an epic securities swindle that burned thousands of investors, outfoxed regulators and earned him a 150-year prison term, died in a federal prison early Wednesday. He was 82…. Last year, Madoff’s lawyers filed court papers to try to get him released from prison in the coronavirus pandemic, saying he had suffered from end-stage renal disease and other chronic medical conditions. The request was denied….

His death was due to natural causes, a person familiar with the matter told The Associated Press.

Others have vied for his crown as king of the Ponzi schemers, but none has ever come close to challenging the undisputed master of the form, in sentence, style or scale, nor in his masterful nonchalance and panache. If there is ever a Cal Ripken to his Lou Gehrig, we shall be waiting at least as long. Perhaps it will take until the end of the sentence he’ll never finish in 2159, after Bidenian hyperinflation has rendered $65 billion the equivalent of a few hundred thousand, if ever. Certainly, his kind will not be seen before the Mets he so loved and defrauded are again champions of baseball, a title for which he will justly have a posthumous claim, having helped make it possible by ridding Flushing of the scourge of the Wilpons.

But for now, he leaves no successor, save perhaps in the yard at Federal Correctional Institution Butner Medium, where the great man was accorded the respect he deserved and the Madoff gang ruled.

For who could retain such confidence, such brazenness, such boldness, even in disgrace? Who could play the SEC in such a humiliating way? What other man with his figure could pull off a belly button ring? Could live in a house like this?

No one, that’s who. Rest in Ponzi, Bernie.

Ponzi schemer Bernie Madoff dies in prison at 82 [AP]

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But Avery, née Horwitz, was smart enough to know that sometimes big breaks come of nothing, as indeed his has: Of the nine movies he’s been in since “Fury,” I recognize precisely zero. So that same year he played a bit part as a baddie in a big-time Hollywood production, he also started a film distribution company, 1inMM Capital, just in case.

Here, Avery was a smashing success, building up a library of 52 movies to distribute in far-flung parts of the globe in just two years. There were “strategic partnerships” with HBO and Netflix. Things were going so well he sent investors bottles of Johnnie Walker Blue with 1inMM’s 2015 annual report. Avery promised annual returns of as much as 40% on “safe investments”—you know, like the distribution rights to 2017 Ukrainian famine box-office bomb “Bitter Harvest.”

Unfortunately for those investors, Avery’s allegedly a far better actor off-screen than on.

In reality, the FBI said, Horwitz had no licensing deals and diverted much of the money for personal benefit. He used some of the money for the 2018 purchase of his Beverlywood home, now listed for sale for $6.5 million. The six-bedroom home features a pool, wine cellar and gym./Since December 2019, Horwitz’s company has defaulted on more than 160 payments due to his investors, according to the FBI. Its largest investor, JJMT Capital, LLC, of Chicago, is owed more than $160 million in principal and about $59 million in investment profits, Verrastro said.

Hahahaha “investment profits.”

Horwitz sent JJMT what he said was an agreement between HBO and 1inMM Capital to distribute the film in Africa and Latin America for three years. But the purported signature of the “president of operations” for HBO Latin American Holdings was forged, according to the FBI.

As the payment came due, however, Horwitz started sending fake emails from HBO executives to justify delays, and he did the same thing with fabricated emails from Netflix, the FBI said.

“In reality, neither Horwitz nor 1inMM Capital ever engaged in email correspondence with Netflix or HBO,” Verrastro wrote, “nor did Horwitz or 1inMM Capital ever have any business relationship with Netflix or HBO at all.”

Hollywood actor arrested in alleged $227-million Ponzi scheme [L.A. Times]

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This is especially true when one brother decides to sell the other up the river. And it only gets more so if the turncoat brother, in this sordid tale one Sean Hvizdzak of St. Marys, Pa., is also allegedly lying about his innocence in doing so, and in such an easily provable way, thereby risking not only the fraternal relationship but a certain number of very awkward years sharing a prison yard.

Both brothers allegedly diverted investors’ funds meant for their hedge fund into their personal accounts, lied to CNB Bank when questioned about the activity in a non-hedge fund account, directed investors to deposit funds into their personal accounts and misappropriated the money, the filing indicated…. The filing noted that Sean Hvizdzak had written checks to himself and his brother from the accounts where the investors’ money had been sent, and used the money for their personal investments….

Despite knowing that financial statements regarding the hedge fund were fabricated, Sean Hvizdzak continued to facilitate the process for investors to join the fund, the complaint stated.

The SEC cited text messages between the brothers, as well, in which the two conspired to hide fund losses from an investment advisor.

SEC amends fraud complaint against Bradford brothers [Olean Times Herald]

An attorney for Dukal Corp. and its owner, Gerard LoDuka, has asked Carton’s sentencing judge that a restitution order be rewritten to reflect “what is almost surely an extremely lucrative job.”

The letter, dated Friday and entered into the court record on Monday, noted that Carton returned to the airwaves in November in a prime afternoon slot on WFAN that has “achieved dramatic ratings success” and he was reportedly being considered as a daily morning host on an MLB Network show.

Yet, the letter signed by attorney John G. Martin maintained, Carton, 52, has not made a single restitution payment since his June release from prison…. The letter said an order requiring Carton to pay 15% of earnings toward nearly $5 million in restitution should be changed to reflect his career revival. Priority, it said, should be given to pay LoDuka and another person before a company with over $25 billion in assets that also lost money.

That company, of course, would be hedge fund Brigade Capital Management, and we don’t think they’re terribly likely to take well to any suggestion they should have to wait for a debt to be repaid. But, according to Carton’s lawyers—who, it must be said, have uttered a number of legally and literally unbelievable things in the past—they are getting repaid, and LoDuka, too.

Carton has not only made payments toward restitution since his release, but he made payments before he was imprisoned even before they were required, the lawyer said.

Janey said Carton has paid about $30,000 of the $435,000 owed to LoDuka…. Still, the lawyer added, Carton makes “a fraction of what he previously made.”

Which, if he’s to be permitted to splutter offensive nonsense for five hours a day in drive time, is at least a modicum of justice. As, we’d have to say, is taking a $405,000 hit on trusting Craig Carton with anything.

Radio host Craig Carton fraud victim complains to judge [AP]

No matter: The folks who are running the SEC are doing so as though Gensler’s already in charge.

The move by the Securities and Exchange Commission allows more enforcement supervisors to authorize investigations, permitting about 36 senior officials at the agency to subpoena companies and individuals for records or testimony. The agency during the Trump administration withdrew that authority from supervisors and allowed only two officials to approve new probes, saying it would result in more consistent decisions about which tips and complaints justified investigations…. The number of new investigations fell every year during the Trump administration, from 1,063 in 2016 to 827 in 2019, according to the most recent figures published by the SEC….

Under Mr. Gensler, the SEC is expected to become more active….

Hey, speaking of which:

In a court filing, the agency said a monitor is needed to protect investor assets and prevent the New York private-equity firm from disposing of assets that could be used to recover investors’ capital…. “The principal source for potential investor recovery is revenue generated by the several dozen automobile dealerships owned by GPB Capital,” the SEC said in a court filing to support its request for an independent monitor. “These dealerships have contractual relationships with lenders and manufacturers that are now at risk of termination because of, among other things, Gentile’s arrest.”

Well, if that’s the way things are going to be going at Gensler’s SEC, those he’ll be regulating want him to know that they’ve got some pretty good lawyers, too.

Nasdaq Inc and the New York Stock Exchange have each sued the Securities and Exchange Commission, seeking to block a plan by the regulator to overhaul public data feeds that broadcast stock prices to investors, court filings show.

Under the SEC plan, approved in December, supply and demand data for stocks would be added to public feeds, broadening access to the information which the exchanges currently sell to professional traders at a premium…. The Wall Street Journal reported that Cboe Global Markets, which operates the Chicago Board Options Exchange, was also suing the SEC over the issue.

SEC Expands Enforcement Staff’s Power to Start New Investigations [WSJ]
SEC Seeks Outside Monitor to Protect GPB Capital Investors [WSJ]
Nasdaq, New York Stock Exchange sue SEC over planned overhaul of public data feeds [Reuters]

Authorities say Messrs. Gentile and Schneider were aware that GPB’s funds weren’t generating sufficient returns to pay the promised distributions and authorized repeated use of investor cash to cover the dividends…. [New York State Attorney General Letitia] James said GPB and Ascendant, a related marketing company, and Messrs. Gentile, Schneider and Lash “fleeced” more than 1,400 New Yorkers who had invested more than $150 million in the firm’s private-equity funds. She said the funds never delivered promised profits and that the defendants instead used the investments to subsidize “their own lavish lifestyles.”

Ooh, tell us more!

Among other things, GPB allegedly used fund money to cover the costs of private jets, including a $90,000-a-year flight attendant, all-terrain vehicle rentals and more than $29,000 in expenses that an auditor said included “David’s 50th Bday,” according to the state’s complaint. It also claims GPB spent $355,000 on a 2015 Ferrari FF used by Mr. Gentile….

GPB also faces several federal class-action lawsuits in which plaintiffs have accused the firm of running a Ponzi scheme that used fresh investor capital to pay dividends to earlier investors.

Last month, a Financial Industry Regulatory Authority arbitration panel in Detroit ruled in favor of an investor who claimed that a $225,000 investment in a GPB automotive fund had been misused, documents show.

All standard stuff as alleged Ponzi schemes go, but this one’s got a fun, contemporary twist, as well.

Additionally, GPB faces charges involving retaliation against a whistleblower who alerted the SEC to what was going on at the firm…. In its complaint, the SEC also said GPB fired a senior auto dealer executive involved in running some of its dealerships after he had raised a number of concerns, including GPB’s use of investor funds to cover dividend payments.

There had better be rather significant evidence, indeed.

GPB Capital Faces Fraud Charges Over $1.7 Billion Ponzi-Like Scheme [WSJ]

While Sean Hvizdzak denies any involvement in wrongdoing, he indicated that he became aware that his brother was accepting funds for investment in cryptocurrency outside of the hedge fund and using his personal accounts, and was using a false audit report. He resigned and encouraged his brother to pay back the investors, the response alleged….

“In short, there is no giant securities fraud or Ponzi scheme here and certainly none that was knowingly or intentionally perpetrated by Sean Hvizdzak,” the response alleged…. “The allegations improperly treat Sean Hvizdzak and Shane Hvizdzak collectively.”

Lest you think ill of the elder Hvizdzak as a brother, however, his side of the story is not all bad for his allegedly prodigal little brother.

“Sean Hvizdzak believes that several investors were paid back, including investment gains,” the response stated. And, the response continued, he believes that the assets in question are in the hedge fund and that investors can be repaid when the asset freeze by the SEC is ended.

You see, investors regaled of tales of 100%-plus returns where there were allegedly only losses, and worried about reports that the claimed $107 million is actually 53 cents? It’s really the SEC you should be mad about, which if it just got out of the way, you’d surely see your share of those 53 cents promptly.

Bradford brothers file answers to SEC fraud case [Olean Times Herald]

First, there are the boiler room jamokes whose mantra read, “we’ll pound the phone and with a little bit of luck, we’ll make a ton of money and won’t give a fuck” getting 10 and 6 years in prison for doing just that. A bakers’ dozen of alleged identity thieves were hit with a 108-count indictment, and 11 officials of the island’s pipe fitters union got nabbed for allegedly accepting more than $100,000 in bribes, much of it apparently over and under tables that the writer may well have eaten more mozzarella fries at 2 a.m. than was healthy even for an 18-year-old. The Rockville Centre-based niece of the president of the United States accused him and his siblings of a massive fraud, the center of which may or may not involve a mysterious post office box in Hicksville. And that’s before we get to the gentleman from Anthony Scaramucci’s own hometown of Westbury pleading guilty to what seems to me the very Long Island crime of mislabeling meat.

But this, dear readers, is a blog about finance. And here, too, Long Island—and specifically our own Nassau County—leads the way. Not only because the month began with word that Great Neck’s proudest son once linked to the largest insider-trading scheme in history would be buying Long Island’s team, and with Roslyn’s own Dan Kamensky self-fulfilling his prophecy of prison. And not only because we’ve got ourselves a local Ponzi scheme that checks all the right allegation boxes: money skimmed to pay the mortgage, since mortgages are expensive on this particular sandbar; screwing over friends, neighbors and the elderly; bogus trades and statements; the crucial lack of an SEC registration on the part of a man claiming to be a hedge fund manager; the FINRA ban. All of that is, of course, fairly standard no matter where in this once-great nation one chooses to ply one’s fraud. No. It’s because this fraud was allegedly perpetrated by a man with an exquisite name for an accused Long Island Ponzi schemer.

Rand Heckler appeared in court Wednesday on three counts of 2nd-degree grand larceny, third-degree grand larceny and first-degree scheme to defraud. All are felonies. Heckler was released on his own recognizance and was scheduled to appear in court Nov. 13. If convicted of the top count, he faces up to five to 15 years in prison…. In all, Heckler, 65, stands accused of stealing $1,004,159 from four people. Prosecutors also plan to charge his corporation Rand Heckler, Inc.

Ex-Nassau Investment Broker Arrested In $1M Ponzi Scheme: DA [Patch]
2 sentenced in $147M fraud scheme [Long Island Business News]
Thieves stole more than $1 million in ‘synthetic identity’ fraud scheme, Suffolk DA Timothy Sini says [Newsday]
Feds, Sini: 11 union officials indicted on racketeering, bribery and fraud [Newsday]
Trump’s Niece From Long Island Sues President, Family, For Fraud [Long Island Press]
Trump Tower Hicksville: Why is the Trump campaign sending rent checks to a Long Island P.O. box? [Salon]
Long Island Man Pleads Guilty In Mislabeled Meat Scheme [Patch]

So when he got out of the pokey back in January, Bekkedam undoubtedly had big plans for spending his time after so many jam-packed years. He’d undoubtedly hoped to spend some time on the beach near his Florida home once things warmed up again, and also to fight the deportation proceedings surely coming his way as a convicted felon who also happens to be a native and citizen of Canada. Alas, the coronavirus pandemic seems to have gotten in the way of both of those, since his local beaches are closed and the deportation courts are too busy exporting COVID-19 to Central and South America to be bothered with a Canadian who ripped off both his clients and his host government. So, finding himself with not much else to do, Bekkedam decided to tie up some other old, outstanding matters, especially since the SEC didn’t seem interested in making it difficult for him.

Under the terms of the settlement, which is subject to court approval, Bekkedam has agreed to be permanently enjoined from violating the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and to pay disgorgement of $150,000 plus prejudgment interest in the amount of $70,969.

SEC Settles Securities Fraud Charges Against Former Investment Adviser [SEC]

Blakstad told investors their cash would be used for "start-up costs" including the purchasing of equipment for the mining operation, according to the SEC's complaint. However, the regulator said Blakstad used the funds as "his own personal piggybank," and used some of the funds to compensate the person who connected him with his investors.

If the name “Donald G. Blakstad” sounds familiar, by the way, that’s because it probably is: He was arrested in July for allegedly running a $6 million insider-trading scheme. And if you’re wondering if any of the substantially less than $6 million he allegedly raised from his other hobbies wound up in said insider-trading right, (allegedly) yup!

Blakstad also used $110,000 of the funds to purchase Illumina securities in October 2016—which, among other trades, is the subject of the Securities and Exchange Commission’s and United States Department of Justice’s insider trading cases against him—and withdrew a significant amount in cash.

SEC charges alleged scammer for fraudulent crypto mining operation [The Block via Yahoo! Finance]
SEC v. Donald G. Blakstad, et. al. [SEC]

Chief Judge Colleen McMahon of the U.S. District Court in Manhattan said she had no doubt the 60-year-old Israel, who has spent 11 years in prison, suffers from severe, progressive and incurable medical problems, and was “certainly not a well person.”

But… “It would make a mockery of the sentencing statute if this financial fraudster, who ruined the lives and finances of hundreds of people while living the high life of an ostensibly successful hedge fund manager, were to have his sentence reduced,” McMahon wrote….

“It simply reinforces the belief that there is one law for the white-collar criminal and another law altogether for the ghetto dweller or the drug dealer,” she wrote.

McMahon redacted the grisly medical details so we don’t know what she knows about Israel’s health, but having “no doubt” about anything Sam Israel III tells you seems unwise. For those of you too young to remember, or too old to be able to keep so many Ponzi schemes straight, let us remind you of one of the truly delightful pre-financial crisis financial fraud stories. Israel ripped off investors in his Bayou Group hedge fund to the tune of $450 million, $22,000 of which went into Donald Trump’s pocket every month. After he got caught, pleaded guilty and was sentenced to 20 years in prison following copious delays, he had an inkling that he wouldn’t like life behind bars and so decided not to do it, parking his car on the Bear Mountain Bridge, scrawling suicide is painless on its dirty hood before picking up the RV his girlfriend had helpfully left nearby and hanging out at a Massachusetts trailer park for a month before finally turning himself in. And that’s before we get into all of the probably specious stories about his killing a guy, great sex, his own falling victim to fraud and, of course, time travel. Some exaggerated ailments certainly seem within his ken.

Bayou hedge fund’s Samuel Israel, who ran big Ponzi scheme, fails to win freedom [Reuters]

Still, it can get, if not a bit tedious, a bit confusing and depressing, all of these startling similar frauds. Hard to tell apart. It’s why we get so very excited by the rare true innovation in the Ponzi arts. And Perry Santillo definitely came up with.

No, it’s not how he spent his money. “Cars, casino junkets and houses in multiple states” are pretty par for the course, and commissioning a song dubbing you “King Perry” doesn’t raise this to the truly sublime. It’s definitely not going after the elderly; that’s also quite standard and not worthy of any kind of congratulation. No, it’s how Santillo recruited his victims. While all Ponzi schemes use money from new investors to pay off exiting ones, how many use money from existing investors to literally just buy new ones?

To ensure a fresh supply of victims, Santillo and his confederates bought the businesses — and client lists — of a series of investment advisers and brokerages, prosecutors said. Over the years, they acquired investment firms in Tennessee, Ohio, Minnesota, Nevada, California, Florida, South Carolina, Texas, Pennsylvania, Maryland and Indiana, according to court documents.

King Perry, indeed.

Santillo appeared Monday in federal court in Scranton, Pennsylvania, to plead guilty to a federal fraud charge, having already entered a guilty plea last month to similar charges in Rochester, New York. Each charge carries a maximum 20-year prison sentence.

Ponzi schemer ‘King Perry’ pleads guilty; had lived lavishly [AP]

Federal prosecutors can, and have, apparently because it didn’t occur to the Merrills that the Feds listen in on calls made to recently-arrested fraudsters in jail.

She was also charged with allegedly sneaking an unknown amount of cash, up to $15,378, from the safe in the couple’s Naples, Fla. Home, the U.S. Attorney’s office said…. She was recorded getting instructions over the prison phone from her husband on how to open the safe….

Oh yea, and about those Amex points: Also fruit of the poisoned tree, as they say, and therefore not hers to turn into a shopping spree.

She allegedly tried to redeem the points on her husband Kevin Merrill’s American Express credit card for store gift cards totaling $5,000 at Nordstrom, $10,000 at Home Depot, $2,000 at Target, $1,000 at Sephora and $875 at Starbucks, along with $7,200 in American Express gift cards, federal prosecutors said.

Wife of convicted Ponzi-scheme fraudster pleads guilty to trying to pocket $26,000 in credit-card points [MarketWatch]

Per InvestmentNews:

A former LPL Financial broker, James T. Booth, was arrested Monday morning in Norwalk, Conn., for allegedly fraudulently obtaining almost $5 million from clients and using it to pay personal and business expenses.

From 2013 through 2019, Mr. Booth, 74, solicited money from clients of Booth Financial and falsely promised to invest their money in securities offered outside of their ordinary advisory and brokerage accounts, the Department of Justice alleged in its indictment.

Like a perfectly grilled steak alongside crispy potatoes, it's hard to improve on a simple thing done well:

He directed certain of his clients to write checks or wire money to an entity named Insurance Trends Inc., according to the Department of Justice.

Instead of investing his clients' funds, Mr. Booth, who controlled the bank account of Insurance Trends, subsequently misappropriated his clients' funds to pay his personal and business expenses. 

The DOJ can say what it wants about James T. Booth, but we say he's just a man who [allegedly] appreciates the quintessential elements of what makes a Ponzi scheme a Ponzi scheme:

In one alleged instance cited by the indictment, Mr. Booth convinced a recently widowed elderly investor to move money she had received from her late husband's pension into Insurance Trends. He allegedly promised the elderly widow that she would have $1 million by the time she was 100 years old. She then invested more than $600,000 with Mr. Booth.

And it seems pretty clear that he [allegedly] lied to this elderly widow's face as he took more than half a million from her, not on the phone or on Slack or whatever the kids do now. TO HER FACE!

They just don't [allegedly] make 'em like James T. Booth anymore...

Ex-LPL broker arrested, charged with running Ponzi scheme [InvestmentNews]

New York business consultant Omar Khan is giving those who usually are on the receiving end of conveniently-timed wealth transfers a taste of their own medicine. In a lawsuit filed in New York State Supreme Court on Wednesday, it was revealed Khan bilked Wall Street heavy hitters out of millions via a wine party scheme.

The suit claims he lured people into his “Ponzi-like scheme" by wining and dining them before convincing them to invest in his growing events business. This doesn't seem much different than the IPO process but we digress.  Court documents for the $8.3MM lawsuit reveal some of the scheme's victims come from companies such as Sanford C. Bernstein, Spurs Capital, Morgan Stanley and a former employee of Renaissance Capital.

As was the case with Elizabeth Holmes and many other famous swindlers, Khan's “elite supper club” received favorable write-ups in Forbes and Bloomberg. Kresimir Penavic, the former RenTech senior research scientist, said “he was larger than life" and "he liked to position himself as in the know and bask in the limelight.”

Khan has denied the allegations and blamed “cash-flow issues” from clients that hadn’t paid him. “To call that a Ponzi scheme, that would suggest that no dinners were done, that’s absurd,” Khan added.

With WeWork announcing today it may cut its valuation by more than half, this is a rare slew of losses for Wall Street, who is all too used to winning.

Get more Hipster Trader at @Hipster_Trader, and sign up for his newsletter here.

Notorious Ponzi schemer Bernard Madoff has filed a petition with the Justice Department asking that President Donald Trump reduce his 150-year prison sentence.

Well, if anyone is going to find some room in his heart for mercy, it would be a fellow "victim" of those nosy kids over at the Southern District of New York. So is the president mulling over the idea that Bernie has suffered enough for his mindboggling litany of crimes?

Madoff, who pleaded guilty to 11 crimes in 2009, is not asking for a pardon from the president.

Instead, he is requesting clemency from Trump in the form of a sentence commutation, or reduction, according to information on the Justice Department’s web site.

A search of the that site shows that Madoff’s clemency request is “pending.”

Before you start laughing too hard, just remember that Trump treats his pardoning power like an emotionally-governed superpower, and he's very susceptible to flatterers, a skill commonly found in the most successful Ponzi schemers. 

We don't know how Bernie can start up a MAGA-themed Twitter account from MCI Bunter Medium, but if we know anything about Madoff it's that he has his ways.

So let's not sleep on the possibility of Bernie Madoff seeing his 150-year sentence reduced in time to walk a free man again on the streets of New York City, where he will survive for at least a few minutes.

After all, when it comes to irredeemable public figures in the year 2019, there is only one credo to consider: In Trump, all things are possible.

Bernie Madoff asks Trump to reduce his prison sentence for massive Ponzi scheme [CNBC]