U.S. Attorney, Other Officials Announce Results of Operation Broken Trust, Targeting Investment Fraud
More Than $56 Million Stolen; New Task Force Will Target Financial Industry Crimes
|U.S. Attorney’s Office December 06, 2010|
Following an announcement earlier today by U.S. Attorney General Eric Holder and other federal officials in Washington, D.C., U.S. Attorney David B. Fein, joined by several federal, state and local officials, announced the local results of Operation Broken Trust, an operation that has targeted investment fraud in the District of Connecticut and around the country.
As part of today’s announcement, U.S. Attorney Fein also announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force, an unprecedented partnership to investigate and prosecute financial crimes.
Operation Broken Trust is the first nationwide operation to target a broad array of investment fraud schemes that directly prey upon the investing public. Since August 16, 2010, the operation 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 District of Connecticut, Operation Broken Trust has resulted in eight prosecutions against 11 defendants who have defrauded, or are alleged to have defrauded, investors through phony investment schemes or by stealing from their investment accounts. It is alleged that these various fraud schemes have resulted in the theft more than $56 million from more than 200 investors.
“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.”
“Many of the victims of these fraud schemes are particularly vulnerable—retired, elderly, widowed—individuals who simply wanted their hard-earned money to be managed safely so that they could live their lives with a sense of financial security,” said U.S. Attorney Fein. “That’s why it’s important that we investigate aggressively and prosecute effectively these types of crimes: To hold wrongdoers accountable, to provide justice, and to seek and where possible obtain restitution for these victims.”
U.S. Attorney Fein specifically acknowledged the investigative efforts of the Federal Bureau of Investigation, the Internal Revenue Service - Criminal Investigation, the Chief State’s Attorney’s Office and the Connecticut State Police for investigating the fraud schemes targeted during Operation Broken Trust.
Noting that he has made the investigation and prosecution of investment-related crimes a top priority of the U.S. Attorney’s Office for the District of Connecticut, U.S. Attorney Fein also announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force. The Task Force, which has been designed to be an investigative component of the President’s Financial Fraud Task Force, brings together an unprecedented partnership of criminal investigators and prosecutors and civil regulators to target misconduct on the part of individuals and businesses involved in financial fraud schemes in Connecticut and across the nation.
The Connecticut Securities, Commodities and Investor Fraud Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service - Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; U.S. Securities and Exchange Commission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich Police Department and Stamford Police Department.
The Task Force is actively investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. Each Task Force participant brings an expertise to the Task Force, and members will conduct parallel investigations and share information as necessary so that all Task Force members may benefit from the different tools and resources each agency can provide.
“Clearly, there is a need for vigorous securities fraud investigation and enforcement, now more than ever,” said U.S. Attorney Fein. “Criminal activity around our capital markets has increased, and mortgage fraud, investor fraud, securities fraud and corporate fraud schemes have devastated honest investors and eroded public confidence in the capital markets. The Connecticut U.S. Attorney’s Office has been hard at work building an effective partnership to address fraud in the marketplace, and I am proud to announce the formation of this task force.”
U.S. Attorney Fein noted that Connecticut is a global hub of banking, finance and securities activity, and is the home of approximately 25 billion dollar hedge funds, all of which are based in Fairfield County.
“Investor confidence is integral to this nation’s economic recovery and relies upon the integrity of the financial institutions entrusted with investors’ hard-earned funds,” said FBI Special Agent in Charge Kimberly K. Mertz. “The Connecticut Securities, Commodities and Investor Fraud Task Force represents a unique partnership between Connecticut's federal, state, and local law enforcement, and state and national regulatory agencies, that has been formed to ensure that those working in the financial services arena do not violate investors’ trust through criminal practices. The FBI is proud to be a member of this dedicated group and is committed to contributing to its anticipated success.”
The FBI encouraged citizens to report any financial fraud schemes by calling, toll free, 855-236-9740, or by sending an e-mail to firstname.lastname@example.org.
“The Criminal Division is pleased to be a partner in the Connecticut Securities, Commodities and Investor Fraud Task Force, and to work hand-in-hand with U.S. Attorneys’ Offices around the country in our collective effort to combat financial fraud,” said Assistant Attorney General Lanny A. Breuer of the Department of Justice’s Criminal Division.” As Operation Broken Trust shows, together our prosecutors and agents are working tirelessly to root out deceptive fraud schemes and hold their perpetrators accountable.”
“The Antitrust Division is committed to prosecuting bid rigging and price fixing in the financial markets industry,” said Christine Varney, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “We applaud U.S. Attorney Fein for creating the Connecticut Securities, Commodities and Investor Fraud Task Force and we look forward to partnering with our law enforcement colleagues to provide our antitrust expertise to the task force.”
“The Task Force announced today underscores the fact that in law enforcement, the whole is greater than the sum of its parts,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “We join U.S. Attorney David Fein and our state and federal colleagues in recognizing that by coming together in a coordinated manner, we will arm ourselves with greater resources, expertise, investigative tools and penalties in the fight against investor fraud.”
“When the United States Government bailed out Wall Street through the Troubled Asset Relief Program, it often did so through funding the purchase of securities, including preferred shares of stock in financial institutions and a variety of asset and mortgage backed bonds,” said Neil Barofsky, Special Inspector General for the Troubled Asset Relief Program. “As the law enforcement entity created to police the TARP program, SIGTARP is proud to join the Connecticut Securities, Commodities and Investor Fraud Task Force to investigate and prosecute those who engage in fraud in connection with the purchase and sale of securities, and we look forward to continue our work with our fellow Task Force members to bring to justice anyone who seeks to criminally profit from the national crisis that TARP was intended to address.”
“Illegal activity involving the investment industry has brought financial ruin to many Americans,” said William P. Offord, Special Agent in Charge, IRS Criminal Investigation. “IRS Criminal Investigation is proud to bring our forensic accounting skills to this joint venture to put a stop to this and other types of white collar fraud.”
“The U.S. Postal Inspection Service welcomes the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force,” said Robert Bethel, Inspector in Charge of the U.S. Postal Inspection Service in New England. “This partnership presents a tremendous opportunity to share information and resources among criminal investigators and civil regulators to investigate, prosecute and deter mail fraud and other financial related crimes perpetrated against our citizens.”
“The State of Connecticut Division of Criminal Justice welcomes and applauds this collaborative effort, which will better protect the public from financial crime and assist law enforcement agencies at all levels of government as we are called upon to do more with fewer resources,” said Chief State’s Attorney Kevin T. Kane.
“The Greenwich Police Department is happy to provide logistical and material support to the Task Force and we look forward to a productive partnership in attacking financial fraud,” said Greenwich Police Chief David C. Ridberg.
The President’s 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, please visit www.StopFraud.gov.
Operation Broken Trust Prosecutions
Operation Broken Trust in Connecticut involved eight separate investor fraud schemes. As to the defendants who are awaiting trial, U.S. Attorney Fein stressed that the charges are not evidence of guilt. The charges are only allegations, and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt.
US v. Goldberg
On September 13, MICHAEL S. GOLDBERG waived his right to indictment and pleaded guilty to three counts of wire fraud stemming from his operation of a $100 million “Ponzi” scheme that defrauded investors of more than $30 million over an approximately 12-year period.
Goldberg’s scheme to defraud investors involved principally two different types of misrepresentations. First, he solicited money from investors purportedly to purchase diamonds at extremely low prices from vendors in New York City and then to resell those diamonds immediately at a substantial profit. He represented that the profits from the resale of the diamonds would enable him to pay investors a 20 to 25 percent return on investment every 60 to 90 days.
The vast majority of Goldberg’s fraud, however, involved his solicitation of individuals and organizations to invest money in the purchase of distressed assets from JP Morgan Chase Bank (“Chase”). Goldberg falsely represented to potential investors in these “Chase asset deals” that Chase had granted him a contractual right to purchase foreclosed and seized business assets from a Chase Foreclosure Manifest, which he would then resell in prearranged transactions to large, well-known corporations. Goldberg represented that his purchase and resale of these foreclosed assets would enable him to pay investors a return on capital of up to 20 percent in a short period of time, typically 90 days. In addition, he represented that Chase would refund the purchase price of any asset that could not be resold, and that therefore there was no risk to the investor that any principal investment would be lost.
When he pleaded guilty, Goldberg admitted that every one of his representations was false. Goldberg admitted that, aside from a brief period in 1997, he did not purchase diamonds in New York City or any other location, have any relationship with Chase, purchase any foreclosed and seized assets from Chase, and resell any foreclosed or seized assets. Goldberg paid the promised returns to existing investors with funds he received from new investors or reinvested funds. Goldberg also created false documents and other items to induce investors to believe that his business relationships were legitimate.
This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney David E. Novick.
US v. LaSaracina
On October 20, FELIX ROBERT LaSARACINA of Norwich was arrested on a federal criminal complaint charging him with mail fraud, wire fraud and money laundering offenses stemming from an alleged scheme to defraud several investors. The complaint alleges that LaSaracina, a certified public accountant, devised and executed a scheme to defraud victim investors by using investment funds that were entrusted to him to pay personal and business expenses. LaSaracina also allegedly used some funds from recent investors to make “lulling payments” to earlier victims of his scheme.
This matter is being investigated by the Federal Bureau of Investigation, the Internal Revenue Service – Criminal Investigation, and the State of Connecticut’s Office of the Chief State’s Attorney. The case is being prosecuted by Assistant United States Attorneys Nora R. Dannehy and Michael S. McGarry.
US v. Garcia
On November 4, CARLOS GARCIA of Guilford waived his right to indictment and pleaded guilty to mail fraud, wire fraud and tax evasion charges stemming from a $2 million investment scheme. From at least as early as 2002 until 2009, Garcia purported to be an investment advisor/hedge fund manager, selling shares in “Paramount Equity Partners, LLC,” an investment vehicle that he represented would be used to invest client funds. Garcia directed certain clients to cash out their stock holdings or other investments, obtain surrender checks by mail, and endorse the checks over to “Garcia Capital Management, LLC,” an entity that Garcia controlled. Garcia then deposited the surrender checks into the Garcia Capital Management, LLC bank account. Garcia directed other clients to wire transfer money directly into the bank account for Paramount Equity Partners, LLC, and he then transferred those funds into the Garcia Capital Management, LLC bank account.
Instead of investing the funds as promised, Garcia used clients’ money to pay for personal expenses for himself and his family, and to make “lulling” payments to clients. Through this scheme, Garcia victimized at least 10 people and caused a net loss to his victims of more than $2 million.
Garcia also willfully evaded the payment of income taxes for the tax years 2005, 2006, 2007 and 2008, resulting in a tax loss to the government of $38,145.
This matter was investigated by the Internal Revenue Service – Criminal Investigation and the Federal Bureau of Investigation. The case is being prosecuted by Assistant United States Attorney Susan L. Wines.
US v. Rivernider, Ponte and Seneca
On November 4, a federal grand jury sitting in New Haven returned a 20-count indictment charging ROBERT RIVERNIDER of Wellington, Florida, ROBERT PONTE, of Stonington and LORETTA SENECA of Boynton Beach, Florida, with various offenses stemming from two separate investment fraud schemes.
The indictment alleges that Rivernider and Ponte conspired to defraud several victim investors by misrepresenting that the investors’ monies would be invested in legitimate, high-return investments. As part of the conspiracy, the defendants used the Internet and other means to market a debt payment program typically called “No More Bills” through The Hudson Group, an entity that Ponte established. With the “No More Bills” program, Rivernider and Ponte sought victim investors to invest monies with them, funds that typically the victim investors would raise through home equity lines of credit, or would borrow from 401K plans.
The indictment alleges that Rivernider and Ponte misrepresented that investors would receive a substantial investment return, typically a monthly repayment on the invested monies of approximately seven to ten percent of their initial investment; that the returns would continue for a period substantially longer than needed to recoup the initial investment and result in a return substantially greater than the initial investment; that the victim investors’ existing debts and home equity lines of credit, if taken out to fund the investment, would be repaid in full from investment returns, and that the victim investors’ monies were being invested offshore in legitimate high-return investments, including investments in foreign currency exchanges, hedge funds, or other high-yield ventures. Instead of investing the funds as promised, the indictment alleges that the funds were used to pay, among other things, the preexisting debts of other investors, and the living expenses of the extended family of the defendants. Through this first scheme, it is alleged that more than 10 investors lost at least $1.5 million.
The indictment further alleges that Rivernider, Ponte, and Seneca engaged in a real estate investment scheme that defrauded both lenders and individuals they recruited. As part of the scheme Rivernider, Ponte and others recruited victim borrowers to take out financing to purchase various investment properties, primarily in Tennessee and Florida, with financing from victim lenders. Rivernider and Ponte typically represented to borrowers that these properties would be passive investments and that Rivernider and Ponte would be responsible for the details of the purchase, rental, maintenance and payment of the mortgages on the properties. The alleged co-conspirators made false representations to the victim borrowers that Rivernider and Ponte would arrange for the purchase of the properties by the borrowers at markedly discounted values. In fact, Rivernider and Ponte frequently marked up the purchase price of the properties to the victim borrowers, often by as much as 25 percent, without disclosing the increase in the purchase price. Rivernider, Ponte and others also falsely represented that the investment properties would return to the victim borrowers sufficient monies to cover the carrying costs, as well as reduce the borrowers’ other debt burden.
This matter is being investigated by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation. The case is being prosecuted by Assistant United States Attorneys John H. Durham and Christopher W. Schmeisser.
US v. Buchholz
On November 12, GREGORY J. BUCHHOLZ of Bridgewater waived his right to indictment and pleaded guilty to one count of wire fraud stemming from his theft of more than $1.35 million from his investment clients.
Buchholz, a registered securities broker working as an independent contractor operating a branch office of Raymond James Financial Services, Inc. in Southbury, engaged in a long-running scheme to defraud a number of his clients, some of whom were retirees, by embezzling funds from their investment accounts. As part of the scheme, Buchholz liquidated investments his clients maintained in various securities, principally variable annuities and mutual funds, and deposited the proceeds of the sales of those securities into his personal bank accounts.
In executing the scheme, Buccholz caused checks to be drawn in the name of the victim clients and caused those checks to be sent directly either to his office or to the clients. In the instances where the checks were sent directly to the clients, Buchholz convinced his clients to turn the checks over to him, falsely indicating that the proceeds would be invested in their investment accounts. At times, Buchholz forged his clients’ signatures on documents and checks, and further misrepresented that he had authorization from his clients, when he redeemed the securities.
Raymond James Financial Services has been cooperating with the investigation and has agreed to reimburse Buchholz’ victims for their losses. To date, the victims have been repaid the vast majority of the losses they sustained.
This matter results from a joint investigation by the Federal Bureau of Investigation and the Connecticut State Police. The case is being prosecuted by Assistant U.S. Attorney Paul Murphy.
US v. Plummer and Clark
On November 23, a federal grand jury sitting in New Haven returned a 32-count indictment charging CHRISTOPHER PLUMMER of Lyme and MAUREEN CLARK of Stonington with conspiracy, wire fraud, mail fraud and money laundering offenses stemming from an alleged investment fraud scheme that defrauded at least 12 individuals out of more than $1.7 million.
The indictment alleges that Plummer and Clark falsely represented to investors and potential investors that they, or a company they controlled, owned hundreds of acres of land in Lakeshore, Mississippi, a portion of which purportedly was zoned for casinos. They also falsely represented that the partners of the company had invested several hundred million dollars of their own funds in buying land and options on land in and around the town of Lakeshore. The indictment further alleges that Plummer and Clark falsely represented to investors that the funds they invested would be used for the “Lakeshore Development Project,” and that the defendants sent e-mails and attachments to victim investors that falsely represented that major Wall Street investment firms had confirmed that they would partner in the Project. However, after receiving the funds, Plummer and Clark did not invest the money as represented and instead diverted a significant portion of investors’ funds for their own personal use and benefit, including writing checks to cash, paying the expenses of McGrath Hotels (doing business as the Lighthouse Inn), and making mortgage payments on a property in Stonington.
The indictment further alleges that Plummer made other false representations to defraud individual investors out of hundreds of thousands of dollars.
This case is being investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney Michael S. McGarry.
US v. Armand
On November 30, PIERRE C. ARMAND, 76, a citizen of Haiti residing in New Jersey, was arrested on a federal criminal complaint charging him with scheming to defraud several investors of more than $350,000. The complaint alleges that Armand misrepresented to investors that he would place, and later had placed, their funds in certain defined real estate projects, including an office building in Greenwich, a real estate development near Dulles International Airport, and a Southern Connecticut Building Portfolio, consisting of three buildings located in Fairfield County. As part of the scheme, Armand allegedly set up an office with a part-time secretary. It is alleged that Armand did not invest many of the funds as represented and instead used the monies obtained from investors for personal expenses and to make “lulling” payments derived from previously invested monies to certain investors.
This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney Christopher W. Schmeisser.
US v. Loles
On November 30, a federal grand jury sitting in Hartford returned a 32-count indictment charging GREGORY P. LOLES of Easton with securities fraud, wire fraud, mail fraud and money laundering offenses stemming from an alleged scheme that defrauded several investors, including a church in Orange, of millions of dollars.
The indictment alleges that Loles owned Apeiron Capital Management, Inc., which was an investment adviser and broker dealer registered with the U.S. Securities and Exchange Commission from 1995 through 1998, at which point the registrations were cancelled. However, Loles continued to operate Apeiron as an unregistered investment adviser and falsely represented Apeiron to be a registered investment management firm. Loles also was the majority owner and managing member of Farnbacher Loles Motor Sports and various other Farnbacher Loles businesses, which were based in Danbury. Farnbacher Loles was engaged in the business of professional race team operations and servicing high-performance automobiles.
The indictment alleges that Loles falsely represented to numerous victim-investors, including friends and fellow parishioners of his church that he would act as their investment adviser and invest their funds through Apeiron in various securities including in what he described as “Arbitrage Bonds,” which Loles represented would provide investors with a safe and steady return. Loles also was selected to serve on the board of the church’s endowment fund and was entrusted to manage the church’s investment funds, including the endowment fund and the building fund, by investing in, among other things, Arbitrage Bonds. However, the Arbitrage Bonds did not exist.
It is alleged that Loles caused numerous victim-investors to invest more than $10 million with him and Apeiron. Loles failed to invest the money as represented, and instead diverted investors’ funds for his own personal use and benefit, including to pay personal expenses such as credit card bills, and to distribute a large amount of the funds to Farnbacher Loles.
It is alleged that some of the individual investors provided Loles with funds that had previously been invested in IRAs, 401(k)s, or were proceeds of life insurance payments.
This case is being investigated by the Federal Bureau of Investigation, with the assistance of the U.S. Securities and Exchange Commission. The case is being prosecuted by Assistant United States Attorney Michael S. McGarry.