Financial Fraud Enforcement Task Force Announces Regional Results of Operation Broken Trust, Targeting Investment Fraud

BROOKLYN—Following an announcement today by Attorney General Eric Holder in Washington, D.C., representatives of the Financial Fraud Enforcement Task Force in the Eastern District of New York, including U.S. Attorney Loretta E. Lynch, announced the regional results of Operation Broken Trust, a nationwide operation which targeted investment fraud 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 by the president to lead an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. 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 Eastern District of New York, Operation Broken Trust involved 22 criminal defendants allegedly responsible for approximately $524,400,000 in losses to approximately 36,230 victims.

“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.”

“The prosecution of investment fraud schemes is a priority of this office, and those who seek to defraud individual investors face significant prison sentences and fines,” stated United States Attorney Lynch. “Investors should carefully review all investment opportunities before committing their money. If something looks too good to be true, it probably is.” Ms. Lynch extended her grateful appreciation to the Federal Bureau of Investigation, the Postal Inspection Service, the Internal Revenue Service, the United States Securities & Exchange Commission, and the Commodities Futures Trading Commission.

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, visit StopFraud.gov.

Operation Broken Trust cases in the Eastern District of New York included:

United States v. Metter, et al.

Two top executives of Spongetech Delivery Systems, Inc., along with four other corporate employees and a corporate vendor, were indicted in October 2010 on securities fraud and other charges arising from their scheme to inflate fraudulently Spongetech’s revenue and thereby inflate the share price of Spongetech stock. Three of the defendants were also charged with perjury in depositions before the United States Securities & Exchange Commission. Spongetech was a licensee of Spongebob Squarepants and other cartoon characters.

United States v. Philip Barry

Philip Barry ran a Ponzi scheme for 30 years out of a storefront in Brooklyn, New York. Approximately 800 victims invested more than $40 million in Barry’s Leverage Group. Barry told his clients he was investing their money in stock options and claimed annual returns of more than 12 percent. Barry was actually running a Ponzi scheme. He was found guilty of one count of securities fraud and 33 counts of mail fraud at a two week trial in November 2010.

United States v. Nicholas Cosmo

Nicholas Cosmo pleaded guilty to mail and wire fraud charges in October 2010 arising out of his Ponzi scheme in which he defrauded approximately 3,000 investors out of more than $195 million. Cosmo told investors their money would be used to fund short term bridge loans to commercial borrowers. In addition to the losses from the Ponzi scheme, Cosmo lost more than $100 million in investor money through unauthorized futures and commodities trading.

United States v. Ovid, et al.

Five officers of Jadis Capital pled guilty to conspiracy to commit securities fraud arising out of their fraudulent operation of two hedge funds that led to approximately $10 million in investor losses. The defendants marketed the hedge funds primarily to members of their church in Queens, New York. The defendants concealed significant losses in the funds and used the vast majority of investor money to purchase gifts for their friends and themselves, including a $200,000 Bentley automobile; to pay the inflated operating and payroll expenses of Jadis Capital; and to satisfy debts that one defendant incurred before starting Jadis Capital.

United States v. MacCaull, et al.

Richard MacCaull, the operator of a $66 million Ponzi scheme, was sentenced to 188 months’ imprisonment following his guilty plea. MacCaull and his co-conspirator held themselves out as traders on the foreign currency exchange market and solicited investments from the public through their company, RazorFX. They did almost no trading but instead used investor money to pay personal expenses for luxury homes and cars, among other things. The court ordered that MacCaull and his co-conspirator forfeit $28 million, which will be used to reimburse victims for their losses.

As a part of Operation Broken Trust, the task force is making the public aware of resources available to protect against these types of fraud and how to report fraud when it occurs. To learn more about investment scams, how to take steps to protect yourself from scams, or how to report investment fraud if you believe you have been victimized, the task force recommends that you visit its website, StopFraud.gov, which includes links to a wide array of task force member resources.