President Biden Grants Clemency To At Least Five Convicted Ponzi Schemers

President Biden made headlines earlier this week when he announced he had granted clemency to nearly 1,500 people – an act the White House described as the largest single-day act of clemency in history.  In making the announcement, the White House announced that the President was commuting the sentences of nearly 1,500 individuals who “were placed on home confinement during the COVID-19 pandemic” and have “shown successful rehabilitation and a strong commitment to making their communities safer.”  Yet, while the announcement details the steps at rehabilitation taken by those 39 individuals receiving full pardons, only the name and former inmate registry number was provided for the 1,499 individuals whose sentence was commuted.   

As the public has been left to investigate the underlying conduct of those who had their sentences commuted, it has emerged that those receiving clemency include at least five convicted Ponzi schemers whose schemes collectively raised nearly $750 million from thousands of defrauded investors that ultimately resulted in total losses in the hundreds of millions of dollars. Specifically, President Biden commuted the sentences of the following individuals:

• Timothy McGinn: Sentenced to 15-year term in August 2013 after being convicted at trial for what prosecutors claimed was a Ponzi scheme that caused $130 million in losses and was “the largest financial crime in the history of the upstate New York federal court.” The SEC later sued 10 agents of McGinn’s firm for ignoring red flags in selling the unregistered securities to customers.

• Marc Dreier - Sentenced to 20-year term in July 2009 after pleading guilty to allegations that his law firm, Dreier LLP, caused roughly $400 million in losses by selling fraudulent promissory notes.  U.S. District Judge Jed Rakoff, who sentenced Dreier, observed that “When you turn to the facts of the crime that Mr. Dreier committed, one must be appalled.” 

• Gregory McKnight – Sentenced to 15-year term in August 2013 after pleading guilty to $72 million Ponzi scheme that promised thousands of investors monthly returns of at least 15%. 

• Brian Callahan – Sentenced to 12-year term in September 2017 after pleading guilty to $96 million Ponzi scheme in which he operated four investment funds as a “large-scale Ponzi scheme.” 

• Andrew Mackey – Sentenced to 27-year term after he and his common-law wife were convicted of running a $12 million Ponzi scheme in which they purported to profit from private and confidential offshore business deals.  At the time, the U.S. Attorney remarked that Mackey’s sentence was the “longest imposed in this district for a case of this type.”  The FBI similarly remarked that the sentence “reflect[ed] the damage done to the victim investors.” Oddly, it does not appear that Mackey’s common-law wife, who received a 14-year term, had her sentence commuted.

This is not the first known instance of a convicted Ponzi schemer being granted clemency; President Trump previously commuted the sentence of Eliyahu Weinstein in the last days of his initial term after Weinstein had served 8 years of a 24-year sentence for his role in a $200 million Ponzi scheme.  Weinstein, ironically, was arrested last year along with four others and accused of running a $35 million “Ponzi-like” scheme.

However, it is the number and severity of those convicted Ponzi schemers receiving clemency from President Biden that is raising eyebrows.  Collectively, the five Ponzi schemers receiving commutation were involved in raising nearly $750 million from thousands of duped investors – many of whom suffered a loss of at least some of their investment for their misplaced trust. 

The President’s wielding of clemency power can be a powerful and profound tool often aimed at righting previous wrongs. Indeed, I was one of the many volunteers in President Obama’s Clemency Initiative that sought to rectify sentencing disparities handed down to non-violent drug offenders in the 1980s; one of the highlights of my career was receiving a call from President Obama’s Office of the Pardon Attorney informing me that one of my client’s life sentence had been commuted.  That client had served nearly 25 years in federal prison for non-violent drug offenses and they would have likely been sentenced to a much lower term had they been sentenced today due to changes in sentencing laws and guidelines.

Absent additional justification or explanation from the White House, which is not expected given that the decisions are not subject to oversight or appeal, it is hard to understand a similar justification for those convicted of running massive Ponzi schemes that defrauded and victimized innocent investors.  One could certainly argue that Mackey’s 27-year term was lengthy for “only” running a $12 million Ponzi scheme, but it is likely still within the sentencing guidelines used today given the loss amount.  Conversely, the non-violent drug offenders that received clemency were able to demonstrate that the current sentencing guidelines would have resulted in a much-lower sentence.  I previously spent over 10 years representing Court-appointed Receivers tasked with recovering assets for those victimized by Ponzi schemers, and I can say first-hand that the harm inflicted on many of these victims was devastating and permanent.  Many lost everything and their lives were irreparably changed to their detriment and without any of their own fault.

Ponzi Schemes Hit 7-Year High In 2023

(As a disclaimer, these statistics are presented for educational purposes only, have not been independently verified, and were primarily compiled through articles on Ponzitracker, press releases by civil and criminal enforcement agencies, and reporting on the internet by various sources including Kathy Phelps' monthly Ponzi roundups at ThePonziSchemeBlog.com. Individuals accused of Ponzi schemes are presumed innocent until proven guilty. These statistics generally only included Ponzi schemes of $1 million or more based in the United States. Please direct any comments or inquiries to ponzitracker@gmail.com.)

The number of Ponzi scheme discoveries hit a seven-year high in 2023, continuing the sharp increase seen in 2022 and suggesting that regulators will continue to stay busy as the world emerges from the COVID-19 pandemic. The 66 Ponzi schemes uncovered in 2023 are nearly double the amount of schemes uncovered just two years ago in 2021 and nearly 20% higher than the 58 schemes charged last year. The data compiled by Ponzitracker seems to confirm the end of any lingering delays from the COVID-19 pandemic and raises questions about whether the two-year average of over 60 annual Ponzi scheme discoveries is the start of a new trend. The schemes involved nearly $2 billion in potential investor losses. The number of individuals sentenced for their role in Ponzi schemes also remained near multi-year highs in 2023.

2023 Ponzi Scheme Discoveries and Sentences

In total, 66 schemes were uncovered in 2023, meaning that a new scheme was uncovered about once every five days. This represented a nearly 100% jump from the 34 schemes discovered in 2021 and a nearly 20% jump from the 58 schemes uncovered in 2022. Collectively, the 66 schemes represented nearly $2 billion in investor funds - which was significantly lower than the $5.3 billion in investor funds involved in the 58 schemes uncovered in 2022. This disparity was the result of much “smaller” Ponzi schemes in 2023; the largest Ponzi scheme in 2023 involved $145 million in investor funds while five schemes discovered in 2022 each involved at least $400 million of investor funds. As a result, the average scheme size was $28 million (compared to $94.1 million in 2022) while the median size was $10 million (compared to $8.5 million in 2022). Nearly 50% of the 106 accused Ponzi schemers called either Florida, Texas, New York, or California home. One statistic that has remained remarkably consistent over the years? Men continued to make up nearly 90% of accused Ponzi schemers.

The number of prison sentences for convicted Ponzi schemers also stayed near multi-year highs, with 49 prison sentences handed down. This was slightly lower than the 54 prison sentences doled out in 2022 and just higher than the 45 sentences handed down in 2021. These 49 prison sentences collectively represented 300 years in prison time, with the average sentence coming out to nearly 75 months. The longest sentence was handed down to Michigan resident Franklin Ray, who received a 212-month sentence for carrying out a $40 million Ponzi scheme.

Trends - Crypto Down, Affinity Fraud Up?

In analyzing trends from this data, two interesting takeaways stood out. The first was that the number of cryptocurrency-related schemes was down compared to 2022. Last year’s roundup highlighted that over 25% of the uncovered Ponzi schemes had a significant nexus to cryptocurrencies. Although this year’s data showed that crypto still remains a popular focus of Ponzi schemes, the proportion of crypto-related Ponzi schemes in 2023 was closer to 15% of the total schemes.

The second takeaway was what appeared to be an increased focus by regulators in tackling Ponzi schemes that were tied to affinity fraud. The SEC defines affinity fraud as “investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups.” This is not a new trend in the Ponzi scheme world, as schemers have long touted their connection or affiliation with a specific group in order to engender trust with victims. However, it was noteworthy that a significant number of enforcement action press releases from civil and criminal regulators referenced a group or community being targeted in a Ponzi scheme. The prosecutions brought in 2023 included a number of groups or communities targeted, including:

• Haitian-American community (twice)

• Egyptian Coptic Christian community

• Orthodox-Jewish community

• African-American community

• Local church groups (twice)

• Cape Verdean Community

• Chinese-American community

• Spanish-speaking community

• Tongan community

• Indonesian/Indo-American community

Authorities seem to be increasingly focusing on rooting out affinity fraud as of late, with the Wall Street Journal recently noting that:

The case of Tadrus, who has pleaded not guilty, is part of a push by U.S. Attorney Breon Peace in Brooklyn and other law-enforcement officials to focus on financial scams, called affinity frauds, that target close-knit communities, often built on bonds of ethnicity, nationality or religion. The alleged perpetrators are usually members of those communities—or at least pretend to be—and the cases can be a challenge to prosecute, in part because it can be difficult to persuade victims to talk or cooperate with the authorities.

The SEC also maintains a webpage listing affinity fraud cases it brought in 2022 and 2023.

A full database of uncovered Ponzi schemes and prison sentences for 2023 is below:

Ponzi Scheme Discoveries Skyrocketed In 2022, With One In Four Schemes Involving Crypto

(As a disclaimer, these statistics are presented for educational purposes only, have not been independently verified, and were primarily compiled through articles on Ponzitracker and internet reporting by various sources including Kathy Phelps' monthly Ponzi roundups at ThePonziSchemeBlog.com. Individuals accused of Ponzi schemes are presumed innocent until proven guilty. These statistics generally only included Ponzi schemes of $1 million or more based in or with a substantial nexus to the United States. Please direct any comments or inquiries to inquiries@ponzitracker.com.)

The number of uncovered Ponzi schemes surged in 2022 as the world attempted to find a new sense of normalcy as the COVID-19 pandemic waned, marking a significant shift from 2021 in which the lowest number of Ponzi schemes were discovered since 2008. In addition to the significant rise in new Ponzi schemes which collectively involved over $5.3 billion of potential losses, the data also ominously shows that more than one in four of the new schemes were related to cryptocurrency. The criminal justice system appears to have also returned to normalcy, as the total number and cumulative length of prison sentences for convicted Ponzi schemers hit a five-year high in 2022.

2022 Ponzi Scheme Discoveries and Sentences

2019 was a banner enforcement year for regulators that marked the reversal of a multi-year trend of declining Ponzi schemes, as at least 60 Ponzi schemes were uncovered that collectively involved more than $3 billion in investor funds. This momentum came to a screeching halt in March 2020 with COVID-19 and the lull carried into 2021, as the 34 schemes uncovered in 2021 marked a nearly 50% drop since just 2019 and was also the lowest number of schemes charged since 2008 - a time when Bernard Madoff was a respected Wall Street name. In addition to paralyzing or delaying regulatory investigations, the pandemic’s new normal also took its toll on sentences handed down to Ponzi schemers given the inability (at least initially) to schedule in-person sentencings. Just 22 sentences were handed down in 2020, with that number rising to 45 in 2021.

In total, 57 schemes were uncovered in 2022, meaning that a new scheme was uncovered about once every six days. This represented a nearly 70% jump from the 34 schemes discovered in 2021. Collectively, the 57 schemes represented an astounding $5.3 billion in investor funds - believed to be the highest number in the records kept by Ponzitracker in at least a decade. Indeed, the $5.3 billion in investor funds is over 500% higher than the $1 billion of investor funds caught up in 2020 Ponzi schemes. This was due to eight schemes involving at least $100 million in alleged losses - of which five of those schemes promised outsized returns linked to cryptocurrencies. Given the number of large schemes, the average scheme size was $94.1 million and the median size was $8.5 million. Roughly 40% of the 106 accused defendants called either Florida, Texas, New York, or California home, but 2022 also saw North Carolina have the third-highest number of citizens accused of a Ponzi scheme. One statistic that has remained remarkably consistent over the years? Men continued to make up nearly 90% of the accused Ponzi schemers.

The number of sentences handed down to convicted Ponzi schemers also continued to rise, with 54 sentences doled out in 2022 which marked a 20% increase from the 45 sentences in 2021. These 54 sentences collectively represented nearly 600 years in prison, with the average sentence coming out to just over 131 months. The longest sentence was handed down to Texas resident James Nix, who received a 48-year sentence for carrying out a $6 million Ponzi scheme.

Cryptocurrency - A Trend?

One interesting takeaway from the data was that over 25% of the uncovered Ponzi schemes had a significant nexus to cryptocurrencies, many of which touted purported high returns from digital asset trading. Perhaps unsurprisingly, these schemes were more likely to have a worldwide reach and accordingly involved significant sums of money. Indeed, despite comprising approximately 25% of the discovered schemes in 2022, the total investor funds at risk in those crypto-related schemes was nearly $3 billion - over half of the total $5 billion for the 57 schemes busted in 2022. Given the swoon in cryptocurrency prices that began in mid-2022 as well as the continuing regulatory scrutiny, it may not be surprising to see this trend continue into 2023.

The database of alleged Ponzi scheme discoveries is below:

The database of Ponzi scheme sentences is below:

Ponzi Schemes Surged In First Half Of 2022

(As a disclaimer, these statistics are presented for educational purposes only, have not been independently verified, and were primarily compiled through articles on Ponzitracker and reporting on the internet by various sources including Kathy Phelps' monthly Ponzi roundups at ThePonziSchemeBlog.com. Individuals accused of Ponzi schemes are presumed innocent until proven guilty. These statistics generally only included Ponzi schemes of $1 million or more based in or directed at the United States. Please direct any comments or inquiries to inquiries@ponzitracker.com.)

In 2021, Ponzitracker’s data showed that the number of Ponzi schemes uncovered that year (as well as the sentences handed down to convicted fraudsters) had reached a 13-year low, which was nearly 50% lower than the number of schemes busted in 2019. This decline would have perhaps been more welcomed (and believable) had it not been at least partially attributable to a multi-year worldwide pandemic, and I suggested that “a return to normalcy in 2022 may very well threaten to upend this two-year decline.” With data now available for the first half of 2022, that prognostication appears to have come to fruition. According to Ponzitracker’s analysis, authorities uncovered 26 Ponzi schemes in the first half of 2022 - approximately 80% of the total schemes that were uncovered during the entire year in 2021. Similarly, at least 31 prison sentences were handed down to convicted Ponzi schemers - nearly double the 18 sentences handed down during the same six-month period in 2021. As the world appears to cautiously emerge from the pandemic and attempt to return to a normal pace of life, it remains to be seen whether these figures suggest that regulators may have their hands full for the near future.

2022 Ponzi Scheme Discoveries and Sentences

2021 was one of the slowest years for Ponzi scheme discoveries and sentences since Ponzitracker began compiling data from as far back as 2008. This slowdown was arguably significantly attributable to the continuing disruptions from COVID-19, which saw multiple variants continue to paralyze all facets of life during the year. However, although the number of schemes reached a 13-year low, there were ominous signs that trouble could be lurking such as the fact that the 34 schemes represented roughly $3.8 billion in investor funds - a massive increase from the $1 billion of alleged losses in 2020.

In the first six months of 2022, 26 schemes were uncovered, meaning that a new scheme was uncovered roughly once a week on average. These 26 schemes represented $3.2 billion in investor funds - which is just under the amount of total investor losses for all schemes uncovered in 2021 and itself a number that is magnitudes larger than any other six-month period after 2010. One of the main reasons for this large figure was that the first six months of 2022 included the discovery of five schemes with at least $100 million in alleged losses - including three schemes with alleged losses of $400 million or more and one scheme with alleged losses of $1.7 billion. As a result, the average scheme size during this period was over $124 million, while the median scheme size was $23.3 million. These figures are also at or near the highest on record for the last decade for a six-month period.

While Florida, New York, and California continued to play home to a significant amount of accused Ponzi schemers, North Carolina had an astonishing eight residents accused of involvement in a Ponzi scheme which amounted to nearly 20% of all accused during this time period. Those accused North Carolina residents were involved with six different alleged Ponzi schemes, amounting to nearly 30% of all of the schemes during the first half of 2021. One trend that has stayed remarkably consistent? Men continued to make up over 90% of the accused Ponzi schemers.

The number of sentences handed down to those convicted for their role in a Ponzi scheme also jumped, continuing a trend seen in 2021 after the number of sentences plummeted in 2020 as a result of widespread disruptions in the judicial system from COVID-19. During the first six months of 2022, at least 31 sentences were handed down totaling nearly 350 years of collective prison time. The longest sentence was handed down to Zachary Horowitz, the former Los Angeles actor who received a 20-year prison term for masterminding a $650 million Ponzi scheme that claimed to use investor money to acquire licensing rights to Netflix and HBO films.

Crypto On The Rise

One concerning trend seen from the data is that a number of allegedly fraudulent schemes busted during the first half of 2022 involved cryptocurrency assets. At least five different alleged schemes were related to or based on cryptocurrency assets, including actions involving allegedly fraudulent exchanges, mining platforms, trading, and investment funds (see here, here, here, here, and here). Regulators have devoted increasing scrutiny to cryptocurrency and digital assets, which have come under significant pressure as the total cryptocurrency market cap has tumbled from over $2 trillion in January 2022 to roughly $800 billion in November.

Will The Surge Continue?
It remains to be seen whether the surge in activity during the first six months of 2022 will continue for the remainder of the year, but the pace of regulatory enforcement proceedings seems to suggest that the total number of schemes uncovered during 2022 could reach the 60 schemes discovered in 2019 - which had marked the reversal of a multi-year downtrend. Authorities have been aided by the return to a (near) normal during a year that has not been as impacted by COVID-19 variants and interruptions. Further, as financial markets continue to gyrate amidst continued uncertainty about the global economy and the cryptocurrency world battles increasing volatility and headwinds, this increased volatility has historically often been followed by an increased incidence of Ponzi schemes.

The database of alleged Ponzi scheme discoveries and sentences is below:

Ponzi Schemes Hit A 13-Year Low In 2021, But Certain Takeaways Are Troubling

(As a disclaimer, these statistics are presented for educational purposes only, have not been independently verified, and were primarily compiled through articles on Ponzitracker and reporting on the internet by various sources including Kathy Phelps' monthly Ponzi roundups at ThePonziSchemeBlog.com. Individuals accused of Ponzi schemes are presumed innocent until proven guilty. These statistics generally only included Ponzi schemes of $1 million or more based in the United States. Please direct any comments or inquiries to inquiries@ponzitracker.com.)

According to data maintained by Ponzitracker, authorities uncovered 34 Ponzi schemes last year. This figure represents the lowest number of Ponzi schemes uncovered in a single year since at least 2008 - a time when Bernard Madoff was still a respected Wall Street icon. Although the data again represents a year-over-year drop from the 46 schemes uncovered in 2020 (and nearly half of the 60 schemes busted in 2019), some ominous takeaways from the data suggest that the news is not all positive. Moreover, as the world continued to grapple with multiple COVID-19 outbreaks during 2021, a return to normalcy in 2022 may very well threaten to upend this two-year decline.

2021 Ponzi Scheme Discoveries and Sentences

2019 had been a banner enforcement year for regulators, as at least 60 Ponzi schemes were uncovered that collectively involved more than $3 billion in investor funds. This momentum was shattered in 2020 with the onset and devastation of COVID-19, with the wheels of justice joining all other facets of life on the sideline. Yet, the second half of 2020 moved at a pace similar to 2019, and the question remained whether the trend would continue into 2021.

In total, 34 schemes were uncovered in 2021, meaning that a new scheme was uncovered about once every ten days. Collectively, the 34 schemes represented roughly $3.8 billion in investor funds - a massive increase from the $1 billion of alleged losses in 2020. This was due to six schemes involving at least $100 million in alleged losses - including three schemes with alleged losses of $500 million or more. Echoing the trend from 2020, the average scheme size in 2021 of $112 million was six times as large as the average scheme size of $21 million in 2020. Similarly, the median scheme size in 2021 was $12 million - nearly double the $7 million median scheme size in 2020. Of note, both the average and median scheme size figures in 2021 were the highest since 2010 (and eclipsed the $54.1 million average and $10.2 million median seen in 2019). More than half of the accused Ponzi schemers called Florida or California home, but 2020 also saw smaller states like Idaho, Rhode Island, and Wyoming serve as home to an individual accused of a Ponzi scheme. One statistic that has remained remarkably consistent even in 2021? Men continued to make up nearly 90% of the accused Ponzi schemers.

One expected development was that the number of sentences handed down to convicted Ponzi schemers saw a significant increase compared to 2020. Whereas only 22 sentences were handed down in 2020 as a result of widespread disruptions in the judicial system from COVID-19, 45 sentences were handed down in 2021 as a likely backlog of sentencings made its way through the system. The longest sentence was handed down to Jeff Carpoff, who received a 30-year term after his conviction for running a $1 billion solar Ponzi scheme. Two 25-year sentences were handed down, although the offenders received those sentences for operating a $2.8 million scheme and a $6 million scheme.

Will the trend reverse?

As I wrote at this time last year, it seemed that the year-over-year decline seen in 2020 was due to reverse given both the anticipated return to normal as well as the SEC’s issuance of a rare investor alert in December 2020 warning of “Investment Scam Complaints on the Rise.” However, COVID-19 again reared its ugly head in 2021 as different variants continued to disrupt all facets of life, and these constraints undoubtedly complicated efforts to detect and root out the schemes.

As the second half of 2022 approaches, the financial markets have been mired in their worst slump in years. Will the number of schemes continue to decline? Time will tell.

The database of alleged Ponzi scheme discoveries is below: