Second Funds Distribution in Madoff Case

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Thursday, April 12, 2018

Department of Justice Begins Second Distribution of Funds Recovered Through Asset Forfeiture Totaling $1.2 Billion to Compensate Victims of Bernard Madoff Fraud Scheme

The Department of Justice today announced that on April 12, the Madoff Victim Fund (MVF) began its second distribution of $504 million in funds forfeited to the U.S. Government in connection with the Bernard L. Madoff Investment Securities LLC (BLMIS) fraud scheme, bringing the total distributed to over $1.2 billion.  These funds will be sent to over 21,000 victims across the globe. This distribution represents the second in a series of payments that will eventually return over $4 billion to victims as compensation for losses they suffered from the collapse of the BLMIS.  The MVF has received over 65,000 petitions from victims in 136 countries.

Attorney General Jeff Sessions, Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and U.S. Attorney Geoffrey S. Berman for the Southern District of New York made the announcement.

“In one of the most notorious and unconscionable financial crimes in history, Bernie Madoff robbed tens of thousands of individuals, pension plans, charitable organizations and others, all the while funding a lavish personal lifestyle,” said Attorney General Sessions.  “Through the use of asset forfeiture, the Department of Justice has recovered over $4 billion of Mr. Madoff’s fraud, and we continue to work to compensate those he defrauded.  Last June, the Department approved more than 39,000 petitions for compensation.  Today, during National Crime Victims’ Rights Week, the Department returns more than a half-billion dollars to nearly 22,000 law-abiding people and organizations. We cannot undo the damage that Bernie Madoff has done, but today’s distribution will provide significant relief to many of the victims of one of the worst frauds of all time.”

“Bernie Madoff committed history’s largest Ponzi scheme,” said U.S. Attorney Berman.  “This Office prosecuted Madoff himself, and others who helped perpetrate his fraud, and continues to vigorously pursue money recoveries for his victims.  Today’s payment of more than $500 million is this Office’s second installment in a series of distributions that represent our ongoing commitment to find relief for victims of Madoff’s heinous crimes.”

For decades, Bernard L. Madoff used his position as Chairman of BLMIS, the investment advisory business he founded in 1960, to steal billions from his clients.  On March 12, 2009, Madoff pleaded guilty to 11 federal felonies, admitting that he had turned his wealth management business into the world’s largest Ponzi scheme, benefitting himself, his family and select members of his inner circle.  On June 29, 2009, U.S. District Judge Denny Chin sentenced Madoff to 150 years in prison for running the largest fraudulent scheme in history.  Judge Chin ordered Madoff to forfeit $170.799 billion as part of Madoff’s sentence.

Of the approximately $4.05 billion that will be made available to victims, approximately $2.2 billion was collected as part of the historic civil forfeiture recovery from the estate of deceased Madoff investor Jeffry Picower.  An additional $1.7 billion was collected as part of a Deferred Prosecution Agreement with JPMorgan Chase Bank N.A. and civilly forfeited in a parallel action.  The remaining funds were collected through a civil forfeiture action against investor Carl Shapiro and his family, and from civil and criminal forfeiture actions against Bernard L. Madoff, Peter B. Madoff and their co-conspirators.

The MVF’s payouts would not have been possible without the extraordinary efforts of the U.S. Department of Justice Criminal Division’s Money Laundering and Asset Recovery Section, the U.S. Attorney’s Office for the Southern District of New York, and the FBI in the prosecution of these crimes and the recovery of assets supporting the forfeiture in this case.  The MVF is overseen by Richard Breeden, former Chairman of the U.S. Securities and Exchange Commission, in his capacity as Special Master appointed by the Department of Justice to assist in connection with the victim remission proceedings.

More information about MVF and its compensation to victims of BLMIS is available on the MVF website at www.madoffvictimfund.com, such as eligibility criteria, process updates, and frequently asked questions.  Further questions may be directed to the MVF at 866-624-3670 or info@madoffvictimfund.com (link sends e-mail)

Topic(s):
Asset Forfeiture
Press Release Number:
18-447

SEC Halts $207 Million Traffic Monsoon Ponzi

sec-logo

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23604 / July 28, 2016

Securities and Exchange Commission v. Traffic Monsoon et al., No. 2:16-cv-00832-JNP (D. Utah filed July 26, 2016)

SEC Halts $207 Million Internet-Based Ponzi Scheme

The Securities and Exchange Commission today announced that it has obtained an asset freeze against the operator of a Utah-based international Ponzi scheme that raised more than $207 million from investors worldwide, primarily in the U.S., India and Russia.

In a complaint filed in federal court in Salt Lake City on July 26, the SEC alleges that Traffic Monsoon LLC and Charles Scoville, the company’s only member operated an Internet-based Ponzi scheme that they falsely represented to investors was an advertising company. According to the SEC complaint, Scoville began operating Traffic Monsoon in October 2014 as a combination Internet traffic exchange and pay-per-click program and recruited more than 162,000 investors around the world. According to the complaint, although Traffic Monsoon markets itself as a highly successful company, nearly all of its revenue is generated by other investors, not its products or services. The complaint alleges that more than 99% of Traffic Monsoon’s revenue is derived from new investor funds, making claims that it is a successful advertising business merely an illusion.

The SEC’s complaint alleges that Traffic Monsoon and Scoville violated Sections 5(a), 5(c) and 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder. Among other things, the SEC’s complaint seeks permanent injunctions, prohibiting further violations of the laws charged, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties from Traffic Monsoon and Scoville.

The SEC’s investigation was conducted by Alison Okinaka, Scott Frost and Cheryl Mori of the SEC’s Salt Lake Regional Office. Daniel Wadley is leading the SEC’s litigation.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2016/lr23604.htm

 

TelexFree: Bankruptcy Claims Disqualified?

In addition to finding that TelexFree was a Ponzi/Pyramid, Judge Melvin S. Hoffman also issued this decision; allowing the Motion to find TelexFree a Ponzi Pyramid causes “all prior claims files by any person against the debtors or governmental authorities to be disqualified.”

The Trustee must serve a Notice of this by December 7, 2015.


 

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Vemma: Judge Issues Order Granting and Denying Parts of Preliminary Injunctions

Read the full 27 page ORDER (118) here.  Below are the major points made: [emphasis added]

considering the FTC’s ultimate likelihood of success on the merits, a preliminary injunction is in the public interest.

The evidence before the Court leaves little doubt that the FTC will ultimately succeed on the merits in demonstrating that Vemma is operating a pyramid scheme.

With regard to the first Koscot prong, Vemma’s bonus structure and training materials are designed to make new Affiliates buy a $600 Affiliate Pack, which makes payment for the right to sell a Vemma product if not a written requirement, a practical one. With regard to the second Koscot prong, the evidence shows that the bonuses Affiliates earn are primarily for recruitment of other Affiliates, not the sale of products.

Courts consistently conclude that misrepresentations regarding income potential are material and violate the FTC Act. For instance, in communicating the earnings of its distributors, an entity may not “make deceptive use of unusual earnings realized by only a few” without running afoul of the FTC Act.

Some Vemma material also contains representations the Court would characterize as ridiculous—bordering on absurd—such that a listener could not reasonably be expected to believe them. But numerous Vemma content contains income representations that are likely to mislead consumers acting reasonably under the circumstances, and that content is thus deceptive.

The Court finds that, even in light of the argument and evidence provided by Defendants, the FTC has met its burden to show a likelihood of success on the merits in demonstrating Vemma, Mr. Boreyko and Mr. Alkazin are making material misrepresentations and omissions, as well as furnishing Vemma Affiliates with the means and instrumentalities to make material misrepresentations and omissions, in violation of the FTC Act.

The public interest in halting Defendants’ deceptive acts under Section 5(a) of the FTC Act outweighs Defendants’ interest in continuing to operate their private business. See id. As a result, the FTC is entitled to a preliminary injunction against Defendants. See id.

Viewing all the evidence in light of this case law, the Court concludes that measures less drastic than some of the relief the FTC seeks are available to remedy the harms shown.

The Court’s finding that some significant amount of Defendants’ product is sold to persons not pursuing the business opportunity persuades it that, while the FTC has shown that aspects of Defendants’ marketing program likely constitute unlawful activity as discussed above, not all aspects of the business are necessarily pyramidal or otherwise illegal. Thus, the Court will tailor injunctive relief to preclude components and practices of the Defendants’ marketing program that would promote pyramid activity and misleading statements, but will not prohibit all business activity.

The Court also will not order a Permanent Receiver, but will instead appoint a Monitor. Finally, the Court will unfreeze corporate and individual financial accounts, although it will restrain the alienation of certain other assets to ensure their availability to satisfy monetary relief, should same be awarded after a trial on the merits.

The Court will enjoin those aspects of Defendants’ program promotion that implicate false and misleading representations, including making any representations about income potential without adequate disclaimers and ready referral to accurate income potential disclosures.

The Court will require Defendants to remove all non-compliant material from its “Back Office” websites, all other web-based and other repositories for training and promotional material, and to undertake diligent efforts to require all Affiliates to do the same.

Regarding the pyramid scheme, the Court will enjoin those features of Defendant’s Marketing Program and bonus structure that tie bonuses primarily to recruiting and to the purchase of product principally to stay eligible for those bonuses.

Because more tailored, less restrictive measures as set forth above and below will adequately protect the public interest, the Court concludes that a receivership is no longer justified.

The Court will appoint a Monitor. Federal courts repeatedly have approved the use of a special master to monitor compliance with court orders and consent decrees. In this case, counsel for Defendants themselves suggested monitoring as an alternative to receivership. The Court will appoint Robb Evans and Associates, LLC (REA) as Monitor in this matter.

The appointed Monitor will be charged with observing Defendants’ business practices to ensure that the Corporate Defendants are complying with the preliminary injunction, and is to have access to all operations and records of the Corporate Defendants. The Monitor shall also observe whether the Corporate Defendants’ assets are properly spent on ordinary and necessary business expenses. The Monitor will not have direct control over the Corporate Defendants’ business operations or assets, but if a violation of the Preliminary Injunction were observed, the FTC is authorized to seek an appropriate remedy from the Court.

The Court is mindful that allowing the Corporate Defendants to resume operation of their business and unfreezing associated accounts and assets presents a possibility that the business will not succeed and, in that event, if the FTC ultimately is successful on the merits of this case, there would be less money available to satisfy victims.

But Vemma’s testimony and argument in their briefing that they are capable of, and intend to, operate the business even under the provisions this Court found necessary to safeguard against violations of the FTC Act, supported by evidence that there is some demand for the product when unbundled from the business opportunity, leads the Court to conclude it is appropriate to allow the business to move forward in that fashion. The injunction will not contain a freeze on any of Defendants’ financial accounts.

So, there you have it…….

Sann Rodrigues Tied to DFRF Ponzi Scheme

This comes from the SEC Complaint regarding DFRF Enterprises, indicating Sann Rodrigues is neck deep in very many schemes: (emphasis added)

81. In addition, Filho has caused DFRF to pay more than $310,000 for the benefit of Sanderley Rodrigues de Vasconcelos (“Rodrigues”). Rodrigues is the subject of a 2007 consent judgment in a Commission enforcement action concerning the “Universo Foneclub” pyramid scheme, and he is a defendant in the Commission’s pending enforcement action concerning the “TelexFree” pyramid scheme. On March 21, 2015, Filho caused DFRF to pay $50,000 to a business belonging to Rodrigues. (The payment was made less than one month after Filho publicly denied any link between DFRF and TelexFree.) On March 30, 2015, Filho caused DFRF to pay $100,000 to the same business. On April 2, 2015, Filho caused DFRF to supply more than $160,000 so that another business belonging to Rodrigues could purchase a 2008 Lamborghini sports car. There is no evidence that Rodrigues provided any services or other benefit to DFRF.

Achieve Community: Judge Issues Order to Show Cause

On June 16th, US Magistrate Judge Shaffer issued 2 Orders to Show Cause, the first was aimed at  “Work with Troy Barnes, Inc.”, “Achieve International, LLC” and the second at Defendant Troy Barnes. These Orders are a result of Barnes failing to appear through counsel at the Status Conference held on June 3rd. Here’s a grab from the first Order:

“The court’s records indicate that neither WWTB’s nor Achieve International’s copies of the Minute Order were returned to the court as undeliverable. The court held the Status Conference on June 3, 2015 at 11:10 a.m. Defendant WWTB and Relief Defendant Achieve International did not appear and have not contacted the court to explain their failure to appear.”

“Accordingly, IT IS ORDERED that Defendant Work With Troy Barnes, Inc. and Relief Defendant Achieve International LLC shall show cause in writing on or before Thursday, July 2, 2015 why a default judgment or other sanctions should not be imposed against them for failure to comply with a court order and the Local Rules of Practice for the United States District Court for the District of Colorado. Defendant Work With Troy Barnes, Inc. and Relief Defendant Achieve International LLC are hereby warned that failure to respond to this Order to Show Cause on or before Tuesday July 2, 2015 may result in a default judgment or other sanctions against them without further notice.”

The second Order issued states:

“The court’s records indicate that Mr. Barnes’s copy of the Minute Order was not returned to the court as undeliverable. The court held the Status Conference on June 3, 2015 at 11:10 a.m. Defendant Barnes did not appear and has not contacted the court to explain his failure to appear.”

“IT IS ORDERED that Defendant Troy A. Barnes shall show cause in writing on or before Thursday, July 2, 2015 why he should not be held in contempt for failure to comply with the court’s order setting the Status Conference.”

TelexFree: Status Report and Change in Status Conference

telexfree-logoFilled on June 11th, we have a Combined Interim Status Report, Joint Motion to Adjourn Upcoming Status Conference and for the Exclusion of time under the Speedy Trial Act as it relates to the TelexFree criminal case. Since the last status report, the government has provided the following discovery:

  • Data from Hotmail email accounts for Wanzeler and Costa
  • Data from Apple email for Wanzeler
  • Various recordings made by HSI agents
  • Copies of Search and Seizure Warrants for Amazon Web Services
  • Translated and untranslated interview reports from Brazilian Federal Police
  • Court order on Government’s Motion to Amend Sealing Orders
  • Ernst and Young Forensic Accounting Report
  • Copy of the application package for and order pursuant to 18 United States Code §2703(d) Orders for records from iBasis Inc.(Sealed case)

The Motion goes on to state: “In light of the above, and in keeping with the Court’s designation of this matter as a “complex case” under 18 U.S.C. s 3161(h)(7)(B)(ii), the government suggests an interim status conference in approximately 60 days to August 14, 2015.”

Zeek Rewards: NXSystems Files Motion for Partial Relief from June 1st Order

NXSystems is asking the Court to reconsider its June 1st Order “directing NxPay to pay $9,069,446.52zeekrewards to the Receiver within 5 days to be frozen in a segregated account pending final disposition of the dispute.”

The Motion goes on to say that NXSystems has voluntarily turned over around $22 Million dollars to the Receiver, does not have possession of any the claimed additional funds, and are financially unable to meet the Order of the Court.

In order to “comply” with the Court’s Order, they have made arrangements to transfer $1 million dollars to the Receiver’s account today.  Sounds a bit short of $9 million dollars to me, but NXSystems believes it to be “substantial”, and that they still believe there are no funds owed to the receivership. They also say this payment presents a significant financial hardship for them because their business has declined steadily since being associated to the Zeek case and RVG’s wrongdoing.

They included a Declaration from Michael Busher, Chairman of the Board of NXSystems, Inc. in an effort to buttress the Motion for Partial Relief. Additionally, he repeats their interpretation for not owing any more money and that they merely acted as a go-between, that RVG deposited money into an account holder’s account, so they are therefore not the guilty party, RVG is. Good luck with that.

Many more claims are made in this Declaration, which you can read on the Files website, ZeekDoc368-1.

We also have a “Memorandum In Support” of this Motion, stating that NXSystems in incapable of paying the $9 million dollars. It is also on the Files website.

 

Zeek Rewards: Government Motion for Peremptory Trial Setting

In a Motion filed May 15th, the government made a Motion for Peremptory Trial Setting for November 2015. The motion mentions the following:

  • it is approximately one year from Defendants arraignment
  • the amount of data is so large that every page cannot possibly be reviewed; it will be necessary to conduct searches of computerized data
  • Defense counsel is abundantly familiar with the case and has worked for Burks since before the federal criminal investigation
  • Defense counsel was familiar enough with the evidence to negotiate a settlement  between Burks and the SEC in August of 2012, in 3:14-cv-89
  • The discovery is voluminous but not overly complicated; the details of the data are largely immaterial to the conduct set forth in the indictment
  • The conduct took place almost wholly between January 2010 and August 2012; Tin Fulton represented Burks for at least 8 months prior to government’s seizure
  • This case involves an incredible number of victims for whom a Special Master has been appointed by the Court.
  • A speedy trial is also important to preserve the memories of witnesses. Defendant Burks – who is not detained – is incentivized to delay the trial for as long as possible.

Zeek Rewards: Receiver Adds 10 New Defendants in British Virgin Islands “Winners” Suit

The original complaint, filed on February 13th, listed 5 alleged “winners”, all of which are in the British Virgin Islands;

  • Agnita Solomon, “net winner” of $2,057,355.61
  • Marguerite D. Hodge, “net winner” of $115,776.29
  •  Susan Forbes “net winner” of $603,288.30
  • Marcus Drigo,  “net winner” of $70,262.52
  • Patrice Harewood, “net winner” of $59,940.74

The Amended Complaint filed today lists 10 more Defendants:

  • Vernon Lettsome, “net winner” of $2,036,742.37
  • Trevor Potter, “net winner” of $293,221.85
  • Simon Potter,  “net winner” of $230,570.61
  • Esther Potter, “net winner” of $187,990.96
  • Elcina Frett, “net winner” of $148,000.22
  • Hercules Fraser, “net winner” of $67, 201.35
  • Kishma Reefe, “net winner” of $55,149.26
  • Ruth Matthew,  “net winner” of $136,277.95
  • Wesley Legair, “net winner” of $117,079.49
  • Sophia Richards, “net winner” of $96,238.79

The new Defendants raise the amount of claw-backs in this civil suit to $ 6,275,096.31