Blotter: December 2011

Ponzi Classic

Post-Madoff, there is no shortage of Ponzi schemes. The SEC alleges that Garfield M. Taylor defrauded more than $27 million from about 130 investors in a Ponzi scheme perpetrated from 2005 to 2010. Taylor promised 20 percent annual returns to mostly middle-class residents of his own Washington, D.C.-metropolitan-area community with little to no investing expertise, offering them promissory notes that engaged in low-risk options trading. Instead, he invested in high-risk, speculative options trading and suffered huge losses. He also urged his clients to refinance their homes and use whatever means available to invest. In the usual Ponzi fashion, Taylor used the money from new investors to pay returns to earlier investors and induced current investors to solicit and refer new investors for him.

Beware the Hype

Who wouldn't love to get filthy rich on a steady diet of social media IPOs? That's what John A. Mattera and some of his friends were counting on. Together they created a new hedge fund named The Praetorian Global Fund and claimed the fund and affiliated entities owned tens of millions of dollars worth of shares in companies that are expected to soon launch IPOs, including Facebook, Groupon and others. They also told investors that an escrow service was receiving their funds. Instead, according to the SEC's complaint, Mattera and his partners never owned pre-IPO shares in the companies and the escrow service simply transferred investor funds to personal accounts. The SEC is seeking an emergency court order to freeze the assets of Mattera and 11 others. Mattera has been the subject of a prior SEC enforcement action and several state criminal actions.

Madoff Cog Charged

The SEC charged a longtime Bernie Madoff employee with fraud for his role in creating fake trades to facilitate the massive Ponzi scheme. David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, faces civil and criminal charges for his alleged role in creating the fictitious trade information. Kugel's own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years. The SEC has already charged two other longtime Madoff employees, Annette Bongiorno and JoAnn Crupi, for their roles in producing phony account statements that were sent to Madoff investors.

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