North Carolina Man Sentenced to Fifty Years in Prison for $40 Million Ponzi Scheme

A federal judge sentenced a North Carolina man to fifty years in prison for what prosecutors called "the worst financial crime in this district in memory."  Keith Simmons, 47, received the sentence after being convicted of one count of securities fraud, one count of wire fraud and two counts of money laundering in December 2010.  In delivering the sentence, which was the term sought by prosecutors, United States District Court Judge Robert Conrad labeled the case the most damaging financial crime he had presided over.  

Simmons was the mastermind of a foreign currency ("forex") trading operation known as Black Diamond.  Through a network of co-conspirators and feeder funds, Simmons solicited investors beginning in 2007 for the purported purpose of engaging in forex trading through a Black Diamond trading platform that had been highly successful.  Potential investors were told that average returns exceeded four percent per month, and that their investment was safe as no more than 20% of invested funds would be at risk at any time.  Additionally, Simmons is said to have quoted Bible verses and stressed his devout Christianity to induce people into investing with Black Diamond.  In total, approximately 240 investors contributed at least $35 million to the scheme.  These investors received monthly account statements that made it appear as if investors' accounts were enjoying steady growth.

However, rather than conducting any forex trading, Simmons and several co-conspirators misappropriated millions of dollars for personal and business expenses.  This included funding a lavish lifestyle of money, sex, and wealth for Simmons, who prosecutors alleged paid women for sex and furnished "lavish love condominiums" with investor funds.  Additionally, approximately $18 million was returned to investors in the form of fictitious monthly returns.  

After monthly interest payments ceased in March 2009, Simmons was arrested by the FBI in December 2009. Several of Simmons' co-conspirators have also been arrested or pled guilty.  One of his co-conspirators, Brian Coats, pled guilty in October 2011 to one count of conspiracy to commit fraud and one count of money laundering conspiracy.  Coats is awaiting sentencing and faces up to fifteen years in federal prison.  Additionally, Deanna R. Salazar, 53, was also sentenced on Wednesday, receiving a fifty-four month sentence from Judge Conrad and ordered to pay $5,112,687 in restitution.  She pled guilty in December 2010 to conspiracy to commit securities, commodities and wire fraud and tax fraud.   

The case was also significant in that the bank used by Simmons to perpetuate the scheme, CommunityONE Bank, N.A., was criminally charged over its lack of an effective anti-money laundering program.  The bank entered into a deferred prosecution agreement ("DPA") with the government, under which the bank, after paying $400,000 in restitution to the victims of Simmons' scheme, will be able to have the criminal charges dismissed after two years.  According to U.S. Attorney Anne Tompkins,

This bank’s failure to detect and report a ponzi scheme cost it 16 percent of its value.  Other financial institutions should heed this warning:  the Bank Secrecy Act applies to more than just drug and terrorist financing.”

CommunityONE Bank is not the only bank to suffer financially after failing to detect a Ponzi scheme.  In January 2012, a federal jury awarded $67 million to victims of Scott Rothstein's $1.4 billion Ponzi scheme, finding that the bank ignored clear signs of Rothstein's scheme and facilitated its existence.  Rothstein was also sentenced to fifty years in prison for masterminding his scheme.  

The government's sentencing memorandum is here.

Rothstein Trustee Files Clawbacks Seeking Funds Spent on Jewelry and Cars

Herbert Stettin, the bankruptcy trustee appointed to recover assets for the benefit of victims defrauded by Scott Rothstein's $1.4 billion Ponzi scheme, filed several more clawback suits seeking the return of funds spent by Rothstein on expensive jewelry and exotic automobiles.  The clawback suits, known in bankruptcy parlance as preference actions, seek the return of funds transferred from Rothstein prior to the filing of the petition putting Rothstein's law firm, Rothstein Rosenfeldt Adler, P.A. ("RRA") into bankruptcy.  

Stettin is proceeding under the Florida Uniform Fraudulent Transfer Act ("FUFTA") and the Bankruptcy Code, which allow avoidance of preferential transfers made with actual intent to defraud or that were constructively fraudulent and thus made without reasonably equivalent value.  While bankruptcy laws provide for the avoidance of these transfers within two years of the bankruptcy petition filing date, its FUFTA counterparts extend this "lookback" period to four years from the filing date.  The latest round of clawbacks seek over $10 million from the following six entities:

• Levinson Jewelers - $9.8 million
• Braman Motors of Miami - $1.5 million sought;
• Recovery Racing, LLC - $560,000 sought;
• Euro Motorcars - $177,000 sought;
• Thunder Cycle - $69,000 sought; and 
• Muhammed Sohail's Ultimate Cigars - $57,500 sought

The majority of funds sought relate to Rothstein's affinity for expensive jewelry and cars.  Stettin is seeking the return of nearly $10 million from Levinson Jewelers, whose owners were allegedly close friends with Rothstein.Stettin is also seeking the return of funds from Braman Motors used to purchase a 2009 Bugatti Veyron, which was sold at auction last year for nearly $900,000.  

Rothstein is currently serving a 50-year sentence in federal prison.  

The suits filed by Stettin can be found here.

Rothstein Trustee Files Clawback Actions Against Miami Heat and Florida Panthers

The court-appointed trustee overseeing the liquidation of Scott Rothstein's $1 billion Ponzi scheme recently filed a flurry of preference actions (also known as clawback lawsuits) whose targets included the Miami Heat and Florida Panthers from which nearly $200,000 is sought.  Herbert Stettin, the bankruptcy trustee, filed the suits last week, seeking $156,000 from the Miami Heat and $31,250 from the Florida Panthers.  Stettin filed twenty clawback suits last week alone as he scrambles to comply with Section 546(a)  of the Bankruptcy Code, which requires that all preference actions to be filed within two years of the bankruptcy petition filing date (the "Filing Date").  Rothstein's former law firm, Rothstein Rosenfeldt Adler, P.A. ("RRA"), was placed in involuntary bankruptcy by several creditors on November 10, 2009.

In the clawback suits, Stettin seeks the return of funds transferred from RRA within the 90 days prior to the Filing Date.  Codified in Section 547 of the Bankruptcy Code, the Preferential Payment Rule, as it is known to some, requires a creditor to return funds paid to satisfy existing debts by a debtor who files bankruptcy within ninety days of that transfer.  The ninety-day period is extended to one year in the case of creditors who qualify as an insider.  Several exceptions exist, including when the transfer is made contemporaneously for "new value," or in the course of ordinary business.  

The suits filed by Stettin against the Miami Heat and Florida Panthers (the "Teams") are largely "cookie-cutter" complaints that simply recite the elements required under Section 547 and fail to specify the exact nature of the transfers.  Along with requesting the return of the transfers, Stettin also seeks permission to disallow any claims held by the Teams until the transfers are returned to the bankruptcy estate.

A copy of the Miami Heat complaint is here.

A copy of the Florida Panthers complaint is here.

A copy of the RRA involuntary bankruptcy petition is here.

Rothstein Associate Receives Five Years in Prison

A South Florida judge handed down a five-year prison sentence to a man authorities say aided Scott Rothsein's massive $1.2 billion Ponzi scheme by posing as a banker, journalist, and fake plaintiff in a lawsuit.  Stephen Caputi, 53, received the sentence after previously pleading guilty to one charge of conspiracy to commit wire fraud. Caputi is the third person to be sentenced to prison for his role in Rothstein's fraud. 

According to authorities, Caputi played several roles in efforts to help convince Rothstein investors that their funds were safe.  This included posing as a TD Bank executive and providing investors with false account statements portraying steadily growing holdings.  Caputi also pretended to be a journalist with the Wall Street Journal and a plaintiff in a fake lawsuit.  Rothstein and Caputi were also business partners in a Pembroke Pines nightclub, Cafe Iguanas.

Rothstein is currently serving a 50-year prison sentence for orchestrating the scheme.