The Most Notorious US Financial Scammers
Every civilized society is dependent for its success on its citizens being able to trust one another. And most people actually do tend to trust one another. Why? Because they themselves are basically good, or at least reasonably honest, and believe they will be treated honestly by others – especially by “experts” who promise them aid and protection. But unfortunately, we all know there are times when trust is betrayed. In the world of finance and investing, for example, history has recorded a long succession of rogues who have seen the trust reposed in them by others as an invitation to lie, cheat, and steal. In fact, it wouldn’t surprise us to learn that the invention of fraud was nearly simultaneous with the invention of money.
We’ve attempted here to present in abbreviated fashion some of the more interesting stories of recent and not-so-recent scammers. This compendium is by no means exhaustive; we could easily have listed dozens more big time thieves. But our goal is simply to present you with some cautionary tales. The ones listed here should more than suffice.
One thing all of these successful con artists have had in common is that they were charming, persuasive, and seemingly smarter than the rest of us. They were freakishly talented at winning the trust of investors, brokerage firms, bankers, and even other Wall Street wizards. As you review these slides, consider your experiences with your own financial advisers. There’s nothing wrong with trusting them. But if red flags arise or even if you just sense something may be amiss and you don’t know why, don’t ignore your intuition. As the old proverb goes, “trust but verify.” Contact the securities lawyers at McCarthy, Lebit, Crystal, & Liffman Co., L.P.A. for a free initial evaluation of your situation. We’ll tell you if something is wrong and what we can do to help make it right.
William F. Miller
William Miller was a young bookkeeper who in 1899 was inspired to turn to larceny after being fleeced by a crooked stockbroker. Miller ran the so-called Franklin Syndicate, using as his motto Ben Franklin’s quote: “The way to wealth is as plain as the road to market.” The Franklin Syndicate promised its victims an astounding 10% weekly return on investment. This led to Miller earning the nickname “520 Percent Miller,” signifying his guarantee to investors of 520% profit per year. But Miller’s supposed investment fund did not exist. He actually paid returns to earlier investors using money paid in by new investors, the classic mechanism of what later became widely known as the “Ponzi scheme.” Some people speculate that newspaper reports of Miller’s fraud had actually inspired Charles Ponzi to emulate Miller.
Miller was able to con gullible, hard-working people by claiming he’d learned a trading secret on Wall Street or had inside information. His first victims were students in a Bible-study class he was teaching. This was an early example of affinity fraud: the practice of using personal relationships to swindle a specific group of which the scammer is a member, such as a church congregation, an ethnic community, or a private club.
Miller managed to defraud thousands of people before his scheme fell apart. He served just half of his ten year prison sentence for grand larceny.
Charles Ponzi’s scam is so legendary that his name will forever be attached to it: the “Ponzi Scheme.” An Italian immigrant who had arrived in the U.S. with virtually nothing, Ponzi found a way to get rich quick by buying international reply coupons, which were vouchers that could be exchanged for minimum postage back to a letter’s country of origin. Thus, if you sent someone in England a letter, you could include a coupon so she could respond at no cost. As exchange and postal rates fluctuated, one could legally make a profit by purchasing postal reply coupons cheaply in some foreign country, sending them back to the U.S. to swap them out for American stamps of a higher value, and then selling these stamps.
Then Ponzi got greedy. He began recruiting investors with promises of huge short term profits. But he wasn’t paying these investors by trading in international reply coupons. Rather, as new investors bought in, Ponzi funneled the profits to his current investors, scraping off money for himself along the way. The enterprise eventually became so huge and successful that it attracted the attention of Clarence Barron, owner of the Wall Street Journal and founder of Barron’s Magazine. Barron figured out that Ponzi was a huckster and exposed him in a report that ran on the front page of the Boston Post. Ponzi was arrested in 1920 and charged with 86 counts of mail fraud. He pled guilty, spent 14 years in prison, and died penniless in Brazil in 1949.
Ivar Kreuger is generally thought to have been one of the most ambitious swindlers in history, although some biographers have disputed his criminal intent. The Swede was known as the ‘Match King’ because he amassed a fortune manufacturing safety matches during the 1920s and eventually owned a near-monopoly in the worldwide manufacturing of matches. He later began negotiating international deals to expand his holdings, which comprised an incredibly complex empire consisting of hundreds of companies.
Kreuger’s optimism and his work channeling money from wealthy nations to impoverished ones made him one of the world’s most admired men. But after his apparent suicide in 1932, it was discovered that Kreuger had engaged in fraudulent accounting practices to overvalue his holdings and had been paying out dividends in excess of his earnings using newly invested money, a practice akin to a Ponzi scheme. His companies’ reported assets were massively overstated and the bankruptcy of Swedish Match Company alone cost American investors around $250 million, which in today’s dollars is equivalent to losses of nearly $4 billion.
Economist John Kenneth Galbraith wrote of Kreuger in 1961, “Boiler-room operators, peddlers of stocks in the imaginary Canadian mines, mutual-fund managers whose genius and imagination are unconstrained by integrity, as well as less exotic larcenists, should read about Kreuger. He was the Leonardo of their craft.”
Barry Minkow (ZZZZ Best)
In 1982, at the age of 15, Barry Minkow started a carpet cleaning company, named it ZZZZ Best, and ran the business from his parents’ garage. Though the company was never profitable, Minkow stole and sold his grandmother’s jewelry, staged break-ins at his offices, engaged in check kiting, and ran up fraudulent credit card charges in order to make payroll and create the impression that the cleaning business was thriving. A few years later, ZZZZ Best began to specialize in the insurance restoration business. Working in conjunction with a crooked claims adjuster, Minkow obtained bank financing by submitting forged documentation for non-existent restoration jobs. Fake restoration projects eventually accounted for more than 85% of the company’s revenues.
By 1986, the company had grown to 1,400 employees and its clientele included the Genovese mafia family. ZZZZ Best became a national story, and young Minkow became a celebrity. He took ZZZZ Best public, managing to trick Ernst & Whinney into certifying the company’s fraudulent financial statements. The company’s stock reached $18 a share and ZZZZ Best was valued at more than $280 million. However, in 1987, after the Los Angeles Times broke the story that the company’s purported restoration contracts were fictional, Minkow was arrested and indicted. While serving a 25 year sentence, he researched and exposed other fraudulent businesses. Based on the dollar amount of fraud he eventually uncovered and his claim that he had become a devoted Christian, Minkow’s sentence was reduced to just over seven years.
After his release, Minkow became pastor and CEO of the San Diego Community Bible Church. He was convicted in 2014 of embezzling $3 million from the church by various means, including stealing donations and arranging for an unauthorized church loan.
Charles H. Keating (Lincoln Savings and Loan)
In 1984, real estate mogul Charles Keating acquired Lincoln Savings and Loan, based in Irvine, California. Four years later, Keating seemingly had increased the assets of the bank from about $1 billion to more than $5 billion. But in truth, Lincoln’s reported assets were a product of deceptive accounting practices. For example, Keating and his partners at Lincoln swapped undeveloped lots with other companies but falsely characterized the trades as profit-producing sales.
Keating compounded the damage to Lincoln by investing two-thirds of its federally insured deposits in junk bonds and other high-risk ventures. In the mid-1980s, when federal regulators with the Federal Home Loan Bank Board (FHLBB) began looking at Lincoln’s practices, Keating gave large campaign contributions to a group of senators – subsequently known as “the Keating Five” – who intervened on Keating’s behalf with the director of the FHLBB. The Senate’s ethics investigation into the Keating Five, which included and cleared Senators John McCain and John Glenn, was a major scandal and derailed the careers of the other three senators.
By the time federal regulators finally took control of Lincoln in 1989, the S&L was insolvent. The Federal Savings and Loan Insurance Corporation (FSLIC) was forced to cover more than $3 billion in losses. This was the single biggest loss out of more than 1,000 failures in the savings and loan industry. The savings and loan crisis ultimately bankrupted the FSLIC and cost American taxpayers an estimated $124 billion. Charles Keating served just 50 months in prison before his conviction was overturned on technical grounds.
Thomas Petters (Petters Company, Inc.)
In 2010, Thomas Petters, then age 53, was sentenced to 50 years in federal prison for orchestrating a $3.65 billion Ponzi scheme. This sentence was one of the longest terms of imprisonment ever ordered in a financial fraud case. Petters Company, Inc., owned solely by Petters, was used for fraud from day one. Petters, with the help of his VP of Operations Deanna Coleman and co-conspirator Robert White, fabricated documents to entice investors into lending Petters money, purportedly to purchase electronics to be sold to big-box retailers such as Costco and Sam’s Club. To further his scheme, Petters also recruited two business associates to launder billions of dollars in investor funds. The money Petters obtained from investors was used to pay off earlier investors, purchase legitimate companies like Sun Country Airlines and Polaroid, and fund Petters’ lavish lifestyle.
Petters’ scam was discovered in 2008 when Deanna Coleman contacted the U.S. Attorney’s office to confess that she had been aiding Petters in a multi-billion dollar Ponzi scheme for ten years. Coleman wore a wire and taped conversations in which Petters was heard admitting that purchase orders were “fake” and claiming “divine intervention” was the only way to explain how he and co-conspirators had “gotten away with this for so long.” Divine intervention obviously was withdrawn, however, because Petters is incarcerated in Levenworth Penitentiary and his earliest possible release date is 2052, at which time he’ll be 95 years old.
Emanuel Pinez /James Murphy (Centennial Technologies Inc.)
In the mid-1990s, Centennial Technologies, Inc. was a high-flying computer tech manufacturer. Its founder and former CEO Emanuel Pinez and its former CFO James Murphy illegally sold their own Centennial stock, knowing that they had caused Centennial’s earnings, assets, and revenue to be overstated by approximately $40 million. Among other things, Pinez and Murphy caused Centennial to recognize revenue from invalid or nonexistent sales, to include fake or overvalued items in inventory, to make false additions to fixed assets, and to overvalue loans and investments resulting from shady transactions. Centennial’s stock price increased significantly as a result, rising 451% in 1996 alone, hitting $55.50 a share at the end of December, and becoming the best-performing issue on the NYSE for the year.
Pinez and Murphy were creative. As part of their fraudulent activities, they orchestrated sales of nonexistent products to Pinez’s friends who aided and abetted the scheme, paying with money funneled to them by Pinez. Centennial also improperly recognized millions in revenue when Pinez and Murphy directed employees to ship fruit baskets to various Centennial customers, thereby creating fake sales documentation to make it appear as if Centennial had actually sold and shipped $2 million of Centennial product.
Upon discovery of the financial irregularities at Centennial, the company announced that Pinez had been fired and Murphy relieved of his duties. Trading was halted, and when it resumed, the price of Centennial stock had plunged to slightly over $3 a share. More than 20,000 investors lost almost all of their money. Pinez was sentenced to five years in prison.
Walter Forbes (Cendant)
Cendant Corporation was a consumer services conglomerate formed in December 1997 through a $14 billion merger between two companies — HFS Inc. and CUC International. The merger combined the travel and hotel holdings of HFS with CUC’s direct marketing business. CUC’s top executives, led by former CEO and Chairman Walter Forbes, permitted an “anything goes” business environment that encouraged their subordinates to engage in accounting irregularities with impunity.
The shady accounting came to light in April 1998 and the disclosures sent Cendant stock into a tailspin, knocking more than $14 billion off Cendant’s market value in a single day. Forbes was removed from his position as Cendant chairman, along with the eight other directors who had served under him at CUC. He was convicted on charges that he masterminded an accounting fraud that, as of 1998, was the largest ever. It took eight years and three trials for prosecutors to finally get their conviction but on January 17, 2007, the 64-year-old Forbes was sentenced to more than 12 years in prison and ordered to make restitution amounting to $3.28 billion.
Frank Gruttadauria was a Cleveland-based stockbroker who ran a 15-year Ponzi scheme. His operation wasn’t huge in comparison to some of the heavyweights on this list — he only stole or lost in the range of $50 million to $100 million – but he was important because his fraud changed forever the way brokerage firms supervise branch managers who also make trades for clients.
Gruttadauria’s scheme was elegant and complex. He was able to steal his customers’ money by surreptitiously altering company files to show his customers’ addresses as post office boxes (which boxes were under his control), diverting the authentic monthly account statements to those post office boxes, and sending his customers fake account statements that he created on his computer. The fakes, which reported trades that were never actually made and showed false and vastly inflated account values, were remarkably convincing – so good, in fact, that even we, who handled a number of cases against Gruttadauria, had some difficulty telling them from the real thing.
Gruttadauria was a branch office manager, but trades he executed for his own customers had to be supervised by someone. He solved that problem by appointing as his supervisor an underling who reported directly to him – a circumstance that no longer is permitted in the industry due to Gruttadauria’s fraud.
Gruttadauria disappeared Jan. 11, 2002 after sending a letter to the FBI admitting he had stolen from investors. He also directed the FBI to incriminating data detailing his years of shifting money from one account to another. After evading arrest for nearly a month, he turned himself in. He was convicted and served a seven year prison term.
In 2004, government sponsored mega-mortgage lender Fannie Mae was brought low after a report from the Office of Federal Housing Enterprise Oversight, which leveled accusations of accounting manipulation and lying to investors. Fannie Mae was fined $400 million for its involvement in a sweeping scandal of over $11 billion. With almost 8 million documents under review during the investigation, Fannie Mae’s future was utterly tanked, all due to corporate greed by senior execs who were raking in millions of dollars in bonuses for years.
As the country’s biggest home mortgage buyer, Fannie Mae’s corruption caused shudders throughout the industry, and caused the SEC to limit its future growth. Meanwhile, its reputation as ‘one of the lowest-risk’ companies was shattered forever when it became clear that, from 1998 to 2004, its accounting was being doctored.
Bernard Ebbers (WorldCom)
In July 2005, a federal judge sentenced former WorldCom Inc. CEO Bernard J. Ebbers to 25 years in prison for his role in a massive accounting fraud. Ebbers had built WorldCom into the nation’s second largest long distance telecommunications company through a series of acquisitions that left it heavily in debt. In 2002, WorldCom’s admission that it had improperly reported $3.8 billion in expenses led to a federal criminal investigation. Ebbers was convicted on charges of securities fraud, conspiracy, and making false statements.
WorldCom filed for bankruptcy in July 2002 – the third largest bankruptcy ever – and its shareholders lost billions of dollars when the company’s stock price plummeted from $64 per share to a little over $1. The fraud at WorldCom ultimately topped $11 billion. Nearly 17,000 employees lost their jobs. The company later emerged from bankruptcy protection and renamed itself MCI Inc.
Kenneth Lay / Jeffrey Skilling (Enron)
Before its collapse, Enron marketed electricity and natural gas, delivered energy and other physical commodities, and provided financial and risk management services worldwide. Most of the companies top executives were tried for fraud after it was revealed in November 2001 that Enron’s earnings had been overstated by several hundred million dollars. But the two men who became synonymous with the scandal were Enron CEO Jeffrey Skilling and the company’s Founder, Board Chairman, and former CEO Kenneth Lay.
When the “too big to fail” company collapsed in 2001, more than 20,000 employees, many of whom had tied up their savings in Enron, lost their jobs. Direct and indirect investors — a group that included Enron employees, individual and institutional shareholders, mutual fund holders, and others — lost as much as $60 billion.
Both Skilling and Lay were found guilty of conspiracy, fraud, and insider trading. Lay died of a heart attack three months before his sentencing date while vacationing in Aspen. Skilling has served most of a 14-year sentence and is scheduled to be released in February 2019.The name Enron became synonymous with financial excess and disastrous management practices, making Enron the infamous symbol of corporate scandal in the 1990’s.
Tyco (Dennis Kozlowski)
In 1992, Leo Dennis Kozlowski became the CEO of Tyco International, a security system company. Unfortunately for Tyco, the new boss essentially viewed the company as a giant wallet from which he could take cash at will. Kozlowski was the kind of guy who bought a $6,000 shower curtain. He was the kind of guy who threw his wife a $2 million dollar Roman-orgy themed birthday party featuring gladiators, barely clothed male and female servers, an ice sculpture of Michelangelo’s David urinating Stoli vodka, and a performance by non-Roman rocker Jimmy Buffet. Kozlowski, along with a couple of Tyco’s other officers, looted the company in so many ways it would be impossible to describe them all in this brief entry. Among his crimes, Kozlowski took hundreds of millions of dollars in secret loans and received undisclosed compensation by forgiving the loans, accelerating the vesting of his Tyco stock, bestowing upon himself a $31 million Fifth Avenue apartment that Tyco purchased in his name, commandeering Tyco corporate jets for personal use at little or no cost, directing millions of dollars of charitable contributions in his own name using Tyco funds, buying more than $14 million in artwork paid for by the company, and awarding himself $81 million in unauthorized bonuses. Kozlowski was convicted in 2005 and released in 2014 after serving an eight-year sentence.
James P. Lewis, Jr. (Financial Advisory Consultants)
The Ponzi scheme operated by James Lewis, Jr. wasn’t the largest ever, but its duration was extraordinary. Lewis managed to operate his scam for nearly two decades, during which time he bilked thousands of investors out of an estimated $311 million. Lewis’ fraud also was one of the purest examples of a Ponzi scheme in that his purported enterprise was non-existent: he never invested his victims’ money in anything. Lewis ran a company called Financial Advisory Consultants, through which he pretended to operate two investment funds. He told investors he was earning returns of 18% to 40% by leasing medical equipment, financing purchases of medical insurance, making commercial loans, and buying and selling distressed businesses. In reality, he was merely using newly invested money to pay dividends or redemptions to earlier investors, while skimming off millions to support a lavish lifestyle.
As an active member of the Mormon Church, Lewis was able to engage in what is known as affinity fraud, the practice of defrauding members of one’s own particular club, religious group, nationality, or other social group. Lewis was able to use his religious affiliation to entice church members and church-related groups to invest in his supposed funds. The longevity of his scheme was aided by the fact that he mainly sought to control tax-deferred retirement money, since it was less likely that his victims would attempt to access those funds on any frequent large scale basis.
When Lewis’ scheme began to unravel in 2003, he froze approximately 150 accounts and told the investors that Homeland Security had ordered him to do so. He then withdrew $3 million and went on the lam but was quickly captured by the FBI. Lewis was sentenced to a maximum prison sentence of thirty years.
Samuel Israel III (Bayou Hedge Fund Group)
Sam Israel, despite being the grandson of a well-known commodities broker, reputedly didn’t know much if anything about securities trading. That lack of knowledge didn’t deter him from founding Bayou Hedge Fund Group in 1996. And he succeeded spectacularly, quickly winning the trust and managing the money of some of Wall Street’s biggest players. Bayou’s trading record was indeed stellar, at least on paper. But the firm’s profits were entirely fictitious. In reality, Bayou consistently lost money. That didn’t impede Israel, who had auditors bless Bayou’s numbers in letters to investors. Of course, the accounting firm reporting to the investors was fictitious, created by Israel and his partners in every detail, right down to its stationery and logo. At one point, Israel claimed his bogus funds held as much as $450 million under management.
Israel’s Ponzi scheme enabled him to steal millions from investors. He was so successful that he was able to move into a mansion just north of New York City, renting it from Donald Trump for $32,000 a month. But the scam began to fall apart in 2005 when Israel himself became the victim of a scam artist, a tale too convoluted and bizarre to recount here. It suffices to say that Israel eventually was arrested, pled guilty, and was sentenced to 20 years in prison. But the story doesn’t end there. The day Israel was to report to prison, he attempted to fake his own suicide, cryptically scrawling “Suicide is Painless” in the dust on his car hood and leaving the car parked on a bridge just north of Manhattan. The FBI didn’t buy it and searched for him for two months, at which point he finally turned himself in and had two years added to his sentence. He remains incarcerated; his earliest possible release date is in 2027.
Philip Bennett (Refco)
Refco Inc., a New York foreign exchange and commodities brokerage firm dealing in the fixed-income, commodities, and foreign exchange markets, was one of the biggest futures brokers on the Chicago Mercantile Exchange. Beginning in the 1990s, Refco began extending credit to customers, some of whom failed to repay the loans. Refco CEO Philip Bennett concealed hundreds of millions in losses from securities regulators and company auditors by shifting them to a third-party company he controlled, disguising the losses as receivables owed to Refco by Bennett’s company. Meanwhile, Bennett’s fraud enabled him to by a collection of expensive cars (including seven Ferraris); a $20 million jet plane; luxury homes, and a rare art collection worth more than $29 million.
Refco shares were traded publicly for just two months. Following an IPO in 2005, they opened at $22 per share and went as high at $30.12. Just a month later, however, Bennett was found to have been covering up the company’s debt and using loans from an Austrian bank to help hide the fact. Once news of the fraud hit, the stock tanked to $0.80 per share. Refco immediately declared bankruptcy, ultimately wiping out 17,000 retail brokerage account holders. In October 2005, Bennett was charged with hiding $430 million in debt, which cost shareholders about $2.4 billion, only half of which was ever recouped. Bennett has six years remaining on his sixteen year sentence.
Bernard Madoff may be more synonymous with the Ponzi scheme than Charles Ponzi himself. Most people in the U.S. are familiar with Madoff, who executed the largest Ponzi scheme in history. He managed to defraud thousands of investors, stealing tens of billions of dollars over the course of at least 17 years, and perhaps much longer. Despite claiming to generate large, steady returns for his clients, Madoff simply deposited all client funds into a single bank account. He then used that account to run a classic Ponzi scheme, continually attracting new investors and using their capital to pay clients who wanted to cash out.
The SEC famously ignored warnings and red flags about Madoff for years. But Madoff’s scheme was unable to survive the financial meltdown of 2008 and an avalanche of redemption requests from clients. Madoff confessed to his sons — who he claimed were not aware of the scheme — on Dec. 10, 2008. They turned him into the authorities the next day. The fund’s last statements indicated it had $64.8 billion in client assets. While Madoff pled guilty in 2009 and received a 150-year prison term, thousands of investors lost their life savings. But the good news is that as of February 22, 2018, the appointed Trustee reported he had recovered or reached agreements to recover approximately $12.846 billion, representing more than 73 percent of the estimated $17.5 billion in principal lost in the Ponzi scheme by Bernard L. Madoff Investment Securities LLC customers who filed claims. The Trustee has said he expects to recover all of the lost principal and perhaps more.
Scott W. Rothstein
Scott Rothstein, an ex-attorney from the Bronx, ran a scheme selling shares in phony lawsuit settlements. His Florida-based firm bilked clients out of $1.2 billion in the Ponzi scheme, allowing Rothstein to collect sports cars as if they were Hot Wheels toys.
He ran his Ponzi scheme until his until his firm, Rothstein Rosenfeldt Adler, was finally busted after he flew to Morocco then inexplicably sent a message to colleagues, stating, ‘I am a fool. I thought I could fix it, but got trapped by my ego and refusal to fail, and now all I have accomplished is hurting the people I love.’ In the end, his actions cost 70 attorneys their jobs. Rothstein, meanwhile, was handed a 50 year sentence.
March 2008 hosted a week of investment bank terror as Bear Stearns, an 85 year old firm and one of the largest in the nation, watched its shares plummet from $65 to $2. CEO Jimmy Cayne accurately, if strangely, predicted he’d be the company’s last CEO a mere two months earlier. Cayne, in contrast with his cautious predecessor Alan Greenberg, was a jet-setting rock star of a banker, hitting up the links, taking long vacations, and generally laughing in the face of ‘risk.’
Thus it came to pass that Bear’s traders racked up $50 billion in mortgage assets…just in time for the market collapse. Two of Bear’s mortgage hedge funds went belly up and for the first time ever, Bear recorded a financial loss that quarter. Cayne stepped down, but the damage was done. The bank, one night, realized they couldn’t even afford to open the next day and had to ask JP Morgan Chase for a $25 billion loan. Ultimately the Federal Reserve loaned Chase enough to buy out Bear…a decision all came to regret.
Harvard man and New York attorney Marc Dreier was convicted of operating a multi-million dollar investment fraud under his 250-person, Park Avenue firm Dreier LLP. Dreier was guilty of ‘swindling hedge funds and investment funds in a four-year-long scheme that unraveled in the financial crisis,’ as well as ‘securities fraud, conspiracy, wire fraud and money laundering.’ Quite a long list of offenses.
Indeed, Dreier has been ‘ranked with those who have committed some of the most egregious frauds in history.’ At the time of his indictment, he was on the hook to repay $400 million from the sale of fake promissory notes. In court, the slick haired attorney stated outright he was well aware that his actions were illegal. At least he was honest in the end
Allen Stanford (Stanford Financial Group)
Robert Allen Stanford is a former financier who began serving a 110-year federal prison sentence in 2012, having been convicted of operating a massive Ponzi scheme through his investment company, Stanford Financial Group (SFG). Stanford defrauded roughly 28,000 investors throughout the 1990s and early 2000s. By the time his scheme crumbled in 2009, more than $7 billion in investments had disappeared. Much of that money came from investors who bought certificates of deposit issued by Stanford International Bank (SIB), a bank SFG owned in Atigua. The CDs were falsely marketed as ultra-safe investments promising improbably high returns. Contrary to SIB’s public statements, Stanford and the CFO of Stanford Financial Group, James Davis, misappropriated at least $1.6 billion of investor money through bogus personal loans to Stanford, and they “invested” an undetermined amount of investor funds in speculative, unprofitable private businesses controlled by Stanford.
To conceal their fraudulent conduct and maintain the flow of investor money to SIB, Stanford and Davis fabricated the monthly performance of the bank’s investment portfolio. Stanford also engaged in a massive money laundering operation using SIB.
Stanford’s victims have recovered less than one cent on the dollar since a court placed SFG in receivership in February 2009. Yet after his imprisonment in 2012, Stanford publicly whined, “I didn’t do anything wrong,” stating he would not apologize and promising, “Mark my words… I am going to walk out the doors of this place a free man.” If true, he also will walk out the doors as a 172-year old man.
Joseph J. Lampariello, former president of Medical Capital Holdings, was handed a 10 year in jail and a $40 million restitution bill to compensate investors from whom his California company had misappropriated funds since 2003. He’d also misused his own company, which was involved in ‘medical receivables financing,’ to siphon off millions in ‘administrative fees’ for himself.
Lampariello defrauded 700 investors of nearly $49 million through the Medical Capital scheme. As one investor put it upon hearing the news: ‘I felt gutted like a fish.’
The SEC sued Medical Capital in 2009 for having made $543 million in fake receivables, not to mention the fact that Medical Capital had defaulted on nearly $1 billion due to investors. But it wasn’t until March 2010 that federal prosecutors began their investigation into Lampariello, who was using the company to finance a multi-million dollar movie about a Mexican Little League team.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA. Hugh is rated AV® Preeminent™ by Martindale-Hubbell®.
He obtained a business degree in Finance from the University of Texas at Austin in 1989, and is a 1994 graduate of Case Western Reserve University School of Law, where he was a member of the Order of the Barristers and received both the American Jurisprudence Award, (National Mock Trial) in 1993 and the Jonathan M. Ault Mock Trial Prize for 1993-1994.