Kenneth Starr, a New York investment adviser with a long list of celebrity clients (not to be confused with the Ken Starr who prosecuted Clinton), was was arrested by U.S. agents on Thursday on charges of running an alleged investment fraud– more specifically a Ponzi scheme– of as much as $30 million. According to Reuters, both civil and criminal charges were filed against Starr, 65, accusing him of swindling his high net worth clients through Starr Investment Advisers and Starr & Co. The civil charges also name his wife, Diane Passage, and Colcave LLC, another firm Starr controlled, as defendants in civil charges filed by the SEC.

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On April 20, after having been incarcerated beginning in mid-January on charges of running a multi-million dollar Ponzi scheme, Weizhen Tang won his freedom (temporarily) by posting $150,000 bail. According to the Toronto Sun, Tang said, “I want a chance to prove my innocence— that’s why I came back from China.”

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The implosion of Minnesota businessman Tom Petters’ corporate empire which defrauded investors of $3.65 billion involving not just hedge funds, but at least 10 pastors, three missionaries, dozens of retirees and a half-dozen nursing home residents, according to federal court filings cited in the New York Times. Prosecutors are arguing that the Ponzi scheme is so massive that Petters deserves the maximum sentence: 335 years in prison. The defense, using Bernie Madoff’s sentence as a model and some creative math, is arguing that 4 years would be sufficient for 52 year-old Petters. U.S. District Judge Richard Kyle compromised and sentenced him to 50 years, which is effectively a life sentence.

The former owner of Polaroid and Sun Country Airlines was convicted of 20 counts of wire fraud, mail fraud, money laundering and conspiracy four months ago.

Prosecutor Joe Dixon wrote:

The defendant’s fraud is beyond comprehension in size and scope. The offense is the largest fraud in the history of Minnesota. Indeed, there are only a handful of fraud schemes that are even comparable in the history of the United States.

According to the New York Times, Petters defense has an appeal in the works and he maintains his innocence, claiming the fraud was orchestrated by his underlings without his knowledge. The defense also plans to attack the claim that what occurred was a Ponzi scheme, in which previous investors are paid off with money from later investors.
The New York Times reports,

According to testimony and documents presented at trial, PCI used fake purchase orders and bogus bank records to persuade investors to finance what they were told would be purchases of electronics such as big-screen televisions that PCI would resell to discount retailer such as Sam’s Club and Costco. In reality, the prosecution contended, the merchandise never existed and the sales never took place.

Petters’ attorneys blamed other business associates — who all pleaded guilty in hopes of leniency when they’re sentenced later — and said his biggest mistake was trusting them.

A bipartisan bill introduced in the U.S. Senate by Senators Charles E. Schumer, Democrat of New York, and Jon Kyl, Republican of Arizona on March 22 proposes to extend tax breaks to the tens of thousands of Ponzi scheme victims. In contrast to previous proposed legislation which focused exclusively on those who made direct investments with the Ponzi schemers, this bill would apply to both those who invested directly and those who invested indirectly (such as those who lost their money through other investment vehicles, such as hedge funds and pension plans). This would be a boon to various feeder funds, pension plans and partnerships who passed money along into Ponzi schemes such as Bernie Madoff’s, in addition to helping investors who lost money through individual retirement accounts (a category which is estimated to have lost $1 billion to Madoff alone).

The legislation, however, according to the New York Times, will only cover the losses of those affected by Ponzi schemes during 2008 and 2009.

That will catch the largest recent frauds — Bernard L. Madoff’s gigantic crime, which wiped out more than $60 billion of investor savings; the $3.6 billion swindle run out of Minneapolis by the industrialist Tom Petters, who was convicted late last year; and the collapse of Stanford International Bank, which is expected to cost investors as much as $7 billion.

It would also cover the victims of dozens of smaller, less visible frauds — an Associated Press study this year identified 190 Ponzi scheme cases at the state and federal level in 2008 and 2009.

But the proposed relief may not help victims of new cases filed by regulators since January, which include a $135 million investment scheme marketed to Cuban-Americans in Miami and a $14.7 million scheme regulators say was aimed at retired bus drivers in Los Angeles.

The proposed bill would expand the period for which investors can apply losses to prior income to up to six years. The previous IRS rule let investors carry back losses five years. The carry back lets investors get cash back for taxes paid in prior years. The plan also increases the amount a victim can apply against previous income and lets victims recoup some losses within an individual retirement account, by allowing a loss on their basis of half of their total losses. Because these accounts contained pre-tax dollars, their owners could not take advantage of new tax rules last year that extended fraud loss write-offs for taxable accounts owned by direct investors, according to the New York Times. The tax refunds generated by the longer carry-back periods are an important source of cash for investors wiped out by fraud — one that had not been available to investors who lost money in I.R.A. accounts.

The New York Times writes:

According to the senators’ announcement, the new bill “would increase the amount a victimized investor can carry back on his income taxes; allow victims who lost money within an I.R.A. to recoup some of the losses for the first time by allowing a theft loss for their basis in the account, or half their total losses; raise the limit on tax-free contributions to retirement accounts so investors can replenish losses quicker; and waive penalties for withdrawing from retirement accounts to increase daily cash flow.”

The legislation has been praised by leaders of groups representing Ponzi victims and has support from both sides of the aisle. The bill is sponsored by 11 Democrats and six Republicans.

Ivy Asset Management is being closed amid news that the Bank of New York Mellon is probing the hedge fund’s relationship with Ponzi schemer Bernie Madoff. Ivy clients, including several upstate New York pension funds, reportedly lost more than $100 million in Madoff’s scam. According to FINalternatives, the Bank is encouraging Ivy clients to move their money to one of the firm’s other two fund of hedge funds units, EACM Advisors and Mellon Global Alternative Investments. The Wall Street Journal reports that New York Attorney General Andrew Cuomo is investigating whether Ivy warned investors about its concerns about Madoff’s operations.

Ivy said in a statement quoted in the Wall Street Journal that it was

As outraged as anyone by Bernie Madoff’s fraudulent scheme. Ivy served as a sub-advisory consultant to experienced investment managers who, in turn, chose to invest their own client assets with Madoff. Ivy was deceived by Madoff like thousands of investors [as well as regulators]

At its peak, Ivy oversaw over $15 billion in assets, but by the end of last year, its assets had dwindled to just $5 billion. Most of Ivy’s employees have already been let go.

Because I was getting tired of writing individual stories on these morons, I thought I’d consolidate all of the scandals into one big article giving you the skinny on all the greed that is fit to print… er, blog? We’re all familiar with the concept made famous by Charles Ponzi in the 1920s… use funds from new investors to pay off old investors. The whole hook of ponzi schemes is that they’re advertised to be high return/low risk investments– and as long as investors see pretty performance reports or are able to withdraw cash when they request it, they don’t seem to know or care what’s going on. Only problem is, this sort of fraud requires a constant flow of money in order to keep things going– so if investors want to cash out or there isn’t enough money coming in, you’re screwed… just like the people below:

*Twin Cities businessman Trevor Cook was charged Tuesday with allegedly orchestrating a $190 million forex Ponzi scheme involving some 1,000 investors between 2007 and 2009. Cook, however, is being accused of using the money to make payments to previous investors, buying ownership interests in two trading firms, buying a real estate development in Panama, acquiring the Van Dusen Mansion in Minneapolis and paying personal expenses, including substantial gambling debts– not to mention making false promises to investors of generating returns of 10-12 percent. He is facing one charge of mail fraud and one charge of tax evasion (so far) and up to 25 years in prison. The charges were filed as a result of a collaborative effort of the FBI, IRS, SEC, and CFTC. Bizweek.com

*Four people from a company called HMS Financial Inc. were charged in a $60 million Ponzi scheme in Canada involving over 1,000 investors across North America. Police charged Murray Stark, 73, Robert Fyn, 62, and Garth Bailey, 57, fraud over C$5,000 ($4,900) and conspiracy to commit fraud. The three, plus Katherine Rodrique Bailey, 53, were charged with laundering the proceeds of crime. The company went belly up back in 2004– it has taken 6 years to levy charges. Reuters

*West Point grad Enrique Villalba was accused on Monday of perpetrating a $30 million Ponzi scheme involving his Money Market Alternative LP using a method called “Money Market Plus” for investing in the futures market he claimed produce long-term gains of 8% to 12% for investors. According to Reuters, “The complaint also charged that Villalba did not put promised “stop” orders in place to prevent excessive losses and that he diverted millions of dollars in investor money to fund Rico Latte coffee shops in Ohio, purchase real estate and make payments to some investors.” In addition to the criminal complaint, separate civil complaints were filed by the SEC and CFTC on Monday.

*Patrick Rakotonanahary of Punta Gorda, FL pleaded not guilty in Hawaii to federal charges that he bilked 64 Hawaii investors and dozens of others in what officials allege was a classic Ponzi scheme. Rakotonanahary, who is president and chief executive of Cyber Market Group LLC, is accused of 21 counts of wire fraud. Authorities allege his forex trading scheme amassed about $10.3 million from more than 100 people, including almost $8 million from 64 Hawaii residents. Businessweek.com

*More than 50 people were scammed out of some $13.2 million by Richard Taft Johnson. Doing business as Investor Planning Services in Bloomfield Hills, Johnson told potential investors that they could invest in a low-risk program called the American Charitable Program beginning in the late 1990s, which he told investors would result in a 10 percent return per quarter. He also claimed it included the purchase of an insurance policy that he said would provide a future benefit to a charity or qualified nonprofit organization. Johnson was sentenced to 8 years in prison and was ordered to repay the $13.2 million in restitution. C&G News

*Beverly Hills investment manager Michael McCready pleaded guilty to bilking investors out of $8 million between 2004 and 2009. Instead of investing the money, according to CNN, McCready used the money to pay for his rent, vehicle leases and travel expenses; finance production of a movie; and develop businesses, the Justice Department said. He was sentenced to 9 years in prison and ordered to pay $8 million in restitution. CNN.com

Michael E. McCready, a Beverly Hills investment advisor and licensed securities broker of McCready & Associates, was sentenced Monday to a nine year prison term for swindling twenty-five investors (mostly friends of his from the entertainment industry) out of $10 million. According to the lawsuit filed in 2009, McCready operated a Ponzi scheme from 2004 to 2009 under the guise that he was investing in “safe, secure investments” including what he called a profitable private hedge fund (Horizons Opportunity Fund).

However, according to CNN.com,

Instead, McCready used the money to pay for his rent, vehicle leases and travel expenses; finance production of a movie; and develop businesses, the Justice Department said.

When the scheme collapsed, McCready’s clients lost more than $8 million, according to the Justice Department.

McCready pleaded guilty to a securities fraud charge in November. In doing so, McCready admitted that he stole investor funds for himself, and that the hedge fund never existed. To hide his theft, McCready sent fake account statements to investors and paid Ponzi-type payments to some of them.

According to CNN,

In sentencing Michael McCready, U.S. District Judge George King called him a “thief” and said the bogus investment scheme “caused substantial, and in some cases, life-altering harm” to the affected clients.

In addition to sentencing McCready to 9 years in prison, the judge ordered him to repay $8 million is restitution. He is to begin serving his sentence May 17.