Posts Tagged ‘bank fraud’

We’re Not Alone

Wednesday, January 28th, 2009

 

Yesterday, we observed that there have been a lot of Ponzi schemes coming down lately, and asked what gives? Today, the Wall Street Journal made the same observation, and asked the same question.

Here are some points from the article:

* In 2007, the SEC had brought civil actions from 15 alleged Ponzi schemes. In 2008, they brought 23 such cases. So far this month, they’ve already brought 9. And that doesn’t include all the state-level fraud cases that have come down.

* On the criminal side, there have already been 6 multimillion-dollar fraud cases brought this month.

* Experts say these schemes are being discovered now because of the economic downturn. Investors try to cash out their investments, only to learn that the money’s gone. There’s also less money out there being invested, so the source of cash for these schemes dries up, and the house of cards comes crashing down.

The New York Times also had some similar observations:

* “What is causing them to surface now appears to be a combination of a deteriorating economy and heightened skepticism about outsize returns after the revelations about [Bernie Madoff]. That can scare off new clients and cause longtime investors to demand their money back, which brings the charade tumbling down.”

* The Commodities Futures Trading Association has also experienced a doubling of reported Ponzi schemes in the last year.

* On Thursday last week, Senators Chuck Schumer and Richard Shelby introduced a bill to hire 500 new FBI agents, 50 new AUSAs, and 100 new SEC officials to crack down on these crimes.

Yet Another Massive Ponzi Scheme Alleged. What’s that tell you?

Tuesday, January 27th, 2009

Agape World screenshot

Nick Cosmo, the 37-year-old head of Agape World Inc. and Agape Merchant Advance, was arraigned today on charges that he ran a Ponzi scheme that cheated investors out of $370 million since 2006.

The feds allege that about 1,500 investors were promised annual returns of as much as 80%. These huge profits were to come from short-term loans to businesses. Instead of coming from actual profits, however, the complaint states that returns paid to investors actually came from the outlays of subsequent investors.

Investor money went mostly to pay other investors, in a rob-Peter-to-pay-Paul setup similar to the Bernie Madoff and seemingly countless other Ponzi schemes hitting the news these days. About $55 million went to pay brokers who brought in the investors. A bunch of cash was allegedly spent on expensive luxuries for Cosmo himself, as well as to pay the restitution ordered in a previous mail fraud conviction. Only about $10 million actually went to the loans that were supposed to be the core investment. The firm also transferred $100 million since 2003 into Cosmo’s futures-trading accounts, of which $80 million was lost. As of last Thursday, said prosecutors, Cosmo’s firms had less than $750,000 in the bank.

Agape World was listed as #73 in Entrepreneur Magazine’s Hot 100 fastest-growing businesses in America. (See its listing, screenshotted above.)

This is just one more in a series of prosecutions that have been coming down lately. Prosecutors are clearly ramping up their focus on financial crimes in the wake of the Bear Stearns meltdown — it’s definitely the sexy crime of the moment, where the press is throwing a lot of ink, where reputations stand to be made. Of course, crime is only found where it’s looked for, and right now this is a hot (and relatively easy) crime to prosecute. So it makes sense that this is where prosecutors are focusing lots of assets.

But apart from that, what does it mean about the rest of us? Almost all of these Ponzi schemes promised investors stupid-high returns. Wasn’t it obvious to the investors what was going on? Were they just blinded by the go-go stock market, while it was hot? Were they desperate for a winning number after the market soured? Lots of the alleged victims out there were sophisticated investors — one would think they at least would have known the meaning of “too good to be true.” We’d like to hear what you think is going on.

We guess people’s common sense just gets blinded by the prospect of easy gains. And it happens often enough, to enough people who ought to know better, that this crime continues to proliferate nearly a hundred years after it became part of the common lingo.

Oh well, more work for us defense attorneys.

“Not With Me, They Don’t” – Race Not a Factor in Sentence, Says Judge

Thursday, January 22nd, 2009

 

District Court Judge Percy Anderson sentenced Jeanetta Standefor to more than 12 years in prison on Tuesday, for running an $18 million Ponzi scheme that preyed on middle-class black investors.

Standefor, who is also black, solicited investments from 650 people around Pasadena who thought the money would go to buying properties about to go into foreclosure. To maintain the illusion of profits, Standefor transferred $14 million of the invested money to early investors. She also spent about a million per year on herself, according to AUSA Stephanie Yonekura-McCaffery. The operation was run through her company Accelerated Funding Group — a name that is practically probable cause in itself.

At the sentencing hearing in the Central District of California, victims told Judge Anderson how they had trusted Standefor with their savings, often their life savings, after she first befriended them. Investors were told that they could make 50% profits in the first month.

Standefor’s attorney, federal defender Charles Brown, argued for leniency. “She is not a serial killer,” he said. “She is not a drug dealer. This is not a person who needs to be thrown in jail and locked up to learn her lesson.” He added that she was a foster child “who worked her entire life to prove her worth. . . [but] she took shortcuts, and started taking from Peter to pay Paul, and that’s how we got here.”

Judge Anderson disagreed with the defense attorney’s characterization, telling Standefor that even if this was just a white-collar crime, she was just as guilty “as if you’d taken a gun out and held it to the victims’ heads.”

Judge Anderson then ruled on sentence. Shortly before he imposed the sentence, however, Brown made one last attempt for leniency. Urging the judge to reconsider, Brown pointed out that the sentence was not consistent with those for similar cases around the country. Brown argued that it seemed to him that blacks get harsher sentences, even when they are convicted of white-collar crimes.

“Not with me, they don’t,” interrupted the judge, who is also black. “This isn’t about being black.”

Standefor was then sentenced to 151 months in prison and almost $9 million in restitution.