Articles Tagged with ponzi scheme

Malecki Law attorney Jenice Malecki was on the set of business news network CNBC’s documentary true crime series American Greed yesterday to speak about affinity fraud for an upcoming episode. American Greed provides in depth-reporting exposing Ponzi Schemes, mortgage fraud, art heists, identity theft, and other shocking things people have done for money. For twelve seasons, American Greed has examined the most extensive corporate and white-collar crimes in American history. The documentary series currently airs new episodes on the CNBC network on Monday nights at 10 PM EST.

In the interview, Jenice Malecki leveraged her knowledge as an experienced securities attorney to answer questions about affinity fraud. Affinity fraud is a type of investment scam that targets members of the same identifiable groups based on religion, ethnicity, age and other commonalities.  Typically, an affinity fraud perpetrator will be or at least pose as a member of the group to exploit trust and relationships. Otherwise, the fraudster might elicit the help of a group member to orchestrate the scam, which is frequently a Ponzi or pyramid scheme.

In this segment, Jenice Malecki describes affinity fraud along with the telltale signs that should induce concern. Notably, Jenice Malecki emphasizes the importance for investors to do their due diligence in gathering information before investing. With this in mind, the seller should be able to provide information regarding the investment’s purpose, objective data, and history. Furthermore, Jenice Malecki offers helpful tips for anyone suspecting affinity fraud to respond appropriately to the situation.

Last week, Malecki Law filed an amended FINRA arbitration complaint against Securities America on behalf of victims claiming that the broker-dealer’s inadequate supervision over its registered representative, Hector May, permitted his alleged Ponzi Scheme to happen. Securities America failed to act as Hector May sold fictitious “tax-free” corporate bonds from his New City Securities America office with his Securities America approved Registered Investment Advisory business, Executive Compensation Planners. The amended complaint adds two pension plans as additional plaintiffs joining the original nine victims specified in the June 18th filing. Our announcement of the filing to the press piqued the interest of the media including a reporter who interviewed attorney Jenice Malecki for an article in Lohud, as well as an article in Financial Planning magazine.

Hector May was formerly a Securities America registered representative, who reportedly managed more than $18 million in assets according to his Form ADV. Before the alleged Ponzi scheme surfaced, Hector May was an influential community member who donated to charities and political candidates. Claimants alleged that Hector May simply used his community status to issue, solicit and sell these non-existent securities products. Now, Hector May is being investigated by multiple government agencies for alleged fraud resulting in millions of dollars bilked from unsuspecting investors. Of course, Hector May refuses to provide answers regarding the whereabouts of the invested funds or any further details about the transaction activities in dispute.

The amended complaint now alleges that Hector May also stole money from two New York company’s pension plans while running his Securities America branch office.  The newly added pension plans’ beneficiaries were allegedly sold fictitious “tax-free” corporate bonds. Hector May allegedly told company beneficiaries not to worry since their invested money would be in “safe places” under his RIA with Securities America. Hector May’s reassuring comment could not be further from the truth, hidden by his falsely produced employee benefit plan and annual reports. Consequently, company employees have been defrauded out of millions of dollars that had been intended to be their income upon retirement.

Malecki Law was featured in the news for filing a FINRA arbitration claim on behalf of investors alleging that Securities America failed to perform proper supervisory duties as their formerly registered broker, Hector May allegedly operated a Ponzi Scheme. In the Financial Planning article, investor fraud attorney Jenice Malecki provides additional information and commentary on her representation of nine clients against Securities America. Financial Planning provides breaking and daily news coverage as well as analysis to help independent financial advisors better their business, practice and client services. Readership often includes independent broker-dealers, financial planners and other industry professionals seeking insights into the highly regulated securities industry. Malecki Law spoke with Financial Planning to spread the message so that other innocent victims who lost their hard-earned savings may seek justice.

Investor fraud attorney, Jenice Malecki released more details regarding the specific allegations relating to Hector May’s allegedly fraudulent practices against investing clients to Financial Planning in hopes of raising awareness. Allegedly, victims of the New City broker’s Ponzi scheme were under the impression that Hector May invested their money into “tax-free” bond products from firms like General Electric. The clients later learned alleged Ponzi Schemer’s “tax-free” bond products were non-existent and apparently just words on false account statements.  When asked for a comment, Hector May’s attorney declined to provide a comment regarding a case started by a law firm placing ads in the newspaper for clients.

The clients are filing the claim only against Securities America since Hector May already had assets frozen and could not pay the award, Jenice Malecki commented.  FINRA rules place broker-dealers at fault for investment losses resulting from their failure to properly supervise and detect a Ponzi Scheme committed by their registered representative. Securities America had an obligation to monitor Hector May’s activities, including the fraud that transpired. Clients are claiming that Securities America missed many “red flags” that would have clued off a Ponzi Scheme.

Malecki Law filed an expedited FINRA arbitration complaint today on behalf of nine investors from Upstate New York, Northern Virginia and Long Island, New York alleging that Securities America, Inc. failed to supervise its registered representative Hector May and failed to audit his remote Securities America office, which it is alleged in essence allowed his alleged Ponzi-type fraud to persist for many years. Through these alleged supervisory shortcomings, it is alleged that Securities America’s Inc. aided and abetted fraudulent practices conducted by its registered representative as well as in his disclosed, approved SEC-registered investment advisor, Executive Compensation Planners, Inc. “At some point, a license to sell securities can become a license to steal when there is inadequate supervision of these remote brokerage firm offices,” offered well-known securities attorney Jenice Malecki.

Executive Compensation Planners was supposed to solicit wrap fee programs through Securities America, according to its Form ADV filed with the SEC.  Instead, as alleged in the FINRA pleading, Hector May had wires sent and checks written directly to Executive Compensation Planners; created fictitious statements; and pocketed client funds. Hector May reported managing $18 million in his Form ADV. Mr. May’s FINRA BrokerCheck report indicates that Hector May, who had been with Securities America since 1998, was terminated for misappropriation of clients’ assets just after the Department of Justice initiated a criminal investigation into his suspected felony, along with investigations by the U.S. Postal Inspectors and the United States Securities and Exchange Commission.

Prior to his alleged conduct coming to light, Hector May was widely known with an excellent reputation within his New York Community, often sponsoring charities – “clients now want to know if he was using their money to be charitable,” said Jenice L. Malecki, Esq., a securities lawyer in New York.  Mr. May’s wife, daughter and other family members are alleged to have worked with him.

Hector May, a former highly regarded member of the community in Rockland and Orange counties, is under investigation by several governmental entities. Reportedly, allegations include that Hector May misappropriated investor funds. In a Lohud/The Journal News article, Jenice Malecki, Esq. discusses how her clients and other investors have lost millions from Hector May in what she believes to exemplify a Ponzi scheme. Given her significant experience representing Ponzi scheme victims, Ms. Malecki finds many parallels with Hector May’s actions.

A Ponzi scheme is a type of investment fraud that relies on a constant money flow of new deposits to produce false “returns” to existing investors. New deposits are never actually invested and instead directly allocated to the schemer’s personal funds. Our clients, along with other investors, lost their retirement assets when Hector May sold unsophisticated investors what appears to be fictitious “tax-free” corporate bonds, an impossible investment.  Hector May continuously increased his personal wealth at the cost of clueless investors losing their hard-earned life-savings. Eventually, Ponzi victims stop receiving promised returns, collapsing the scheme. It is very likely that Hector May was exposed from not being able to return money to a large investor. Ponzi schemes typically endure for as long as new victims continue to “invest” into the produced returns; withdrawals collapse them.

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Patrick Churchville of Rhode Island has been accused of orchestrating a $21 million Ponzi scheme and was recently sentenced to 7 years in prison by a federal judge, according to an Investment News report. Mr. Churchville is thefinancial-fraud-300x200 owner and president of ClearPath Wealth Management and according to SEC’s complaint, he allegedly diverted funds from investors to pay older investors, used their funds as collateral for loans or converted investments to benefit ClearPath Wealth Management. According to the news report, he allegedly used $2.5 million of borrowed money to buy a lavish waterfront home in Rhode Island.

Mr. Churchville started running his Ponzi scheme 2010 onwards and like in any Ponzi scheme, he added to his net worth at the cost of his victims, who lost their homes and all their savings. One of his victims was left on food stamps and needed heating assistance by the end of it, and others were forced back into the workforce in their retirement years. U.S. District Court Chief Judge William E. Smith called the whole scheme a “tragedy”. Churchville allegedly pleaded guilty to five counts of wire fraud and one of tax fraud for failing to pay more than $820,000 in taxes. He has also reportedly been ordered to pay restitution to his 114 victims although the number is unspecified.

Being victimized by financial fraud not only means lost savings but can completely wreak someone’s life and strain personal relationships. At Malecki Law, we regularly help victims of Ponzi scheme get justice and restitution. If you suspect a financial advisor or brokerage firm has been taking advantage of you or your loved ones, reach out for legal advice.

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  • Salesperson seems to openly live a lavish lifestyle: The most famous Ponzi schemers have been infamous for their extravagant lifestyles. Scott Rothstein, the mastermind in a $1.2million Ponzi scheme said, “We were living like rock stars; private jets, massive amounts of money. There were lots of things that kept fueling that,” in his 2011 deposition testimony (reported in Forbes 2014). Be cautious if you are approached by a broker or advisor who fits the bill. As an extra precautionary measure, check your broker out on FINRA’s BrokerCheck.
  • Their marketing/ sales documents look like they could have come out of a printer in their home! Robert Van Zandt, known as the Bernie Madoff of Bronx, who was criminally prosecuted for running a Ponzi scheme, distributed homespun brochures that said “Learn to Earn 9% On Your Investment.” The quality of their marketing materials could be a good indication of the credibility of the investment.
  • “Guarantees” with high returns: If it sounds too good to be true, it probably is. Look out for buzzwords like “High Return” or “Risk-Free” Investments. But in reality no investment is risk-free. In fact, higher probability of return is usually associated with higher risks, according to the risk-reward tradeoff principle. So if you are offered a guaranteed high return investment with no risks, the chances are that you are dealing with a financial scam.

On July 1, 2015, the Financial Industry Regulatory Authority (FINRA) accepted settlement offers from brokers Jonah Engler, Hector Perez, Jonathan Michael Sheklow and Joshua William Turney for their roles in selling fraudulent investments to 59 customers.  According to FINRA’s Orders Accepting Offers of Settlement, these individuals sold $3 million worth of Senior Secured Zero Coupon Notes issued by a company called Metals, Milling and Mining LLC.  Mr. Engler himself has settled 11 customer complaints over the years, according to the FINRA CRD system.  The Orders state that each of the brokers has been barred from associating with any FINRA member in the future.

As reported in the Orders, the Notes were sold upon misrepresentations that they would return 100% within one year by extracting valuable minerals left over from mining operations.  The Orders detailed that all investors, except for three, lost all of the money they invested, with those three investors being repaid with money from new investors, a classic sign of a Ponzi scheme.

The Order stated that the company that issued the notes was partially owned or controlled by a Managing Partner of the brokerage firm that the above brokers worked for.  When a brokerage firm owns a company that issues securities, this may create a conflict of interest between the broker-dealer and the customer, because the securities may be recommended in order for the brokerage firm to make money, and not because it is suitable or in the best interest of the customer.

Another oil and gas venture domino falls.  The Securities and Exchange Commissions (SEC) released a press release on July 6, 2015 announcing charges brought against Luca International, a California based oil and gas company, and Bingqing Yang, the company’s CEO.  The SEC charged Luca and Ms. Yang with running an alleged $68 million Ponzi scheme and affinity fraud against the Chinese-American community in California and elsewhere.

The SEC alleged that Ms. Yang knew the company was failing, but misrepresented the projected returns of the company as 20-30% annually.  Ms. Yang allegedly also commingled funds and diverted $2.4 million through a separate offshore entity to purchase a home and pay for personal expenses.

Ms. Yang allegedly relied on two tactics: affinity fraud and Chinese citizens who sought to immigrate to the United States through the EB-5 visa program, which grant green cards for making certain investments in U.S. companies.  Other Luca employees were also reported to be implicated in the fraud.  Additionally, the SEC’s press release noted that in a separate administrative action, Wisteria Global and one Hiroshi Fujigami settled charges that they acted as brokers for the Luca entities and were to disgorge ill-gotten gains of more than $1.1 million.

The Securities and Exchange Commission (SEC) announced today that is has formally charged Malcolm Segal with running a Ponzi scheme and stealing investor money from his office in Pennsylvania.  According to his BrokerCheck Report, Mr. Segal was formerly a registered stockbroker with Aegis Capital Corp. and Cumberland Advisors.  Mr. Segal reportedly was a partner in J&M Financial and the president of National CD Sales.

According to the SEC, Mr. Segal allegedly sold what he called certificates of deposit (CDs) to his brokerage customers under the false pretense that he could get them a higher rate of interest than was then available through banks.  Mr. Segal allegedly represented to his victims that his CDs were FDIC insured and risk-free. Mr. Segal reportedly defrauded at least fifty investors out of roughly $15.5 million.

As his scheme was unravelling, Mr. Segal allegedly began to steal from his customers’ brokerage accounts by falsifying fraudulent paperwork such as letters of authorization. This fake paperwork reportedly allowed Mr. Segal to withdraw funds from his customers’ accounts without them knowing.  Ultimately, in July 2014, the scheme collapsed completely.  Mr. Segal has since been barred from the securities industry by the Financial Industry Regulatory Authority.