United States Attorney’s Office Combats Investment Fraud

“If it sounds too good to be true, it probably is” is a phrase people have heard for many years, and the Department of Justice and U.S. Attorney’s Office for the Eastern District of Michigan would like all investors to heed that warning when considering investing their hard earned money.

The Department of Justice has made financial fraud one of its top priorities. In 2009, the Interagency Financial Fraud Enforcement Task Force was created as a way to build upon efforts already underway to combat financial crimes, such as investment fraud, by increasing coordination and fully utilizing the resources and expertise of the government’s law enforcement and regulatory system.

In addition to prosecuting investment fraud cases, we are seeking to prevent financial loss by raising public awareness so that investors can protect themselves.

Making investments, whether in stocks, real estate, commodities or mutual funds, can be financially rewarding, but some investment opportunities are scams and can have devasting effects on personal savings. Examples of fraudulent investment schemes include advance fee schemes, affinity fraud, Ponzi and pyramid schemes, and Internet fraud.

• Advance fee schemes are those designed to obtain money in advance for services the promoter has no intention of providing.
• Affinity fraud refers to investment scams that prey upon members of identifiable groups, such as religious or ethnic communities, the elderly, or professional groups. The promoters of this type of fraud frequently are—or pretend to be—members of the group.
• Ponzi or pyramid schemes are schemes where new investor money is used to make payments to earlier investors to give the illusion that the investment is successful.
• Internet fraud involves use of tools such as a website, online messages, or a social media site to reach a mass audience without spending a lot of time or money. Online messaging is an easy way for promoters to make their messages look real and credible, and it is sometimes difficult for investors to tell the difference between fact and fiction.

In a continuing effort to target financial fraud in the Eastern District of Michigan, the U.S. Attorney’s Office has had several cases which have resulted in indictments, convictions, and lengthy sentences. Some of the aforementioned schemes that have been identified and prosecuted in this district include:

United States v. Bravata et al.: John Bravata, of Brighton, Michigan, the founder and Chairman of BBC Equities LLC, was charged in an indictment with wire fraud, securities fraud, and money laundering in connection with his solicitation of investor funds for BBC, which Bravata characterized as a real estate investment fund. Bravata and those working on his behalf made multiple misrepresentations to numerous prospective investors, including misrepresentations regarding how their investment funds would be utilized, the security of funds invested with BBC, and the returns that could be expected by investors of BBC. He collected more than $50 million in investments from more than 400 investors. The CEO of BBC Equities, Richard Trabulsy, has pleaded guilty and is awaiting sentencing. The case against John Bravata and his son, Antonio Bravata, is pending trial.

United States v. Egan: Jeffrey Egan, of Troy, Michigan, pleaded guilty to bank fraud in connection with an investment fraud scheme in which over a dozen victims were defrauded of over $1 million. Egan operated a company called Real Estate Capital Group (RECG) from 2004 through 2008. He promised investors an 11 percent annual interest rate for a period of two years and promised investors that their investments were fully secured with real estate. In order to convince investors that their funds were not at risk, Egan would provide investors with written mortgages for properties that he claimed RECG had acquired with their funds. In reality, many of the mortgages were never recorded or were phony mortgages for properties in which RECG and Egan had no ownership right. Egan ultimately failed to pay the interest rates that he promised or to return the principle funds to investors when the term of their investment expired. He is scheduled to be sentenced September 6, 2012.

United States v. Alabadi: Ahmed Alabadi, of Dearborn, Michigan, a dual citizen of Iraq and the U.S., was indicted in a Ponzi scheme in which he defraud investors out of approximately $2.5 million. Alabadi mostly targeted individuals of Middle Eastern descent who resided in Dearborn, Michigan. He used a network of agents and personally solicited investment money that he claimed would be used to help rebuild Iraq, fulfill contracts with the United Nations, and engage in an export/import business. He promised exorbitant returns and no risk of loss. In reality, he failed to pay the returns and refused to return the principal to investors after their investment terms had expired. This case is awaiting trial.

United States v. Curry: Timothy Curry, of Northville, Michigan, pleaded guilty to operating an advance fee scheme where he promised small, family-owned businesses that found it difficult to obtain loans through conventional lenders that he could underwrite and fund multi-million-dollar loans. Curry required a deposit be paid up front. The deposit ranged from a few thousand dollars to over $25,000. Once the deposit was paid, Curry never underwrote or funded their loans. The approximate loss is over half a million dollars. Curry will be sentenced on September 13, 2012.

United States v. Vogel, et al.: Francis Vogel and his son, both of St. Clair Shores, Michigan, were charged with running an advance fee scheme in which they offered “commercial loans” for companies that could not obtain them from traditional sources. The defendants requested upfront diligence fees that ranged anywhere from a couple thousand dollars to $30,000 per company. Once the fee was paid, the Vogels never issued any loans, and when investors inquired about the status of the loans, they could not obtain information as to why their loans were denied. The estimated number of victims is 45 with an approximate loss of over $600,000. This case is set for trial on November 13, 2012.

United States v. Hoffman, et al.: This case is another example of an advance fee scheme in which the defendants advertised jobs if prospects paid them an advance fee of about $1,500. The defendants used newspaper and Internet ads to lure job seekers. In reality, there were no jobs. Approximately 500 victims lost more than $600,000. This case is set for trial on August 7, 2012.

United States v. McKnight: Gregory McKnight, of Swartz Creek, Michigan, pleaded guilty and is awaiting sentencing for an investment Ponzi scheme he set up and ran over the Internet. McKnight, who had no formal investment trading experience, offered various investment programs that promised exorbitant rates of returns. Contrary to his representations, McKnight either did not invest the money he took in or his investments activities generated significant losses. It is estimated that McKnight took in at least $72 million from more than 1,500 identified victims from around the world. His sentencing date has been set for September 11, 2012.

United States v. May: Edward May, of southeast Michigan, was sentenced to 16 years in prison after pleading guilty to mail fraud charges stemming from a decade-long investment fraud scheme. According to the indictment, May formed E-M Management Co. LLC, then subsequently formed more than 150 limited liability corporations (LLCs). May told hundreds of individuals in the Detroit metropolitan area and elsewhere across the country that the LLCs acquired telecommunications equipment and then provided telecommunications services to various hotels. May induced numerous people to invest large amounts of money in the LLCs for what proved to be ficticious investments in “contracts” or “agreements” providing telecommunications equipment and services to various hotels. May deceived victim investors into believing that their funds were being invested as represented and concealed from victim investors and others the fact that these “investments” were actually being used to support a pyramid or Ponzi scheme. May operated the pyramid scheme by paying purported investment returns to some investors with funds actually obtained from other investors. Over the course of the scheme, May induced over 1,200 individuals to invest more than $350 million in over 250 LLCs. May’s scheme resulted in a total loss of more than $49 million to the individuals who invested in the fraudulent LLCs.

United States v. DeMiro: Dante DeMiro, of Milford, was sentenced to 10 years in federal prison and ordered to pay more than $12.9 million in restitution to the victims of an investment Ponzi scheme involving his Southfield-based investment firm, MuniVest. DeMiro falsely promised investor clients—including various municipalities, credit unions, labor unions, and a school district—that he would invest their funds in low-risk certificates of deposit (CDs). He did not invest their funds as promised, but instead, used their money to purchase personal luxury items and real property, gamble, make payments to other investors in the same scheme in order to continue it, and make loans to several individuals and a local jewelry store. To convince his victims that the CDs had, in fact, been purchased when they had not, DeMiro routinely sent them copies of fake investment summary reports. Victim losses at sentencing totaled $12,900,904.

United States v. Epstein: Keith Epstein, an investment advisor from Farmington Hills, Michigan, was sentenced to 97 months in prison for running a $4 million Ponzi scheme. Epstein devised a scheme where he directed clients—many of whom were elderly—to liquidate legitimate investments in order to purportedly place them in new, less risky instruments with him. Epstein then diverted these funds for his own use and made “interest” payments to other investors to continue the scheme. Epstein was able to convince his clients to provide him with their funds in this manner by ingratiating himself to them in numerous ways. He regularly visited his clients at home, shared his personal life with them, attended family functions (such as birthdays and weddings) in which he provided gifts, put money towards charitable causes important to clients, and assisted some clients with life decisions (such as the purchase of a home). Victim losses exceed $4 million. Many of his victims’ retirement funds were completely eviscerated, leaving them with nothing after lifetimes of saving and hard work.

For investors, here are a few tips to consider in order to minimize risk:

• Check out everything—do not assume the person who is presenting an offer is 100 percent trustworthy and never invest solely on the recommendation of a member of an organization or group. Always check out brokers and investments advisers before giving them your money.
• Zero or No Risk Offers—investing always involves some degree of risk. Do not fall for investments that promise high rates of returns or “guaranteed” returns.
• Get it in writing—be very leery of any investment opportunity that is not in writing. Also, be skeptical if you are told to keep the investment opportunity confidential. Con artists frequently avoid putting things in writing.
• Do not be rushed—Do not allow anyone to pressure you or rush you into making an investment decision. Take the time to research or investigate the opportunity before handing over your money.
• Unsolicited e-mail—if you receive an unsolicited e-mail from someone you do not know offering you a “once-in-a-lifetime” offer, best to pass on it and forward the e-mail to a government agency for investigation.

For more helpful tips and resources, visit the following websites: www.stopfraud.gov, the Securities and Exchange Commissions website at www.sec.gov, and www.investor.gov.

If you feel that you have been a victim of financial fraud, you are encouraged to contact the federal law enforcement agencies such as the Federal Bureau of Investigation, United States Postal Inspection Service, and the United States Secret Service.