Running List of Notable Financial Fraud Cases
In this frequently-updated post, we maintain a running list of recent and notable financial fraud cases.
History is full of financial scams and financial frauds that have taken hard-earned money out of the pockets of innocent investors.
In this frequently-updated post, we maintain a running list of recent and notable financial fraud cases. We’ve also recapped several of history’s most infamous financial fraud cases below.
MOST NOTABLE FINANCIAL FRAUD CASES IN 2018
THE FYRE FESTIVAL FRAUD: 100 INVESTORS WERE BILKED OUT OF $27 MILLION
The failed 2017 Fyre Festival — a luxury musical festival that was supposed to take place in the Bahamas — received a brand new wave of attention after documentaries were released by Hulu and Netflix. Notably, beyond making false promises to attendees, the festival’s lead organizer Billy McFarland actively defrauded dozen of investors out of millions of dollars.
In July of 2018, federal regulators settled claims against Mr. McFarland, determining that he bilked more than 100 investors out of a total of $27.4 million. According to the SEC, Mr. McFarland made material misrepresentations to investors.
Among other things, he inflated financial metrics, lied about his own personal business success, and used doctored brokerage account statements to show fraudulent personal income. While he told investors that he had more than $2.5 million in personal stock holding, he actually has less than $2,000. Investor money was used to fund his lavish lifestyle.
In October of 2018, Billy McFarland pleaded guilty to financial fraud charges and was sentenced to six years in federal prison. As of early 2019, civil lawsuits are still pending against a number of vendors and marketing companies that promoted the event.
EXECUTIVE COMPENSATION PLANNERS INC. (ECP): A FATHER/DAUGHTER PONZI SCHEME
In December of 2018, Hector May and Vania Bell, a father/daughter team, were charged with operating a Ponzi scheme. In a complaint filed in the United States District Court for the Southern District of New York, the SEC outlined allegations that Hector May, a New York-based investment advisor, induced investors to put money into bond offerings through his company Executive Compensation Planners.
While investors were promised safe and reliable returns, much of their money was never invested at all. Investigators believe that ECP was little more than a $7.9 million Ponzi scheme. The SEC alleges that it was largely used to fund the lavish lifestyle of Mr. May and Ms. Bell.
SEC: THREE HOUSTON, TX DEVELOPERS DEFRAUDED AT LEAST 90 IMMIGRANT INVESTORS
The Securities and Exchange Commission (SEC) announced that three Houston-based real estate development companies — America Modern Green Senior LLC, America Modern Green Community LLC, and America Modern Green Residential LLC — agreed to settle investment fraud charges and repay $49.5 million to immigrant investors.
The SEC filed the company after it discovered that the company improperly raised money through the EB-5 immigrant investor program, materially misrepresenting how investor funds were actually being used. The agency noted that all of the affected investors were able to recover complete financial restitution.
$102 MILLION PONZI SCHEME (FIRST NATIONLE SOLUTION, LLC, PERCIPIENCE GLOBAL CORPORATION, AND UNITED RL CAPITAL SERVICES)
In June, the Securities and Exchange Commision (SEC) announced that it had busted a $102 million Ponzi scheme. Using three fraudulent companies (First Nationale Solution, LLC, Percipience Global Corporation, and United RL Capital Services), five men defrauded more than 600 different investors throughout the United States. These men were mostly former FINRA brokers who had previously been barred from the industry for past financial misconduct.
Investors were lured into the scheme with promises of above market returns. However, the SEC believes that none of the three companies had any legitimate business operations. Instead, they were simply used to shuffle money around to pay off the original investors. The SEC alleges that more than $20 million was siphoned off by the fraudsters.
MADISON TIMBER PROPERTIES LLC PONZI SCHEME
In May, the SEC announced the shutdown of a Ponzi scheme that affected more than 150 investors across the southeastern United States. According to the enforcement agency, Arthur Lamar Adams bilked investors out of more than $85 million in a complex Ponzi scheme.
Using a company called Madison Timber Properties, LLC, Mr. Adams told investors that he was purchasing lumber rights to properties in Florida, Alabama, and Mississippi. By then flipping these harvesting rights, Mr. Adams promised investors annual returns of 12 percent to 15 percent.
For years, investors received account statements indicating that Mr. Adams was good to his word. They were making positive returns. However, the reality was far different. These investors had returns that existed only on paper. Indeed, Madison Timber Properties, LLC owned almost no timber rights to any lands.
Instead, Mr. Adams had forged deeds and carefully put together false cutting agreements with lumber companies. The SEC contends that he was merely shuffling around investor money to keep the Ponzi scheme afloat.
LONGFIN CRYPTOCURRENCY STOCK FRAUD
Over the past several years, cryptocurrency has been one of the most popular alternative investments. Cryptocurrency and related companies are lightly regulated, making this a highly speculative and extremely risky investment option. Unfortunately, this sector has seen more than its fair share of investment fraud schemes.
In April, the SEC unsealed a fraud complaint in Manhattan, announcing that more than $27 million in assets were frozen in relation to the unlawful sale of the cryptocurrency stock LongFin. According to federal regulators, insiders at Longfin committed serious stock fraud when they sold more than $27 million in unregistered securities in their company.
THERANOS STOCK FRAUD (ELIZABETH HOLMES)
Profiled in a famous New Yorker column, Elizabeth Holmes was once the talk of Silicon Valley. The first female founder of a billion dollar startup, Ms. Holmes promised to revolutionize medical testing. Her company ‘Theranos” made headlines all over the world with its innovative upcoming products.
Sadly, the promises that Theranos made to investors and the public were illegitimate. In March, the SEC brought the company down. Theranos, Ms. Holmes, and the company’s president Ramesh “Sunny” Balwani were all implicated in a massive stock fraud scandal.
The SEC alleges that the company raised more than $700 million from investors on false grounds. The company’s promising technology was largely a fraud. Material misrepresentation and outright false statement were made to investors and the media to pump up the company.
NOTABLE FINANCIAL FRAUD CASES FROM 2017
A $250 MILLION OFFSHORE PUMP-AND-DUMP PENNY STOCK SCHEME
On February 6th, 2017, the United States Department of Justice (DOJ) announced that two men, Robert Bandfield and Gregg R. Mulholland, were being sentenced to prison for their role in at least 40 different ‘pump and dump’ schemes. Both men are U.S. citizens, though they executed the fraud while offshore. Through a complex scheme of money laundering and shell companies, the men engaged in a conspiracy to:
- Actively promote thinly traded securities (penny stocks) to American investors;
- Disguise their ownership interests in these companies; and
- Fraudulently manipulate trading volume and price movements of these securities.
In other words, the men worked to temporarily inflate the price of certain penny stocks that they owned through misleading statements and gross exaggerations. Then, they immediately sold their shares when the price increased. As an example, one company that they controlled, Cynk Technology Corp, had no revenue or assets, yet they managed to pump up the total valuation to more than $4 billion through false statements and aggressive marketing. Soon after, the men cashed out and the stock crashed.
DESARROLLADORA HOMEX FINANCIAL FRAUD
On May 3rd, 2017, the Securities and Exchange Commission announced major fraud charges against Desarrolladora Homex, a Mexico-based homebuilder. SEC investigators alleged that Desarrolladora Homex was engaged in a serious accounting scandal. According to the agency, the company overstated its revenue by more than $3.3 billion. Regulators believe that the company faked more than 100,000 total home sales over a three-year period.
In an unusual move, SEC officials presented satellite imagery showing that the company had not even ‘broken ground’ on properties where home sales were recorded on their books, and revenue was reported. While the company did not admit to any wrongdoing, it consented to an entry of judgment in a United States District Court. Among other things, this judgment prohibits this company from offering securities within the United States for at least five years.
JAY PEAK INVESTMENT FRAUD
On April 14th, 2017, Florida brokerage firm Raymond James Financial reached a $150 million settlement in connection to claims related to the Jay Peak redevelopment project.
Jay Peak is a ski resort in Northern Vermont that has been at the center of a major financial fraud case. According to charges from the Securities and Exchange Commission, Miami-based businessman Ariel Quiros fraudulently raised more than $350 million for the Jay Peak redevelopment project.
Representations were made to investors indicating that these funds were going directly to construction costs. Yet, the SEC believes that much of the money was siphoned off. Investigators believe that Raymond James Financial played a key role in facilitating the fraud scheme.
Though, the brokerage firm settled the claim without admitting fault. Beyond the Raymond James $150 million settlement, the SEC also recently announced an $81 million settlement with Mr. Quiros.
ATLANTA-AREA BROKERS DEFRAUD FEDERAL EMPLOYEES
In July, the SEC uncovered a serious fraud scheme targeted at federal employees who were at or nearing retirement. According to the agency, four Atlanta-area ex-brokers used a company called
Federal Employee Benefits Counselors to offer misleading financial products to older federal workers. All four former securities brokers were previously associated with LPL Financial. The legal complaint from the SEC alleges that these four individuals made material misrepresentations to investors.
More specifically, investors were promised guaranteed returns on variable annuity products. Yet, the associated fees were severely understated. In addition, investors were given the misleading impression that these products were offered, vetted, and approved by the federal government.
In reality, the variable annuities were unvetted and were wholly private investments. In all, the SEC believes that the brokers sold more than $40 million worth of variable annuities to federal workers. This allowed them to collect nearly $1.8 million in illegitimate commissions and fees.
MICHAEL SCRONIC’S PONZI SCHEME
In October, the SEC charged Michael Scronic with investment fraud. According to the complaint filed in the U.S. District Court for the Southern District of New York, Mr. Scronic operated a Ponzi-like scheme and made material misrepresentations to his investors.
Mr. Scronic took in more than $20 million in investor money, informing his clients that his so-called ‘hedge fund’ was profitable. In reality, he lost more than 88 percent of investor deposits and siphoned off nearly $3 million for his own personal use.
As his investors’ reported gains were fraudulent, his scheme relied on attracting new clients and the shifting of money around to pay off the previous investors. By July of 2017, the Ponzi scheme crashed, and Mr. Scronic was unable to pay back $200,000 to a client who was seeking redemption. At this time, the SEC believes that Mr. Scronic had only $27,500 in his account, despite owing investors nearly $20.8 million.
WOODBRIDGE WEALTH PONZI SCHEME
Earlier this year our founding attorney Jeffrey R. Sonn correctly predicted that Woodbridge was a Ponzi scheme. By later December of 2017, it became clear that federal officials agreed with that assessment. On December 21st, the SEC announced charges against the operators of Woodbridge Wealth.
According to the SEC, Woodbridge amounted to nothing more than a $1.2 billion Ponzi scheme, targeted directly at ordinary investors. The complaint contends that the Woodbridge business model is an outright sham. Instead of making successful high interest rate loans, as the company claimed to be doing, the SEC believes that Woodbridge was simply shuffling around investor money through a complex web of shell companies.
FOUR INFAMOUS FINANCIAL FRAUD CASES FROM HISTORY
THE ZZZZ BEST PYRAMID SCHEME
In the early 1980s, a high school student named Barry Minkow founded a carpet cleaning and insurance restoration company called ZZZZ Best. While the carpeting cleaning side of the business was real, the insurance restoration side of the business existed only on paper.
Nonetheless, Minkow was still able to take the company public and eventually get it listed on the NASDAQ exchange. Indeed, Minkow became the youngest person in history to lead an initial public offering (IPO), and managed to raise more than $15 million from investors.
Getting his company listed required faking thousands of disclosure documents and financial records. It also required Minkow to create a fake office to give investigators a tour of his company. Within a year of being listed on the NASDAQ, his firm was worth in excess of $280 million and it had more than 1,000 employees. Of course, because its insurance restoration business was entirely fraudulent, the firm quickly ran into severe cash flow problems.
To try to raise money quickly, Minkow attempted to merge within a competitor through a deal financed with junk bonds. However, allegations of the massive fraud soon went public and the deal, along with the entire scheme, came crashing down. Barry Minkow and nearly a dozen other corporate insiders were indicted on charges that included racketeering, securities fraud and embezzlement.
THE ENRON BANKRUPTCY SCANDAL
In 1999, Enron was poised to grow into one of the largest companies on the planet. Directors projected their revenue was to exceed $200 billion and their stock reach more than $90 per share. By November of 2001, the company’s stock had fallen to less than $1 per share and the company was entering the largest bankruptcy in history. What prompted such a precipitous fall?
Extensive and complex fraud.
As it turns out, Enron’s impressive revenue largely existed only on paper. The company used extraordinarily advanced and deceptive accounting practices that had the net effect of dramatically misrepresenting the company’s value to current and prospective investors.
Shareholders filed a $40 billion lawsuit against the company and the SEC brought criminal charges against many of the firm’s top executives.
BERNIE MADOFF’S PONZI SCHEME
Over a period of several decades, financial advisor Bernard Madoff conned thousands of innocent investors out of their hard earned life savings. A representative from the Securities Investor Protection Corporation (SIPC) estimated that investors lost out on more than $18 billion in the scheme.
Shockingly, that figure doesn’t even include an additional $40 billion in losses in the form of on-paper investor gains that turned out to be fabricated by Madoff and his co-conspirators. Madoff was able to keep the Ponzi scheme going for many years because of his ability to recruit new investors.
However, as with all Ponzi scheme, eventually Madoff ran out of new investors’ money to transfer around and the scheme fell apart.
MF GLOBAL’S COLLAPSE
MF Global was a large derivatives and commodities fund that went bankrupt in 2011. Beyond managing customer accounts, MF Global was also making their own ‘bets’ on world markets. Many of these bets were made in relation to European sovereign debt and related markets.
During the rocky financial times of 2011, investigators discovered that the financial brokerage firm had been unlawfully transferring money from client accounts to its own corporate accounts to hide trading losses and make the company appear to be solvent. In fact, the New York Times reported that MF Global dipped into customer accounts many different times to cover up for its own cash flow problems.
In the end, the company paid customers $1.2 billion in restitution as well as $100 million in fines.
WERE YOU A VICTIM OF FINANCIAL FRAUD?
We can help. At the Sonn Law Group, our experienced financial fraud lawyers are committed to advocating for the rights of investors nationwide. If you believe that you were a victim of investment fraud, our legal team can help. Please contact our office today to get a free, no strings attached review of your case.