PonziScams.com Schemes & Due Diligence

On December 20 2007, Craig H. Reinhard and Debra Bzik, 48, of Allentown, Pennsylvania, pleaded guilty in Federal Court to one count of mail fraud and one count of making false statements to the Securities and Exchange Commission in connection with a Ponzi scheme that they had run for over 10 years that bilked investors out of several million dollars.

The scheme went into effect by August of 1994 and lasted through March, 2006.

The Allentown pair were co-owners of IDPM Group, Inc., a supposed benefit counseling service and insurance agency. Renheid told potential investors, many of whom were elderly, that they were investing in CDs that were federally insured as all CDs are. But the CDs did not even exist.

The pair took the money from new “investors” but, instead of investing it they paid earlier investors and with the substantial amount left over, they financed their own business and personal expense and paid for their children’s college education for their children.

They could see 25 years in jail and $500,000 in fines for their crime.

Travis E. Correll pleaded guilty Friday to multiple fraud charges related to a $100 million “Ponzi” scheme.

From late 2001 to December 2005, Correll operated an investment program known as “Horizon Establishment,” which offered high monthly rates of return to investors. Correll lied and said he would invest their principal in high-yield programs with foreign banks, which were regulated differently than United States financial institutions and could pay extraordinarily generous returns.

Correll promised investors a monthly return on their investments of between 4 percent and 8 percent, and ultimately he refunded their invested principal. In less than five years, he took in more than $100 million in investment money from private investors.

Almost from the beginning, Correll operated Horizon as a Ponzi scheme, using investment money received from later investors to pay substantial returns to some of the early investors. Federal investigators estimate Correll recirculated $71 million to investors, keeping about $29 million.

But the money was never invested with any foreign banks and Correll used much of the money for his own business and personal expenses.

Correll will be sentenced Feb. 6. He faces up to 20 years in federal prison and a maximum fine of $250,000.

“This defendant is yet another criminal who used a Ponzi scheme to scam millions from investors who thought they were making valid investments,” said U.S. Attorney David E. Nahmias. “We continue to warn potential investors to take every step to check out where their hard-earned money is going. Correll will now be going to federal prison.”

Atlanta Business Chronicle

Jury orders U.S. Bancorp to pay $17.6 million in Ponzi scheme
The Associated Press
Article Launched: 12/14/2007 12:02:22 PM PST

SANTA ANA, Calif.—A jury has ordered U.S. Bancorp to pay $17.6 million in a civil lawsuit brought by the trustee overseeing the bankruptcy of a company that defrauded investors out of $45 million.

The Orange Country Superior Court jury concluded last week that the bank should have known about fraudulent accounts that it opened for operators of Newport Beach-based DFJ Italia Ltd.

Seven people have pleaded guilty to federal charges stemming from the financial scam, which ran from 1996 to 2000.

The company promised annual returns of 24 percent, but investors’ money was instead directed to the people who ran the scam and to pay other investors. Among those who lost money in the scheme was former pro football star running back Eric Dickerson.

DJF Italia sought Chapter 7 bankruptcy protection in 2000.

Bankruptcy trustee Thomas H. Casey sued U.S. Bancorp, Wells Fargo Bank and City National Bank two years later, claiming the financial institutions aided and abetted DFJ Italia’s operatives by failing to discover their bogus bank accounts.

Wells Fargo Bank and City National Bank earlier reached settlements in the suit.

During last week’s trial, two of the men behind the scheme testified they had bribed employees of Minneapolis-based U.S. Bancorp and opened accounts at the company’s retail bank branches without proper documents.

U.S. Bancorp attorneys argued it shouldn’t be held responsible for the actions of criminals and urged jurors not to believe the scammers’ testimony.

The bank plans to appeal the jury’s verdict.

The Securities and Exchange Commission announced today that it filed a civil action in the United States District Court for the District of Colorado based on an ongoing fraudulent scheme operating under the names American Investors Network (“AIN”), Fairweather Management, and Access Funding. The Commission charged Jarrod W. McMillin, Laurence Young, Anne B. Liebermann, and Jason A. Kolakowski, all of whom live in the Denver area, and Innovative Projects, Inc., an Arkansas corporation controlled by McMillin, with conducting a “Ponzi” scheme by paying purported returns to early investors using money provided by later investors. The Commission charged all of the defendants with violating the antifraud and securities offering registration provisions of the federal securities laws. The Commission also charged each of the individual defendants with violating the broker-dealer registration provisions of the federal securities laws. On the Commission’s application, the Court issued a Temporary Restraining Order, Asset Freeze and Other Equitable Relief, and Order Setting Preliminary Injunction Hearing (“Order”).

In its Complaint, the Commission alleges that, from approximately February 2007 through the present, McMillin and Innovative, doing business as AIN, and Young, doing business as Fairweather and Access Funding, raised up to $2.9 million from investors. They solicited investors by misrepresenting that they would use invested funds to purchase advertising for a variety of products AIN and Fairweather purportedly sold. However, investor funds were not used to advertise or sell these products. According to the Complaint, McMillin and Young instead used investor money to pay other investors, pay commissions to salespeople, and for their personal expenses, among other things. The Commission alleges that Liebermann and Kolakowski acted as salespeople for the Ponzi scheme and, with McMillin and Young, continued to solicit and lull investors through November 2007. The Complaint also alleges that all of the defendants participated in unregistered offers and sales of securities, and that McMillin, Young, Liebermann, and Kolakowski acted as unregistered broker-dealers.

The Complaint claims that, based on this conduct, all of the defendants violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. The Complaint also claims that McMillin, Young, Liebermann, and Kolakowski violated Exchange Act Section 15(a). Among other things, the Court’s Order prohibits McMillin and Young, pending a hearing, from disposing of any assets and prohibits financial institutions holding these defendants’ assets from allowing any withdrawals. The Order also requires that the defendants notify the Court of each account they hold with a financial or brokerage institution.

http://www.sec.gov/litigation/litreleases/2007/lr20415.htm

Washington, D.C., Dec. 6, 2007 - The Securities and Exchange Commission today charged a former San Francisco-area stockbroker with securities fraud and regulatory violations in connection with his selling of confidential personal information about his customers — many of them elderly — as insurance sales “leads.”

In a complaint filed today in the U.S. District Court for the Northern District of California, the SEC alleged that from December 2002 through August 2005, former Castro Valley, Calif., stockbroker Sidney Mondschein reaped illegal profits by secretly selling the names and other confidential personal information of over 500 of his customers to six different insurance agents. According to the complaint, Mondschein sold this information as sales “leads” solely to enable insurance agents to solicit these customers, many of whom had already purchased fixed or equity-indexed annuity products, to buy additional annuity products.

The complaint alleges that Mondschein never disclosed to any of these customers that he intended to sell, and did sell, their confidential personal information to insurance agents, and further alleges that he affirmatively misled his clients as to the nature of his compensation arrangements and relationships with the various insurance agents. According to the complaint, virtually all of Mondschein’s customers were senior citizens.

Linda Thomsen, Director of the SEC’s Division of Enforcement, said, “This case is an example of our ongoing commitment to combat abusive and illegal conduct that targets senior citizens. We take seriously a broker’s duty to protect customers’ personal information and will not hesitate to take strong action when a broker exploits that information for his or her own gain — as allegedly happened here.”

Cheryl Scarboro, Associate Director in the Division of Enforcement, stated, “Today’s action is the Commission’s second enforcement action alleging violations of Regulation S-P, which requires brokerage firms to let customers know how their personal information will be used. Brokers have an obligation under this regulation not to reveal their customers’ personal information without giving their customers advance notice and an opportunity to opt out.”

The SEC complaint also alleges that:

* All of the “leads” that Mondschein sold were customers who previously used Mondschein to sell securities or other assets to fund the purchase of annuities. Thus, Mondschein believed that these leads presented marketing opportunities for new insurance agents to sell additional annuity products to the leads.

* The confidential personal information Mondschein sold to insurance agents included, at a minimum, the customer’s name, address, phone number, and in certain instances, the dollar amount the customer invested in a previous annuity, the insurance company that issued the previous annuity, the agent who sold the customer the previous annuity, and the date of the annuity sale.

* In exchange for the leads, the insurance agents compensated Mondschein on either a price-per-lead basis (ranging between $50 to $150 per lead) or, in at least two instances, by paying Mondschein a two percent kickback of the total amount that the lead invested in a new annuity.

* Mondschein further collected brokerage commissions from those leads who ultimately purchased new annuities and used Mondschein to sell securities to fund the purchases. In such cases, Mondschein reaped illegal profits on both ends of the round trip transactions.

* To facilitate this fraudulent scheme, Mondschein created a separate entity, called UNCI, Inc., to market insurance leads, collect leads fees, and participate in the commissions that those leads generated. In contravention of his broker-dealer firm’s policies, Mondschein never disclosed UNCI’s existence to his firm; nor did he comply with his obligation to disclose it on broker-dealer registration documents filed with the National Association of Securities Dealers.

* UNCI is named in the SEC’s complaint as Relief Defendant based on its receipt of Mondschein’s ill-gotten gains.

According to the complaint, over the course of his numerous years as a broker, Mondschein allegedly developed an extensive securities liquidation business that he marketed exclusively to insurance agents. Mondschein allegedly promised the insurance agents speedy transfer and liquidation services to help close more annuity sales. The insurance agents recommended to their clients that they use Mondschein, instead of their existing broker, to sell their securities. The complaint alleges that Mondschein collected substantial brokerage commissions and other fees for selling the securities of elderly persons to fund their annuity purchases.

The Commission’s complaint alleges that Mondschein committed securities fraud in violation of Section 10(b) of the Securities and Exchange Act of 1934 and Exchange Act Rule 10b-5. The complaint also alleges that Mondschein aided and abetted his broker-dealer firm’s violations of certain of the customer privacy provisions of the federal securities laws, namely Rules 4(a), 5(a), and 10(a)(1) of Regulation S-P. The Commission’s complaint seeks a judgment permanently enjoining Mondschein from violating these provisions of the securities laws, and ordering Mondschein to pay civil penalties and provide an accounting of, and disgorge, his ill-gotten gains with prejudgment interest. The Commission also seeks a judgment that Relief Defendant UNCI is in possession of illegally obtained funds to which it has no legitimate claim.

The Commission is committed to protecting older Americans from investment fraud, and has prioritized this initiative in its examination, enforcement and investor education programs. In addition to this case, the SEC has brought more that 40 enforcement actions in the last two years against frauds targeting retirees and other older investors. In September 2007, the SEC held its second annual Seniors Summit, where the SEC joined with state regulators and others to examine how to best protect older Americans from investment fraud. A webcast of the Sept. 10, 2007, event is available at http://www.sec.gov/news/otherwebcasts.shtml. Materials related to the Seniors Summit are located at: http://www.sec.gov/spotlight/seniors/seniors_summit.htm.

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For more information, contact:

Cheryl Scarboro
Associate Director, SEC’s Division of Enforcement
(202) 551-4403

Additional materials: Litigation Release No. 20386

http://www.sec.gov/news/press/2007/2007-254.htm

Washington, D.C., Dec. 7, 2007 - The U.S. Securities and Exchange Commission announced today that it filed civil actions alleging securities fraud in five separate kickback schemes uncovered by an FBI sting operation conducted pursuant to a recent cooperation agreement between the FBI and the Commission.

The defendants are insiders or promoters of publicly traded companies who made stock sales to a hedge fund in exchange for illegal kickbacks to an individual whom they believed to be the hedge fund manager, but who was in reality an undercover FBI agent. In related criminal prosecutions, the United States Attorney’s Office for the Southern District of Florida today announced the criminal indictments of 6 individuals involved in the schemes.

“This case illustrates the Commission’s ability to work together with criminal authorities in creative ways to uncover fraudulent schemes and to protect our markets,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement.

David Nelson, Director of the Commission’s Miami Regional Office, added, “The Commission will continue to target corrupt practices in the securities industry in South Florida, and provide resources where necessary to ensure that those who engage in illegal schemes will be found and prosecuted. Our office worked closely with the criminal authorities and provided information and technical assistance throughout the FBI sting operation in order to minimize harm to innocent investors.”

The SEC charged a total of 10 individuals, who reside in South Florida, New York, California, and Nevada, with securities fraud: Vincent Cammarata, Rex A. Morden, Affinity Financial Group, Inc., William L. Haynes, Efrim Gjonbalaj, Real Asset Management LLC, Mark Foglia, Western Financial Services, Inc., Virgil G. Williams, and Sean P. Sheehan. According to the SEC’s complaints, which were filed in the United States District Court for the Southern District of Florida, the five schemes involved sales of securities in publicly traded companies to a purported hedge fund. To make the sales, the defendants agreed to pay kickbacks to the individual managing the hedge fund. In fact, there was no hedge fund and the purported manager was an undercover FBI agent in the sting operation.

The Commission’s complaints allege that, in each case, the undercover FBI agent purporting to be a hedge fund manager told the seller or promoter that the kickback had to be kept secret, because buying stock in exchange for kickbacks would violate his fiduciary obligations to the hedge fund. The FBI agent also told the seller or promoter that he had created a phony consulting company to which the kickback could be paid pursuant to a consulting agreement. The sellers or promoters were told that the consulting entity did not exist, that no actual consulting work would be performed, and that the phony consulting arrangement was simply a means to secretly funnel a kickback to the purported hedge fund manager. All of the defendants agreed to pay a kickback. With one exception, the defendants actually paid the promised kickback after the hedge fund bought the stock defendants were promoting. Every buy transaction had a material effect on the stock trading volume of the companies in question.

The complaints allege that all of the defendants violated the antifraud provisions of the federal securities laws, specifically, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to permanent injunctions, the Commission is seeking an order that defendants Cammarata and Haynes disgorge ill-gotten gains, with prejudgment interest, and an order imposing civil money penalties on all defendants. The Commission is also seeking an officer and director bar against Williams and penny stock bars against all the individual defendants.

Haynes was previously enjoined from further violations of the antifraud and registration provisions of the federal securities laws following his participation in a $7 million offering fraud. See SEC v. Global Asset Partners, Ltd., Case No. 01-8862-CIV-Middlebrooks (S.D. Fla.), LR-17173. In addition, Haynes was previously barred from associating with a broker-dealer based on the entry of the permanent injunction. See In the Matter of William L. Haynes, Exchange Act Release No. 34-45820 (April 25, 2002).

The Commission acknowledges the substantial assistance and cooperation of the United States Attorney’s Office for the Southern District of Florida and the Federal Bureau of Investigation, West Palm Beach division, in investigating this matter. The Commission’s investigation is ongoing.

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For further information, contact:

David Nelson
Regional Director
(305) 982-6332
SEC’s Miami Regional Office

Teresa J. Verges
Assistant Regional Director
(305) 982-6384
SEC’s Miami Regional Office

Additional materials: Litigation Release No. 20390

http://www.sec.gov/news/press/2007/2007-256.htm

FORMER UNITED HEALTH GROUP CEO/CHAIRMAN SETTLES STOCK OPTIONS BACKDATING CASE FOR $468 MILLION
Settlement is Largest to Date in an Options Backdating Case

The Securities and Exchange Commission today announced a record $468 million settled enforcement action in an options backdating case against William W. McGuire, M.D., the former Chief Executive Officer and Chairman of the Board of UnitedHealth Group Inc. The settlement is the first with an individual under the “clawback” provision (Section 304) of the Sarbanes-Oxley Act to deprive corporate executives of their stock sale profits and bonuses earned while their companies were misleading investors.

The Commission’s complaint alleges that during a 12-year period, McGuire repeatedly caused the company to grant undisclosed, in-the-money stock options to himself and other UnitedHealth officers and employees without recording in the company’s books and disclosing to shareholders material amounts of compensation expenses as required by applicable accounting rules. Without admitting or denying the SEC’s charges, McGuire agreed to a $468 million settlement that includes a $7 million civil penalty and reimbursement to the Minneapolis-based health care company for all incentive- and equity-based compensation he received from 2003 through 2006.

The Commission’s complaint alleges that from at least 1994 through 2005, McGuire looked back over a window of time and picked grant dates for UnitedHealth options that coincided with dates of historically low quarterly closing prices for the company’s common stock, resulting in grants of in-the-money options. According to the complaint, McGuire signed and approved backdated documents falsely indicating that the options had actually been granted on these earlier dates when UnitedHealth’s stock price was at or near these low points. These inaccurate documents caused the company to understate compensation expenses for stock options, and were routinely provided to the company’s external auditors in connection with their audits and reviews of UnitedHealth’s financial statements.

According to the SEC’s complaint, UnitedHealth filed with the Commission quarterly and annual reports, proxy statements, and registration statements that McGuire knew, or was reckless in not knowing, contained materially false and misleading statements concerning the true grant dates and proper exercise prices of stock options. Because of McGuire’s misconduct, investors were misled to believe that stock options were granted with strike prices not less than the fair market value of UnitedHealth’s stock on the date of grant and in accordance with the terms of the company’s stock option plans. In March 2007, UnitedHealth restated its financial statements for each year from 1994 through 2005, and disclosed material cumulative pre-tax errors in stock-based compensation accounting that totaled $1.526 billion for that period.

The Commission’s complaint further alleges that from 1994 through 2005, McGuire personally received more than 44 million split-adjusted UnitedHealth options, most or all of which were backdated. McGuire exercised and sold more than 11 million of these backdated options for an in-the-money gain of more than $6 million. McGuire also received nearly $5 million of incentive-based cash bonuses in 2005 and 2006 tied to earnings per share targets that UnitedHealth would not have achieved under financial statements restated due to errors in stock-based compensation accounting.

Without admitting or denying the allegations of the Commission’s complaint, McGuire consented to the entry of an order permanently enjoining him from violating or aiding and abetting violations of the antifraud, reporting, record-keeping, internal controls, proxy statement, certification, and securities ownership reporting provisions of the federal securities laws, and barring him from serving as an officer or director of a public company for a period of 10 years. McGuire will (i) disgorge ill-gotten gains of $10,997,596 with $1,697,492 in prejudgment interest, (ii) pay a $7 million civil penalty, and (iii) pursuant to Section 304 of the Sarbanes-Oxley Act, reimburse UnitedHealth for all incentive- and equity-based compensation he received from 2003 through 2006, totaling approximately $448 million in cash bonuses, profits from the exercise and sale of UnitedHealth stock, and unexercised UnitedHealth options.

Under the terms of the settlement, McGuire’s disgorgement plus prejudgment interest and his Section 304 reimbursement would be deemed satisfied by his return to UnitedHealth of approximately $600 million in cash and UnitedHealth options pursuant to the terms of his separate settlement with the company, also announced today, resolving employment claims and shareholder derivative lawsuits filed against McGuire in state and federal courts in Minnesota. McGuire’s settlement with the SEC is subject to the approval of the U.S. District Court for the District of Minnesota.

The Commission acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York and the U.S. Postal Inspection Service. The Commission’s investigation is continuing.

SEC Complaint in this matter

http://www.sec.gov/litigation/litreleases/2007/lr20387.htm