U.S. Attorney Announces Regional Results of Operation Broken Trust, Targeting Investment Fraud
Southern District of Florida Securities and Investment Fraud Initiative Created
|U.S. Attorney’s Office December 06, 2010|
Following an announcement earlier today by Attorney General Eric Holder in Washington, D.C., Wifredo Ferrer, U.S. Attorney for the Southern District of Florida; John V. Gillies, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office; Daniel W. Auer, Special Agent in Charge, Internal Revenue Service (IRS), Criminal Investigation Division; Michael K. Fithen, Special Agent in Charge, U.S. Secret Service (USSS); Henry Gutierrez, Postal Inspector in Charge, U.S. Postal Inspection Service; Anthony V. Mangione, Special Agent in Charge, U.S. Immigration and Customs Enforcement (ICE), Homeland Security Investigations, Miami Field Office; Jon T. Rymer, Inspector General, Federal Deposit Insurance Corporation, Office of Inspector General (FDIC-OIG); Eric I. Bustillo, Regional Director of the Securities and Exchange Commission (SEC); Daniel Kaufman, Acting Regional Director, Federal Trade Commission Southeast Region (FTC); Acting Director Vincent A. McGonagle, Division of Enforcement for the U.S. Commodity Futures Trading Commission (CFTC); J. Thomas Cardwell, Commissioner, State of Florida’s Office of Financial Regulation; and Miguel Exposito, Chief, City of Miami Police Department, announced the regional results of Operation Broken Trust, a nationwide operation that targeted investment fraud in the Southern District of Florida and throughout the country. Operation Broken Trust is the first nationwide operation of its kind to target a broad array of investment fraud schemes that directly prey upon the investing public.
The interagency Financial Fraud Enforcement Task Force was established in November 2009 to lead an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit www.StopFraud.gov.
Starting on Aug. 16, 2010, to date Operation Broken Trust has involved enforcement actions against 343 criminal defendants and 189 civil defendants for fraud schemes involving more than 120,000 victims throughout the country. The operation’s criminal cases involved more than $8.3 billion in estimated losses and the civil cases involved estimated losses of more than $2.1 billion.
In the Southern District of Florida, from August 16, 2010 to December 1, 2010, the combined interagency effort of the law enforcement agencies engaged in Operation Broken Trust has resulted in local charges against 21 defendants, 18 guilty pleas, nine sentencings, and one extradition from a foreign country for trial in the Southern District of Florida. Through the various schemes, which are summarized in the press release, these defendants caused losses or intended losses of approximately $424,734,000.
Operation Broken Trust focused on schemes to defraud individual investors. These schemes included Ponzi schemes, affinity fraud schemes, prime bank/high-yield investment scams, business opportunity fraud, promoter/micro-cap/“pump and dump”schemes, foreign exchange (FOREX) frauds, false bankruptcy petitions to avoid claims by victim-investors, and other fraudulent schemes that were either intended to or did defraud individual investors. Part of the goal of Operation Broken Trust is to alert the public to the prevalence of investment fraud schemes throughout the nation and highlight both the national and local law enforcement response.
“With this operation, the Financial Fraud Enforcement Task Force is sending a strong message,” said Attorney General Holder. “To the public: be alert for these frauds, take appropriate measures to protect yourself, and report such schemes to proper authorities when they occur. And to anyone operating or attempting to operate an investment scam: cheating investors out of their earnings and savings is no longer a safe business plan—we will use every tool at our disposal to find you, to stop you, and to bring you to justice.”
In addition, to directly address the rising number of investment and securities fraud schemes in the Southern District of Florida, the U.S. Attorney’s Office is announcing the creation of a South Florida Securities and Investment Fraud Initiative. Participating in this newly created initiative are the U.S. Attorney’s Office, Federal Bureau of Investigation, Internal Revenue Service, U.S. Secret Service, U.S. Postal Inspection Service, ICE Homeland Investigations, Securities and Exchange Commission, U.S. Commodity Futures Trading Commission, Federal Trade Commission, Federal Deposit Insurance Corporation, and the Florida Office of Financial Regulation. These law enforcement and regulatory agencies have come together to devote the resources necessary to combat securities and investment fraud in South Florida. Following the model of our Health Care Fraud and Mortgage Fraud initiatives, we expect that our Securities and Investment Fraud Initiative will lead to similar results.
U.S. Attorney Wifredo A. Ferrer stated, “Investors lose billions of dollars annually to fraudulent schemes. Some victims -- the luckier ones -- lose only thousands of dollars. Others lose their entire lives’ savings. While the victims of fraud are financially ruined, the fraudsters live a life of luxury. Together with our law enforcement and regulatory partners, we hope to help put an end to this type of fraud.”
FBI Special Agent in Charge John V. Gillies added “Today’s announcement sends a strong message to those committing fraud: No matter how elaborate or complex the scheme, you will get caught.”
Daniel W. Auer, Special Agent in Charge of the IRS’s Criminal Investigation Division said, “Illegal activity involving the investment industry has brought financial ruin to many. IRS Criminal Investigation will continue to follow the money trail to ensure that those who prey upon trusting investors and then steal their hard-earned money are vigorously investigated and brought to justice.”
Michael K. Fithen, Special Agent in Charge of the Miami Field Office of the U.S. Secret Service, stated, “This was a significant investigative effort that continues to evidence the prolific nature of this type of criminal activity. The Secret Service is proud to be involved in the successful investigation and prosecution of these types of fraud through continued partnership with the U.S. Attorney’s Office.”
U.S. Postal Inspector in Charge Henry Gutierrez stated “During these difficult economic times, fraudsters have become more aggressive. Their attacks on legitimate investors have been met with national law enforcement partnerships that strive to secure and protect our nation’s economy. This initiative demonstrates that those who engage in these illegal schemes will be pursued and prosecuted to the full extent of the law.”
“ICE Homeland Security Investigations remains committed to working with our law enforcement partners to aggressively investigate financial fraud crimes and target those individuals and organizations that exploit vulnerabilities in financial systems to launder illicit proceeds,” said ICE Homeland Security Investigations Special Agent in Charge Anthony Mangione. “Individuals and organizations that engage in the deception and financial exploitation of honest investors and financial institutions will be held accountable.”
“The Securities and Investment Fraud Initiative is certainly an idea whose time has come,” said Eric I. Bustillo, Director of the SEC's Miami Regional Office. “By combining the resources and capabilities of our federal and state partners, this Initiative will expand and strengthen our ability to combat securities and investment fraud schemes in South Florida.”
“As government agencies charged with enforcing the law and protecting consumers from fraud, we do some of our best work when we come together to give each other the benefit of our different areas of expertise and lean on each other for support, as illustrated in the cases highlighted today,” said Florida Office of Financial Regulation Commissioner J. Thomas Cardwell. “By formalizing and bringing this collaborative initiative to fruition, we will be better able to use each other strengths and resources more effectively to put fraudsters out of business and better protect our citizens from becoming victims of their cons and Ponzi schemes”
Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation, Office of Inspector General, said “The FDIC-OIG is pleased to join the United States Attorney’s Office for the Southern District of Florida and our law enforcement colleagues in announcing the formation of the South Florida Securities and Investment Fraud working group. The American people can be assured that their government agencies are working together to ensure integrity in the securities, investment, and financial services industries and that individuals and entities involved in misconduct will be pursued.”
“The results announced today demonstrate the effectiveness of federal civil and criminal law enforcement in bringing to justice those who have engaged in financial fraud schemes,” said Acting Director Vincent A. McGonagle of the Division of Enforcement for the CFTC. “The CFTC continues to devote substantial enforcement resources to combat financial fraud. We appreciate the partnership with the other members of the President's Financial Fraud Enforcement Task Force to protect the public from financial fraudsters.”
Daniel Kaufman, Acting Regional Director of the Federal Trade Commission Southeast Region, stated, “Since the downturn of the American economy, the Commission has witnessed the proliferation of investment scams. As the nation’s leading consumer protection agency, the Commission has longstanding enforcement experience with investment scams and, therefore, is pleased to join with its law enforcement partners on the Securities and Investment Fraud Initiative.”
Below is a summary of the Southern District of Florida’s securities and investment fraud prosecutions and case activity in connection with Operation Broken Trust and the newly announced initiative:
In U.S. v. Seth Lehrenbaum, 09-20871-Cr-JAL, Lehrenbaum was involved in two fraudulent business opportunity firms. Lehrenbaum and his co-conspirators sold vending machine and “table top shooter” game business opportunities, made fraudulent earnings claims and used phony references to induce consumers to purchase the opportunities. He committed these offenses while on release pending sentencing for his involvement in another unrelated business opportunity scam. On September 16, 2010, Seth Lehrenbaum was sentenced to 78 months in prison and ordered to pay more than $950,000 in restitution. The Court ordered this sentence to run consecutively with his sentence in the prior case.
In U.S. v. Donald Williams, 10-20154-Cr-MGC, Williams participated in a series of fraudulent business opportunity firms in which he and co-conspirators purported to sell vending machines, beverage and greeting card business opportunities, including assistance in establishing, maintaining and operating such businesses. Williams and his co-conspirators caused losses of nearly $4 million through their fraudulent scheme. On September 15, 2010, Williams was sentenced to 78 months in prison.
In U.S. v. Jose Wong and Steven Jockers, 10-20305-CR-JAL, Lewis B. Freeman misappropriated funds from fiduciary accounts for ten years by writing unauthorized checks to himself or to his company. Jockers and Wong were employees of Freeman and helped him to falsify court-required financial reports. It is estimated that Freeman misappropriated more than $6 million from fiduciary accounts he was responsible for safeguarding. Wong and Jockers both pled guilty. In September, Jockers was sentenced to 18 months of home confinement and Wong was sentenced to 24 months of home confinement for their respective roles in the Freeman scheme.
In U.S. v. Julio Camacho, 10-20350-Cr-DLG, Camacho was charged for his role as the lead salesman in a fraudulent business opportunity scheme. Camacho purported to sell vending machines and offered to assist in establishing and operating a vending machine business. Camacho and his co-conspirators made fraudulent earnings claims and used phony references to induce sales. On August 31, 2010, Camacho was sentenced to 24 months’ imprisonment and was ordered to pay more than $200,000 in restitution to victims of the scam.
In U.S. v. Luis Felipe Perez, 10-20411-Cr-PCH, from 2006 through mid-2009, Perez solicited funds from approximately 35 individuals in exchange for promissory notes or oral loan agreements, falsely informing investors they would be investing in his New York jewelry businesses or pawn shops, and promising annual returns of 24 percent to 120 percent. Instead, Perez created an unsustainable Ponzi scheme in which he used the monies collected from new investors to pay the returns promised to the earlier investors. Most of Perez’s investors never recovered their investments, but Perez himself made millions and lived a lavish lifestyle that included a multi-million dollar home, expensive cars, and international travel. The loss resulting from these fraudulent activities was approximately $37 million. Perez pled guilty on September 23, 2010 and was sentenced on December 2, 2010 to 121' months imprisonment.
In U.S. v. Andrew Levinson, et al., 10-60183-Cr-JIC, Levinson, Corina Guillott, Edward Perl, Alan Perl and Adriana Mirabal were charged in connection with a business opportunity sales fraud. Levinson was alleged to have been an owner and operator of Creative Concepts, which purported to sell Red Bull energy drink vending machines, along with assistance in establishing and operating a vending machine business. The firm made fraudulent earnings claims and promises of exclusive territories, and used phony references to induce sales of the “opportunity.” Guillott, Edward Perl, and Alan Perl are charged as being phony references for the company. Mirabal is charged for her role working in the office of Creative Concepts and recruiting a phony reference. On November 12, 2010 Corina Guillott pled guilty. Guillott is scheduled to be sentenced in Fort Lauderdale on February 25, 2011.
In U.S. v. Boyd Soussana, 10-60242-Cr-WPD, Soussana, an officer of The Estate Vault, Inc., was charged on September 16, 2010 with engaging in a scheme to manipulate the market for his company’s publicly traded common stock. The matter is scheduled for trial December 13, 2010.
In U.S. v. Michael Geraud, 10-80070-CR-WJZ, Geraud set up a boiler room company called Global Petroleum Strategies Management, “GPS,” which purportedly sold shares in an oil drilling company. He and his coconspirators solicited investors over the phone and a bogus web-site, which claimed to be an independent consumer awareness group. In fact, the website was controlled by GPS through Geraud. Between December 2007 through July 2008, investors paid $966,000 for interest in a dry oil well. Geraud falsely told investors that only 34 percent of their investment was for commissions and costs when Geraud knew that he would get 50 percent off the top. Geraud pled guilty on August 24, 2010 and was sentenced on November 2, 2010 to five years’ imprisonment.
In U.S. v. Bruce Palmer, 10-60252-CR-MGC, Palmer was an officer of a publicly traded company, and was engaged in a scheme to manipulate the publicly quoted share price and trading volume of Accesskey IP, Inc. resulting in a potential loss of $1,000,000. In November, the parties filed a notice to the court indicating Palmer was going to enter a guilty plea; a change of plea hearing is set for December 7, 2010.
In U.S. v. Tzemach David Netzer Korem and Jean R. Charbit, 10-20732-CR-UU, Korem, a transfer agent, and Charbit, a major shareholder, were charged with conspiring to manipulate the publicly quoted share price and trading volume of ZNext Mining Corp., Inc. The scheme resulted in an intended loss of $300,000. In November, both defendants pled guilty. Sentencing for Charbit is scheduled for January 14, 2011. Sentencing for Korem is scheduled for February 4, 2011.
In U.S. v. Larry Wilcox,10-60260-CR-JIC, Wilcox, of West Hills, California, was the CEO, owner and controller of millions of shares of publicly traded UCHB. He was charged with conspiring to pay kickbacks to a pension fund fiduciary to induce the fiduciary to misappropriate money from a pension fund in order to buy restricted common stock at inflated prices, resulting in an intended loss of $40,000. On November 5, 2010 he pled guilty. Sentencing is scheduled for January 28, 2011.
In U. S. v. Steven Humphries and John Buckeye Epstein,10-60259-CR-WPD, Humphries and Epstein, officers of a publicly traded company, were charged with engaging in a scheme to pay kickbacks to a pension fund fiduciary to induce the fiduciary to misappropriate money from a pension fund in order to buy restricted common stock at inflated prices, resulting in an intended loss of $40,000. On October 7, 2010, both defendants pled guilty. Epstein is scheduled for sentencing January 18, 2011. Humphries is scheduled for sentencing January 24, 2011.
In U.S. v. Kipness, 10-80163-Cr-KLR, Kipness was charged November 16, 2010 for his role as an independent sales agent in a large investment fraud scheme. He and his coconspirators raised approximately $18 million from unsuspecting investors by selling equity interests in 3001 AD, LLC, Trimersion, LLC, and numerous affiliated entities with similar names. Investors were induced to invest by false and misleading representations, giving the investors an unrealistic expectation of the profits. The parties filed a notice informing the court of Kipness’s intention to plead guilty. A change of plea hearing has been scheduled for December 8, 2010.
In U.S. v. Jeffrey Galpern, 10-60305-Cr-WJZ, Galpern was charged November 19, 2010 with engaging in a scheme to manipulate the publicly quoted share price and trading volume of Crystal Properties Holdings, Inc., of which he owned and controlled millions of shares in stock, which resulted in an intended loss of $250,000. The parties filed a notice informing the court of Galpern’s intention to plead guilty. The defendant’s change of plea hearing is scheduled for December 7, 2010.
In U.S. v. Anthony Mellone, 10-60290-Cr-JIC, Mellone, President and CEO of publicly traded TSHL was charged November 16, 2010 with engaging in a scheme to pay kickbacks to a pension fund fiduciary to induce the fiduciary to misappropriate money from a pension fund in order to buy restricted common stock at inflated prices, resulting in an intended loss of $120,000. The parties filed a notice informing the court of the Mellone’s intention to plead guilty. A change of plea hearing has not yet been scheduled.
In U.S. v. Alex Parsinia, 10-60293-Cr-KAM, Parsinia was charged November 16, 2010 for his participation in a pension fund kickback scheme of publicly traded ZCNW, in which he as President and CEO, and also owned and controlled millions of shares of its common stock. The case is pending.
In U.S. v. Antonio Garcia Adañez, 10-20845-Cr-MGC, an Information filed November 16, 2010 alleged Garcia-Adañez was employed at Standard Chartered Private Bank, formerly known as American Express International Bank, as a private banking relationship manager who managed investment accounts on behalf of a number of clients. In 2006 Garcia-Adañez sold a bank customer a fake bond for $2.7 million and used the proceeds from the sale to make a number of trades in the customer’s own investment account, all without the customer’s knowledge. He also sent the customer false account statements, which hid the false transactions and provided inflated account balances. The Information alleged the fraud resulted in $1.61 million in losses to the customer and the bank. The case is pending.
In U.S. v. Luis Ferreira and Breno Gomes, 10-60314-Cr-JIC, Ferreira and Gomes were charged on November 30, 2010, for their operation of three precious metals investment firms, Spyker Consulting, LLC, First National Capital Group, LLC, and a purported “clearing firm” for these companies by the name of World Clearing Corporation. The businesses allegedly engaged in sophisticated telemarketing from mid-2008 through the date of Indictment. Throughout that time, Ferreira was on supervised release in connection with a prior federal sentence and was being supervised by the U.S. Probation Office. In order to conceal Ferreira’s involvement in these firms, which was itself a violation of his supervised release terms, Ferreira and Gomes were alleged to have made numerous false statements to probation officers and convinced others to submit fraudulent affidavits to the Probation Office, as well as portraying Ferreira to outsiders through the use of numerous alias names. The case is pending.
In U.S. v. Scott Sand, 10-60257-CR-WPD, Sand, an officer of a publicly traded company, was charged with engaging in a scheme to pay kickbacks to a pension fund fiduciary to induce the fiduciary to misappropriate money from a pension fund in order to buy restricted common stock at inflated prices. Scott Sand pled guilty on December 2, 2010.
In U.S. v. Robert Nicol, 08-20953-Cr-PAS, Nicol was charged for his role as the owner-operator of Gold Star Vending, Inc., which sold “top shot shooter” machines. Nicol defrauded victims nationwide with fraudulent earnings claims about the profitability of operating a business using these machines and through the use of phony references. Nicol was indicted but placed on fugitive status by the Court in November 2008 because he fled to the Philippines prior to his indictment. On March 2010, Nicol was located and arrested in the Philippines. A series of appeals by Nicol delayed his deportation until October 11, 2010. He had his initial appearance in Miami on November 18, 2010. Six of Nicol’s coconspirators have already been convicted in this case.
In U.S. v. Ronnie Bass, 09-80129-KAM, according to the Indictment, from April 2008 through March 2009, Homepals Investment Club, LLC and its affiliates operated as a Ponzi scheme that promised investors a 90 percent -100 percentreturn in just 90 days. Although investors were often told that these high returns would be generated through securities trading, the perpetrators simply used new investors’ money to pay promised returns to existing investors. The conspirators, including Bass, raised more than $12 million from investors by selling unsecured notes issued by Homepals Investment Club LLC and Homepals, LLC. Investors were induced to invest with false and misleading representations. As a result of this fraudulent scheme, hundreds of investors lost approximately $3.9 million. Bass pled guilty October 25, 2010.
In U.S. v. Debra Villegas, 10- 60126-Cr-WJZ, former COO of the law firm of Rothstein, Rosenfeldt and Adler, was charged for her participation in the Rothstein billion dollar Ponzi investment scheme. In that scheme, the coconspirators sold purported confidential settlement agreements in sexual harassment and whistle blower cases that were supposedly handled by attorneys in the firm. Villagas assisted in the scheme by helping to fabricate names for fictitious plaintiffs and defendants and preparing false documents. Villegas pled guilty and was sentenced on October 8, 2010 to 120 months’ imprisonment and was ordered to pay $363 million in restitution.
In U.S. v. Pedro De Sousa and Guillermo Rosario, 10-20524-Cr-ASG , De Sousa and Rosario were charged in connection with their operation of businesses called FX Professional Solutions and FX Professional International Solutions. These businesses solicited investors with false claims including false statements about their experience in foreign currencies, their consistently high prior returns and their investing of funds in foreign currency markets. In reality, the defendants lost all their investors’ funds and concealed their fraud by paying old investor debts with new investor money, and created false account statements. On November 4, 2010, both defendants pled guilty. Their sentencing hearings are scheduled for February 4, 2011.
In U.S. v. Christopher Kertatos et. al., 10-80070-CR-KMM, Kertatos and his coconspirators were indicted October 7, 2010 for their involvement setting up a boiler room company called The Bullion Trading Group, “BTG”, which purportedly brokered and purchased precious metals for private investors. Kertatos and his coconspirators solicited investors over the phone and fax claiming that their investments would be used to purchase precious metals. The defendants created fraudulent offering documents that induced participation in the fraudulent investment scheme and made false representations that investor funds would be forwarded for purchases. As a result of these false representations, investors paid more than $1.3 million for precious metals that were never purchased. Trial is scheduled for January 3, 2011.
An Indictment or Information is merely an accusation and defendants are presumed innocent until proven guilty.
A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the United States District Court for the Southern District of Florida at www.flsd.uscourts.gov or http://pacer.flsd.uscourts.gov.