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Whistleblower Key to Prosecuting Bank in Ponzi Lawsuit

Posted in Bankruptcy Clawback News, Legal Representation, Ponzi Profiles

wired.com

Ponzi Clawbacks has posted extensive coverage of the Scott Rothstein Ponzi case, and not just because of its monstrous $1.2 billion scale. Rothstein himself was sentenced to 50 years in federal prison in 2010, but criminal corruption probes, adversary suits and other civil recovery efforts are ongoing. Indeed, the rulings made in the aftermath of the fraud have set powerful precedents in the continuing development of ground rules in bankruptcy clawback litigation and investor claims.

Besides generating a billion-dollar crater for clawback litigation both in Florida and the wider United States, the Rothstein Ponzi bankruptcy is also notable for the extraordinary fact that victims will largely be recompensed for their losses – a rare occurrence in matters of investment fraud. The pivotal role of banks in the scheme has been crucial to making investors whole again, with TD Bank and Gibraltar Private Bank & Trust already found liable or settling in civil suits for over $500 million dollars combined. Now Bank of America is up for scrutiny for its own alleged facilitation of Rothstein’s scam. A new $385 million lawsuit against the financial giant charges that while Bank of America was highly suspicious of the Rothstein high-return structured settlements vehicle, it decided to encourage clients to invest anyway.

Key to pursuing the claim against Bank of America has been a whistleblower from within the ranks of the financial giant. Plaintiff’s attorney Bill Scherer, who has already recovered $200 million for victims, cites BofA Senior Vice President John Abbuhl as the one figure who spoke out against clients participating in the Rothstein scheme. When the wealthy Von Allmen family inquired about investing in 2009 (shortly before the scheme imploded), officials at the bank gave them the green light even though they had deemed Rothstein’s enterprise to be shady two years prior. As Scherer points out:

Senior Vice President John Abbuhl went to [other bank officials] while they were considering the Von Allmen business and said, ‘You have to tell him that we are suspicious what is going on is illegal,’…They told him to mind his own business.

Bank of America has called the claims “baseless” and will no doubt bring a formidable legal team to defend its position. Yet the case should prove another test of the liability of a financial institution in large-scale investment fraud. It poses the question: If banks owe their customers and the community at large due diligence and good-faith compliance, will they be made to answer for grave violations of this trust?

Michael A. Hackard, Meriam Hansen, Nou Lee and Jeremy Rutledge are experienced in prosecuting civil actions against Ponzi scheme perpetrators as well as defending and resolving clawback cases filed by Bankruptcy Trustees and SEC Receivers. If you have been a victim in a Ponzi scheme and face legal action, contact Hackard Law today.

Wannakuwate Case: Are Clawbacks Looming?

Posted in Bankruptcy Clawback News, Legal Representation

elp.com

The Deepal Wannakuwatte case is entering a new phase.  Leaders in the Northern California bankruptcy community are abuzz with the near certainty that a bankruptcy, likely an involuntary one, will be filed in the Wannakuwatte case. Such a filing will bring the appointment of a trustee coupled with the later appointment of counsel.

Whether special counsel will be retained to pursue clawback actions against Wannakuwatte’s investors immediately or downstream is only conjecture. It is not conjecture that special counsel will be retained.  You can bet that the lawyers capable of the gigantic task of pursuing investors in this Ponzi meltdown of $100 million to $200 million are preparing to pursue their claims.

All this, of course, is not positive news for Wannakuwatte’s investors, but forewarned is forearmed.  Clawback lawsuits have twists and turns that may seem perplexing. “Net losers”, IRS tax liens and third party lawsuits are part of this mix. Let’s first address “net losers.”

Ponzi investors are often shocked to learn that they will become defendants not long after Ponzi bankruptcies are filed. The basic concept behind Ponzi-related clawback lawsuits is that the trustee is duty bound to pull money back into the bankruptcy estate for later distribution to its creditors. The clawback in a net loser case is all the money that was returned to the investor – even if that money is a small fraction of what the investor placed with the Ponzi victimizer.

IRS tax liens against Ponzi schemers are also likely, with the process fairly straightforward. The IRS files a “Notice of Claim” with the appropriate federal court advising that the Ponzi schemer is indebted to the United States for a tax liability. The court will likely permit the intervention of the IRS and then retain the authority to adjudicate all aspects of the IRS claim. A bankruptcy trustee is more likely than not to take the position that a Ponzi schemer’s personal tax liability cannot take priority over the claims of victimized investors, as any assets of the schemer have the taint of fraud.

A bankruptcy trustee should vigorously defend against an IRS effort to use investor funds to satisfy any of the schemer’s personal federal tax obligations. The IRS has been known to accept this position with the proviso that if there is any money left after the Ponzi victims’ claims are fully satisfied, such funds might be used to satisfy a claim that the IRS may establish against the swindler.

How do third-party lawsuits fit into this matter? It’s no surprise that through their counsel, investors have been taking stock of the liability of third parties to the Wannakuwatte Ponzi scheme. Without addressing the specifics of such analyses, some general comments are in order.

If Wannakuwatte’s investors ultimately receive something back (after clawbacks), such sums can be credited against investor judgments on third parties. For example, if a Wannakuwatte investor’s losses are $1 million and that investor secures a $1 million judgment against a third party (who is proven to be legally responsible for the loss), the judgment debtor can seek the court to offset any amounts that the judgment creditor (the Ponzi investor) receives back from the bankruptcy trustee. In simple terms, if the Ponzi investor receives $100,000 from the bankruptcy trustee as payment on his $1 million claim, the third party would be able to offset its $1 million judgment by $100,000 (leaving $900,000).

If impacted investors are to remember one thing, it’s this: in major Ponzi scheme bankruptcies like the Wannakuwatte case, clawback efforts are nearly inevitable. Waiting for such actions can be a bit like waiting for lightning to strike. Innocent victims in large Ponzi cases may seek recoveries from third parties that participated in the scam and made it possible.  Such recoveries are hard-fought. They are not automatic, and the action of one investor against third parties is only good as to that investor.

Expect a change of plea on May 1st or soon after in Wannakuwatte’s criminal proceedings. Expect fallout. Expect wishful thinkers who wait for lightning to strike, as well as proactive investors seeking recoveries against Ponzi facilitators. The Wannakuwatte civil prosecution is just getting started.

Michael A. Hackard, Meriam Hansen, Nou Lee and Jeremy Rutledge are experienced in prosecuting civil actions against Ponzi scheme perpetrators as well as defending and resolving clawback cases filed by Bankruptcy Trustees and SEC Receivers. If you have been a victim in a Ponzi scheme and face legal action, contact Hackard Law today.

Rothstein CFO Latest to Be Charged

Posted in Ponzi Profiles

browardpalmbeach.com

As the clock winds down on possible indictments in Scott Rothstein’s $1.2 billion Ponzi scheme, the super scammer’s “right hand” is the latest to face charges in the case. Irene Shannon (maiden name Stay) is the subject of a criminal information filed in US District Court in Miami. Federal prosecutors say the 50-year-old Shannon, the onetime chief financial officer of Rothstein Rosenfeldt Adler (RRA) in Fort Lauderdale, engaged in conspiracy and money laundering on behalf of her notorious boss.

As the CFO of Rothstein’s Ponzi empire, Shannon would have been in a position to operate the mechanisms of his structured settlements fraud through a series of bank and trust accounts. These accounts included 38 alone at TD Bank and at least four at Gibraltar Bank & Trust. TD Bank in particular has already been penalized for $52 million by FinCEN and the SEC in addition to being ruled liable in US District Court for $257 million for deep partnership with Rothstein’s “International Bank of Wow.” As court documents allege, Shannon played a pivotal role in transferring funds for the purpose of paying out false returns and other misappropriations of investor money. These included:

  • Supplementing and supporting RRA business activities
  • Distribution of “exotic automobiles, jewelry, boats, loans, cash and bonuses, to individuals and members of RRA in order to engender goodwill and loyalty and to create the appearance of a successful law firm.”
  • Making extravagant donations to a number of charitable causes “to deflect any negative scrutiny by the public and/or law enforcement agencies and to create the public impression of altruism and commitment to the community.”
  • Purchasing real estate to provide an appearance of credibility and business viability to investors.

Shannon is likely to enter into a plea deal with the US Attorney’s Office, which would secure her cooperation in any further prosecutions. The issue of bank liability in investment scams, meanwhile, is not going away. Just last week investors filed a suit against Bank of America for $385 million over its own alleged facilitation of the Rothstein scheme. A recurring nexus of Ponzi schemes and banks negligent to or complicit in large-scale fraud poses clear dangers to entire business communities.

Read Shannon’s information here.

Watch this in-depth analysis by attorney David Mandel of TD Bank’s role in the Rothstein scheme:

Michael A. Hackard, Meriam Hansen, Nou Lee and Jeremy Rutledge are experienced in prosecuting civil actions against Ponzi scheme perpetrators as well as defending and resolving clawback cases filed by Bankruptcy Trustees and SEC Receivers. If you have been a victim in a Ponzi scheme and face legal action, contact Hackard Law today.

TelexFREE Program Alleged to Be $1 Billion Ponzi Scheme

Posted in Ponzi Profiles

Looks legit!!  Ad Central Family

A well-known international network marketing business has been labelled a massive Ponzi scheme by civil authorities in Massachusetts just a day after it filed for bankruptcy protection. According to the Massachusetts Secretary of State’s Office, TelexFREE, a Voice over Internet Protocol (VoIP) sales program, is alleged to have raised $90 million in the Commonwealth alone and a staggering $1 billion worldwide. In what could be a potential case of affinity fraud, the company recruited thousands of affiliates primarily among Brazilian and other immigrant communities. TelexFREE originates in Brazil (where it was shuttered as a financial pyramid last year), and its US operation is located in Marlboro, MA.

After TelexFREE filed for Chapter 11 bankruptcy protection in the State of Nevada on April 14th, Massachusetts Secretary of State William Galvin announced that his department would pursue fraud charges against its entities as well as requesting immediate disgorgement of funds. The Commonwealth’s complaint details how TelexFREE intensively marketed VoIP online advertising packages as quick way to easy wealth – like many pyramid schemes, TelexFREE advertising showcases images of ecstatic affiliates flaunting their new fancy cars or enjoying luxury vacations. The company’s premier sales vehicle, the Passive Income Scheme, offered up to 250% annual returns on a starter kit costing just $1,375.

Yet according to Massachusetts authorities, profits from TelexFREE product sales were nowhere near the amount needed to deliver promised returns. In 2012 and 2013, court documents explain, TelexFREE made $238 million from peddling its VoIP packages, yet it owed investors $2.4 billion plus bonuses and sales commissions. In the style of many multi-level-marketing scams, participants were whipped into a frenzy at “extravaganzas” meant to build up excitement for an endless jackpot that would result from forking over more membership fees.

 

TELEXFREE

  • Alleged Scam: VoIP Marketing
  • Profits: 20-50%
  • Ponzi Time: Unknown-2014
  • Victims: Thousands
  • Affinity Fraud: Brazilian Community
  • Amount of Fraud: $1 billion
  • State Complaint: Fraud, Asset Freeze, Disgorgement
  • Location: Boston, MA

Michael A. Hackard, Meriam Hansen, Nou Lee and Jeremy Rutledge are experienced in prosecuting civil actions against Ponzi scheme perpetrators as well as defending and resolving clawback cases filed by Bankruptcy Trustees and SEC Receivers. If you have been a victim in a Ponzi scheme and face legal action, contact Hackard Law today.

“Former Naval Aviator” Accused of Multimillion Ponzi

Posted in Ponzi Profiles

Twentieth Century Fox

Federal regulators have brought charges against an Indianapolis man for concocting a $12.8 million investment fraud that was international in scope. Timothy Coughlin, 63, is the subject of an SEC civil action that alleges his supposed online credit union business was just a glorified Ponzi scheme. Some 5,000 investors around the world and 3,300 in the United States bought into Coughlin’s claims of “substantial” daily returns on their deposits.

Coughlin’s enterprise lasted from 2007 to 2011 under the consecutive titles Oxford International Credit Union and Oxford International Cooperative Union, luring investors with promises of compounding .47% daily returns on deposits, coming out 356% interest a year that derived from juicy deals in forex trading and real estate. As if that wasn’t tempting enough, Coughlin would go on to promote even wilder claims of annual returns from 458 to 960%. Why bank with a humdrum neighborhood credit union when Oxford could snag clients a fortune in no time? The agency’s complaint further states that in order to gain the trust of victims, he represented himself as a naval aviator who had seen action over the fearsome Caribbean cauldron of Grenada.

The SEC, however, says that Coughlin had never even served in the US Navy and was simply operating a Ponzi machine that ingested client funds and then distributed them back out as fictitious interest to the tune of $4.4 million. Court documents allege that as early as 2008, Coughlin was already facing difficulties paying returns to investors – he furnished various excuses related to technical difficulties with the IRS and banks. It’s said the Oxford don also appropriated $1.57 million for himself, splurging on everything mortgage payments to jewelry, entertainment and weapons. But Coughlin should’ve known that even all that money couldn’t heal the scars of Grenada.

 

TIMOTHY COUGHLIN

  • Age: 63
  • Company: Oxford International Credit Union
  • Alleged Scam: Credit Union
  • Profits: 356-960%
  • Ponzi Time: 2007-2011
  • Victims: 5,000
  • Amount of Fraud: $12.8 million
  • SEC Complaint: Multiple Violations of Securities Exchange Act
  • Location: Indianapolis, IN
  • Court: US District Court, Southern District of IN

Timothy Coughlin SEC Complaint

Michael A. Hackard, Meriam Hansen, Nou Lee and Jeremy Rutledge are experienced in prosecuting civil actions against Ponzi scheme perpetrators as well as defending and resolving clawback cases filed by Bankruptcy Trustees and SEC Receivers. If you have been a victim in a Ponzi scheme and face legal action, contact Hackard Law today.