SEC Alleges Ponzi Scheme Victimizing Investors

SDECFederal allegations of a major Ponzi scam last week hurting small-fry investors showed how government regulation affects everyday life. That's true even though the details of government issues are often obscured by hot-button issues in politics, class, religion and race -- as illustrated also by developments last week.

In a federal lawsuit filed in Las Vegas, the U.S. Securities and Exchange Commission (SEC) alleged that two men committed fraud as they raised funds from 1,700 victims to construct resorts in the Caribbean. As reported by the Salt Lake City Tribune:

A Las Vegas motivational speaker and a Canadian developer are accused of raising $170 million from investors, including a significant number from Utah, to build two Caribbean resorts but instead diverted most of the money to themselves and also used investor funds to make Ponzi payments, court documents say.

Our Project monitors such enforcement actions because relief for Ponzi victims is a complex process. Sometimes it becomes especially controversial because of allegations of self-dealing by attorneys involved, including those representing the government. Those suspicions arise partly because of vast federal power to order forfeitures and other streamlined procedures, as in the $3.6 billion Ponzi scheme perpetrated by David RockellerMinnesota-based entrepreneur Thomas Petters, who was sentenced to life in prison in 2009. Authorities last week announced recovery of some $34 million in assets from the fraud even as some victims allege that far too much of the recovery has been steered to federal officials and their well-connected law firms -- thereby lessening recoveries for victims.

Suspicions of self-dealing occasionally arise against famed financial dynasties, of course, not simply self-made entrepreneurs accused of cutthroat Ponzi and pyramid schemes. Such as was the case June 2 as hundreds of protesters remained outside a hotel in Chantilly, Virginia where the Bilderberg Group held of its annual meeting. Separately, the Europe-based Rothschild Family prominent in global banking for two centuries announced a new stake in the wealth business of the Rockefeller Family, whose patriarch David Rockefeller, Sr., co-founded the Bilderberg Group in 1954. Rockefeller, 97 on June 12, is the only surviving grandchild of oil tycoon John D. Rockefeller, founder of Standard Oil. He is portrayed at left on the cover of his memoirs.

Meanwhile, long-standing controversies played out elsewhere in public life on such issues as whether federal authorities are over-regulating business to protect the public from such scams and thereby thwarting job creation. A related issue is whether the federal closure of low-cost "Chinatown" buses operating in the Northeast last week for alleged safety violations ultimately helps the cost-conscious travelers who rely on such services.

Listed below is a selection of news stories illustrating such issues. The change-of-pace from our usual fare includes Baltimore-based media critic Bob Somersby, author of one of the nation's longest-running political blogs. In the column below, he ridicules the mainstream media for failing to explore what former President Clinton meant during an interview wheeby Cltinon condemned corporate looters and praised corporate job-creators.

By profession, Somersby is a stand-up comedian. But he sees little funny about loss of jobs, pensions and savings.


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Related News Coverage

Mary SchapiroSalt Lake City Tribune, Utah investors caught up in alleged $170M fraud, Tom Harvey, May 31, 2012. A Las Vegas motivational speaker and a Canadian developer are accused of raising $170 million from investors, including a significant number from Utah, to build two Caribbean resorts but instead diverted most of the money to themselves and also used investor funds to make Ponzi payments, court documents say. James B. Catledge, 44, used a multilevel marketing operation to raise the millions with false promises that investments were safe and would pay steady returns of up to 12 percent annually, according to an SEC lawsuit filed in Las Vegas. [SEC Chairman Mary Schapiro is at left.]

Attorneys in the SEC’s Salt Lake City office filed the Las Vegas complaint last week accusing Catledge, and resort developer Derek F. C. Elliott, 41, of Hillsburgh, Ontario, of fraud, unjust enrichment, sale of unregistered securities by unregistered brokers and lying to investors.  Ken Israel, regional director of the SEC’s Salt Lake City office, said about 250 of the Catledge investors were from Utah. That represents about 15 percent of all investors and their proportional share of the total raised is about $25 million. A "special master" appointed by a federal court in Florida said investors’ funds are "almost completely lost" and many of them are "financially destroyed."  "The investors’ plight is tragic," wrote Thomas E. Scott in his 2009 report. "The cause of that plight is criminal." Catledge reportedly has hired prominent Las Vegas criminal attorney David Chesnoff to represent him. Chesnoff did not return a phone call to his office seeking comment. On his website, Catledge says he was raised by a single mother in Memphis and worked odd jobs, paying his own way through college and for his two-year LDS mission. He studied business and communications at Brigham Young University, the website says. Israel said he didn’t believe the Utah investors were enticed through affinity fraud in which a member of a group takes advantage of shared trust and ties to defraud fellow adherents. Utahns who are members of The Church of Jesus Christ of Latter-day Saints have been hit by a wave of affinity fraud in the past decade.

Tom PettersSt. Paul Pioneer-Press, Businesses agree to return millions to Petters' Ponzi scheme victims, Julie Forster, May 31, 2012. The trustee for the bankrupt estate of convicted Ponzi mastermind Tom Petters has secured nearly $34 million more for the former businessman's victims. The agreements bring to $300 million the amount of money amassed from so-called claw-backs and the sale of assets on behalf of the estate. The Minneapolis law firm of Fredrikson & Byron has agreed to pay $13.5 million to the Petters bankruptcy estate. The money will go to the victims of the fraud. And General Electric Capital Corp., based in Norwalk, Conn., agreed to pay $19 million in principal and interest it received from the scheme -- the largest amount received as part of hundreds of claw-back lawsuits aimed at recovering money that was part of the $3.65 billion scam that Petters, right, and his associates orchestrated over years. The Fredrikson & Byron and GE Capital actions were among a number of settlement documents related to the Petters case filed in bankruptcy court in St. Paul on Wednesday, May 30.

ABA Journal, Law Firm to Pay $13.5M Fees Clawback to Convicted Client’s Bankruptcy Estate, Martha Neil, May 31, 2012. A well-known Minnesota law firm has agreed to pay a $13.5 million legal fees claw-back to the bankruptcy estate of a longtime client convicted of operating a $3.65 billion Ponzi scheme. Bankruptcy trustee Doug Kelley acknowledged there was no evidence that Fredrikson & Byron knew anything was wrong concerning former client Tom Petters but stated "there were a number of red flags that should have alerted F&B to the possibility that the business allegedly conducted by Petters was fraudulent,' the Star Tribune reports. The firm noted that the settlement will be covered by malpractice insurance, and said it shows that "our representation of Mr. Petters and his companies was, in every respect, honest, ethical and consistent with our professional duties and responsibility."

Huffington Post, Victims Of $3.6 Billion Petters Ponzi Fraud Protest Court Process, Andrew Kreig, Aug. 25, 2010. Victims of the $3.6 billion financial fraud by Minnesota businessman Tom Petters are justifiably angry about the federal victim-restitution process that began after his 2008 arrest. The feds used hardball tactics to install well-connected cronies in key positions, which should trouble anyone who fears the precedent if their own finances get trapped in such a dispute nationally. Most remarkable was that the federal judge supervising the case named the prominent local attorney Douglas Kelley to be court receiver and U.S. trustee. This was even though Petters, above as shown shortly after his arrest in 2008, had previously hired Kelley to defend his companies. Victims are so disturbed at such decision-making and what they regard as excessive legal fees by Kelley and his team that some of helped produce The Second Fraud, a documentary about their case that premiered Aug. 25 at the Uptown Theater in Minneapolis for a one-night showing.

NBC 10 (Philadelphia), The End of Chinatown Buses? Gov't cracking down on discount bus operators after they found an "imminent hazard" to public safety, Joan Lowy and Dan Stamm, May 31, 2012.  26 bus companies that offered cheap rides between Philadelphia to places like New York and Washington, D.C were shut down Thursday. The government shut down the "Chinatown Buses" after a year long investigation. NBC10's Deanna Durante spoke to former bus passengers.

OpEd News, Unraveling the Welfare Safety Net -- Europe Moves Closer to Banktatorship, Mike Whitney, June 2, 2012.  The present crisis, which is largely the result of excessive credit expansion and poor risk management by EU banks, is being used by the European Commission and the ECB to establish a euro-wide "banking union" and to impose savage cuts to social programs, health care, and pensions.

Rolling Stone, Taibbi on Spitzer: Wall Street Regulators Let the Big Guys Off Easy, Julian Brookes, May 31, 2012. Matt Taibbi dropped by Eliot Spitzer's Current TV show, Viewpoint, last night to discuss the subject of his latest Taibblog post – how the Securities and Exchange Commission, the government's cop on the Wall Street beat, looks the other way while the big banks bend and break the law. He cites Lehman Brothers as a particularly glaring example: "That was a case where there was just ample evidence of all kinds of transgressions. They just overlooked all these companies. It’s not like they don’t have cases to make, they’re just not making them."


VIP Strategies, Intrigues, Protests

Reuters, Rothschilds buy into Rockefeller wealth business, Stephen Mangan, Chris Vellacott and Joe Giannone, May 30, 2012. Two of the most storied names in global finance are linking up, with Europe's Rothschild banking dynasty agreeing to buy a stake in the Rockefeller group's wealth and asset management business to gain a long-sought foothold in the United States. Rothschild's London-listed RIT Capital Partners (RCP.L) said on Wednesday it was buying a 37 percent stake in Rockefeller from French group Societe Generale's (SOGN.PA) private banking arm, for an undisclosed sum. The transatlantic union brings together David Rockefeller, 96, and Jacob Rothschild, 76 -- two family patriarchs whose personal relationship spans five decades. "We are combining, on a macro level, two well-recognized names and families who have a long history of wealth creation and responsible stewardship," Rockefeller Chief Executive Reuben Jeffery said in an interview.

David RockellerSpecific business initiatives arising from the new partnership have not yet been determined, Jeffery said. "It will take us time to work out the details."  One area where Rockefeller's clients may benefit, he said, is access to Rothschild's direct private equity investments. Rockefeller & Co traces its origins back to 1882 when it was founded as one of the world's first family offices by Standard Oil baron John D. Rockefeller to manage his personal wealth. It became a U.S.-registered investment adviser in 1980 and has since developed into a wealth and investment manager overseeing $34 billion (21.95 billion pounds) for ultra-rich families, trusts, endowments and other institutions.  Banks across the world are shedding noncore assets to reduce risks and strengthen capital positions to meet tough regulations aimed at preventing a repeat of the 2008 financial crisis. Reuters earlier this month reported that SocGen was in early talks to sell a Los Angeles-based asset management unit, Trust Co of the West, to its management, among other options. The French bank also has been selling billions of euros' worth of aircraft, shipping and real estate loans to shrink its balance sheet and reduce U.S. dollar funding needs.  SocGen, which has held its stake in Rockefeller since 2008, appointed a new head of private banking in March, replacing Daniel Truchi with Jean-Francois Mazaud as it moved to overhaul the business.  But for Rockefeller, the latest deal replaces SocGen with one of the best-known names in global finance. The Rothschild banking dynasty began when Mayer Amschel Rothschild started a business in Frankfurt in the late 18th century. The family has worked on some epochal deals during its history, such as helping finance Britain's war against Napoleon in the 19th century and raising funds for a loan allowing the British government to buy the Suez canal. RIT and another of the family's companies, Edmond de Rothschild Group, said earlier this year they would form a new joint venture to boost their fund management and investment operations. The deal is expected to close by the end of September, pending regulatory approvals.

David Rockefeller Roundtable Chart

Guardian (United Kingdom), Tea Party and Occupy activists rub shoulders at Bilderberg protest, Ryan Devereaux, June 2, 2012. A protest targeting a secretive meeting of powerful international leaders entered a third day Saturday, with numbers swelling well into the hundreds. Clear skies and pleasant temperatures made for a picnic-like atmosphere as a mix of Ron Paul supporters, members of the 9/11 truth movement and a smattering of Occupy protesters gathered outside the Westfield Marriott hotel in Chantilly, Virginia where members of the Bilderberg group are meeting.  [Bildeberg group leaders are listed here.]

International Business Times via OpEd News, In Defiance Of US Justice Department, Florida To Continue Voter Purge, Ashley Portero, June 2, 2012. Florida state officials will continue their quest to purge purportedly ineligible people from voter-registration rolls, a representative of Secretary of State Ken Detzner said Saturday, in defiance of objections from the U.S. Justice Department and county officials who say the policy violates two federal voting laws. On Thursday, T. Christian Herren Jr., the head of the Justice Department's voting section, said the effort to remove voters appears to violate the 1965 Voting Rights Act, which outlaws discriminatory voting practices that disenfranchise minorities. On a list of almost 2,700 voters the state suspects are noncitizens, blacks and Latinos were disproportionately represented, according to an analysis by the Miami Herald, which concluded Democratic and independent voters are the most likely to be targeted. Florida state officials will continue their quest to purge purportedly ineligible people from voter-registration rolls, a representative of Secretary of State Ken Detzner said Saturday, in defiance of objections from the U.S. Justice Department and county officials who say the policy violates two federal voting laws.

Daily Howler, Looting Watch: Nothing To look at, Bill Clinton said! Bob Somersby, June 1, 2012. There’s nothing to look at! Move on! Bill Clinton appeared on Piers Morgan last night. Morgan was in an undisclosed location. In his absence, movie mogul Harvey Weinstein sat in for the fatuous host.  Eventually, Weinstein raised the question of Bain Capital. We were quite struck by Clinton’s response:

WEINSTEIN (5/31/12): Governor Romney keeps talking about his experience at Bain Capital as a producer of jobs and that he had 25 years in the private sector. It seems to play with a certain group. But do you think that really will affect people and think that he can produce jobs that the president can't?

CLINTON: I think it will affect some people who relate well to businessmen. And I think he had a good business career. The— There’s a lot of controversy about that.

But if you go in and you try to save a failing company—and you and I have friends here who invest in companies—you can invest in a company, run up the debt, loot it, sell all the assets, and force all the people to lose their retirement and fire them.

Or you can go into a company, have cutbacks, try to make it more productive with the purpose of saving it. And when you try, like anything else you try, you don't always succeed. Not every movie you made was a smash hit.

WEINSTEIN: That's for sure.

CLINTON: So I don't think that we ought to get into the position where we say this is bad work. This is good work. I think, however, the real issue ought to be, what has Governor Romney advocated in the campaign that he will do as president? What has President Obama done and what does he propose to do? How do these things stack up against each other? That's the most relevant thing.

There's no question that in terms of getting up and going to the office and, you know, basically performing the essential functions of the office, the man who has been governor and had a sterling business career crosses the qualification threshold. But they have dramatically different proposals. And it's my opinion, anyway, that the Obama proposals and the Obama record will be far better for the American economy and most Americans than those that Governor Romney has laid out. And that's what the election ought to be about.
That statement by Clinton is very strange. It's also very revealing.

Bill ClintonAccording to Clinton, right, people can “invest in companies” two different ways: On the one hand, they “can invest in a company, run up the debt, loot it, sell all the assets, and force all the people to lose their retirement and fire them.”  (They can loot the company, Bill Clinton said! Loot it! Those were his words!)  On the other hand, people who invest in companies “can have cut-backs, try to make it more productive with the purpose of saving it.” No one would criticize the second approach. But what about that first approach? What about people who “loot a company, sell all the assets, and force all the people to lose their retirement?” Is that an honorable way to do business? 

Gaze on the way our elites do their business! None of these folk will challenge the people who loot the pensions of working-class people! As we have told you, year after year: "Darlings! It just isn't done!" Your country is ruled by horrid elites—and slithering climbers want to get theirs.


Catching Our Attention on other Justice and Media Issues

Eric HolderMain Justice, New Book Sheds Light on Holder's Battles With Justice Department, Elizabeth Murphy, June 3, 2012.  A new book by a journalist close to Eric Holder details the pressures the attorney general was under critics both within the administering and from the political right, portraying him as depressed and close to quitting at one point, according to news accounts. Holder is painted as struggling to stay afloat as public pressure mounted over controversies like the failed attempt to prosecuten 9/11 mastermind Khalid Sheikh Mohammad in federal court in New York. “Kill or Capture: The War on Terror and the Soul of the Obama Presidency" is written by former Newsweek managing editor Daniel Klaidman.

Huffington Post, Supreme Court Finds Dick Cheney's Secret Service Agents Immune From Free Speech Lawsuit, Mike Sacks, June 4, 2012. Secret Service agents who arrested a man after he disparaged and then touched Dick Cheney cannot be sued for violating the man's free speech rights, the Supreme Court ruled on Monday morning. When then-Vice President Cheney visited a Colorado mall in 2006, Secret Service agent Dan Doyle overheard Steven Howards say that he was "going to ask [the vice president] how many kids he's killed today." Howards then got in line to meet Cheney and, when he reached the vice president, told him that his "policies in Iraq are disgusting." As Cheney moved along, Howards touched him on the shoulder, prompting the supervising Secret Service agent, Gus Reichle, to accost and arrest Howards for assault. After the charges were dismissed, Howards sued the agents, claiming they arrested him in retaliation for exercising his First Amendment right to criticize Cheney. The U.S. Court of Appeals for the 10th Circuit ruled in Howards' favor.

Who? What? Why? Obama Withholds JFK, Other Documents? Russ Baker, May 30, 2012. Next year will be a half-century since the death of JFK. And the Obama Administration thinks we need to keep secret the records on the matter….a little longer yet. Believe it or not, more than 50,000 pages of JFK assassination-related documents are being withheld in full. And an untold number of documents have been partially withheld, or released with everything interesting blacked out. But why?  Since the government and the big media keep telling us there was no conspiracy, and that it was all Lee Harvey Oswald acting on his own, why continue to keep the wraps on?  We don’t have an answer, but in understanding this and any number of other mysteries, we can begin looking for patterns in the way the administration handles information policy.

Clarence ThomasWashington Post, Clarence Thomas and Yale begin to repair relationship, Robert Barnes, May 31, 2012. It would hardly seem newsworthy that a Supreme Court justice was going to be the keynote speaker at a gathering of alumni of his elite law school. Except when the justice is Clarence Thomas, and the elite law school is Yale. “Strained” would not begin to describe the relationship between the New Haven, Conn., school and Thomas, Class of 1974. For years, the 63-year-old justice has avoided his alma mater, writing that it was a mistake for him to have attended the school and declining to have his portrait hung in its halls, as is the case with other notable graduates.  But Thomas returned to the school in December, teaching a class with a liberal law professor and speaking with members of the Federalist Society and the Black Law Students Association. And in late June, just as the court is expected to release its opinion about the constitutionality of President Obama’s health-care law, Thomas has agreed to be the keynote speaker at the annual dinner of the Yale Law School Association of Washington. It is hard to overstate the estrangement between Thomas and Yale. In his 2007 autobiography, “My Grandfather’s Son,” the justice was withering in his criticism of some of the professors and students he met in New Haven and said the law school’s affirmative action policies tainted his diploma.

Los Angeles Times, When is a campaign donation a bribe? Supreme Court may decide, David G. Savage, June 2, 2012. Scores of former state attorneys general urge the justices to hear the appeal of convicted former Alabama Gov. Don Siegelman. Former Alabama Gov. Don Siegelman was charged with bribery and sent to prison because, prosecutors said, a wealthy hospital executive gave him $500,000 in exchange for appointing him to a state hospital planning board. But this half-million-dollar "bribe" did not enrich Siegelman. Instead, the disputed money was a contribution to help fund a statewide referendum on whether Alabama should have a state lottery to support education, a pet cause of the governor's. The Supreme Court is set to decide as soon as Monday whether to hear Siegelman's final appeal, which raises a far-reaching question: Is a campaign contribution a bribe if a politician agrees to do something in return, or is it to be expected that politicians will do favors for their biggest supporters? Prominent election law experts and more than 100 former state attorneys general have urged the justices to review Siegelman's case. They say the law in this area is hazy, with the result that aggressive prosecutors can bring charges against political enemies.

Don Siegelman

SCOTUS Blog, Petitions to watch, Matthew Bush, May 29, 2012. At its May 31, 2012 Conference, the Court will consider such issues as dismissing a claim so that it may be appealed instead of amended, bribery and implied “explicit” promises, mens rea in the federal alien smuggling statute, and whether the police can detain someone away from the premises being searched while executing a search warrant.  This edition of “Petitions to watch” features petitions raising issues that Tom has determined to have a reasonable chance of being granted, although we post them here without consideration of whether they present appropriate vehicles in which to decide those issues. Certiorari-stage documents:
Scrushy v. United States
Docket: 11-972
Issue(s): In the context of a First-Amendment-protected contribution to an issue advocacy campaign, whether the McCormick v. United States holding that campaign contributions cannot constitute bribery unless “the payments are made in return for an explicit promise or undertaking by the official to perform or not to perform an official act” means “explicit,” or whether something less than proof of an “explicit promise” can be sufficient to sustain a conviction.

Siegelman v. United States
Docket: 11-955
Issue(s): Whether the McCormick v. United States standard -- under which a connection between a campaign contribution and an official action is a crime “only if the payments are made in return for an explicit promise or undertaking by the official to perform or not to perform an official act” -- requires proof of an “explicit” quid pro quo in the sense of actually being communicated expressly, or whether there can be a conviction based instead only on the inference that there was an unstated and implied agreement connecting a campaign contribution and an official action; (2) whether 18 U.S.C. § 666 and “honest services” law (under 18 U.S.C. § 1346) cover campaign or referendum contributions as alleged bribes at all; and (3) whether the “intent” clause of 18 U.S.C. § 1512(b)(3) requires proof of the specific intent to interfere with communications to law enforcement, or whether it is satisfied by proof of an intent to engage in a “coverup” more generically.

Certiorari-stage documents [Visit SCOTUS Blog for hot-links]:
Opinion below (11th Cir.)
Petition for certiorari
Brief in opposition
Amicus brief of Richard F. Scruggs
Amicus brief of Former Attorneys General
Amicus brief of Law Professors
Reply of petitioner