COURT GRANTS SUMMARY JUDGEMENT IN MRI INTERNATIONAL INC., PONZI SCHEME

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23111 / October 10, 2014

Securities and Exchange Commission v. Edwin Yoshihiro Fujinaga and MRI International, Inc., et al., Civil Action No. 2:13-CV-1658 JCM (CWH) (D. Nev.)

SEC Obtains Summary Judgment Win On Liability in Ponzi Scheme Case

On October 3, 2014, the Honorable James C. Mahan, United States District Judge for the District of Nevada, granted the Securities and Exchange Commission's motion for summary judgment on liability against defendants Edwin Fujinaga and MRI International, Inc. on all charges against them, including violations of the antifraud provisions of the federal securities laws.

In a case originally filed on September 11, 2013, the SEC alleged that Fujinaga and his company, MRI, perpetrated an elaborate Ponzi scheme designed to misappropriate money from investors. The SEC alleged that the defendants raised more than $800 million from thousands of investors living primarily in Japan under the ruse that MRI was using their investments to buy medical accounts receivable from medical providers at a discount to recover their full value from insurance companies. The SEC alleged that the defendants used the investments to pay back earlier investors, and that Fujinaga used investor funds for his own purposes, including to buy property and luxury cars. In granting summary judgment in favor of the SEC, the court found that "Fujinaga had sole control over investment funds, using them for his own personal benefit" and, "[w]hile depleting the pool of collected investments, Fujinaga facilitated a Ponzi scheme funded by new investments."

The court's summary judgment opinion finds that Fujinaga and MRI violated Sections 17(a)(1), (2), and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The court has not yet determined the appropriate relief against the defendants, and the litigation is ongoing for remedies purposes. The SEC's case is also continuing against multiple relief defendants, who the SEC alleges received and used investors' funds.

For further information, please see Litigation Release Number 22832 (October 3, 2013) [SEC Obtains Asset Freeze and Other Emergency Relief in Ponzi Scheme Targeting Investors in Japan].

The SEC appreciates the assistance of the Financial Services Agency of Japan and the Securities and Exchange Surveillance Commission of Japan in this matter.

CFTC CHARGES MAN AND COMPANY WITH FRAUD AND EMBEZZLEMENT RELATED TO COMMODITY POOL AND PONZI SCHEME

FROM:  COMMODITY FUTURES TRADING COMMISSION

CFTC Charges Ohio Resident John R. Bullar and his Company, Executive Management Advisors L.L.C., with Fraud and Embezzlement in Operating an $8.3 Million Commodity Pool and Ponzi Scheme

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed a federal civil enforcement action in the U.S. District Court for the Southern District of Ohio against Defendants John R. Bullar, who resides in Cincinnati, Ohio, and Executive Management Advisors L.L.C., a company organized in Ohio and of which Bullar was the sole principal. The CFTC Complaint charges that the Defendants, while acting as Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs), fraudulently solicited over $8.3 million from at least 40 investors for pooling and trading in futures and options; provided participants with false account statements; embezzled and misappropriated participants’ funds; and acted as CPOs and CTAs while failing to register as such with the CFTC.

The CFTC Complaint alleges that the Defendants represented to participants that their funds would be pooled in a managed account to trade commodity futures and options contracts on designated contract markets. However, according to the Complaint, only a fraction of the participants’ funds was traded. Instead, as alleged, the Defendants operated a Ponzi scheme and misappropriated and embezzled approximately $6 million of participants’ funds. Bullar used these funds to pay his personal expenses, make cash withdrawals, issue checks to himself, and transfer money to his personal accounts or accounts that he controlled, according to the Complaint.

The CFTC Complaint further alleges that the Defendants misrepresented and omitted material facts to pool participants by intentionally or recklessly (1) failing to disclose that most of the participants’ funds would not be invested and traded, (2) failing to disclose that Defendants were misappropriating and embezzling participants’ funds, (3) providing participants with false account statements showing fictitious profits and account balances and concealing trading losses, and (4) failing to disclose that pool participant funds were being used to pay certain pool participants their fictitious trading profits and/or balances as reported on false account statements for such participants.

In its continuing litigation, the CFTC seeks restitution, disgorgement of ill-gotten gains, civil monetary penalties, permanent registration and trading bans, and permanent injunctions from further violations of the federal commodities laws, as charged.

The CFTC thanks and acknowledges the assistance of the United States Attorney’s Office for the Southern District of Ohio, the Internal Revenue Service (Cincinnati Field Office), the Ohio Department of Commerce (Division of Securities-Enforcement), and the Office of the Hamilton County Prosecuting Attorney.

CFTC Division of Enforcement staff members responsible for this action are Xavier Romeu-Matta, Christopher Giglio, Douglas K. Yatter, Steven Ringer, Lenel Hickson, Jr., and Manal M. Sultan.

FORMER EXECUTIVES SENTENCED IN $18 MILLION PONZI SCHEME FRAUD CASE

 FROM:  U.S. JUSTICE DEPARTMENT 

Monday, August 25, 2014

Former Investment Company Executives Sentenced for Roles in $18 Million Ponzi Scheme

The former Hanover Corporation chief financial officer and a former Hanover salesman were sentenced last week to serve 60 months in prison and 70 months in prison respectively, and ordered to pay $14,454,999.19 in restitution, for their roles in an $18 million Ponzi scheme. Hanover’s former chief executive officer was previously sentenced to 14 years in prison and ordered to pay $14,784,983.75 in restitution in this case.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney David Rivera of the Middle District of Tennessee, Special Agent in Charge Todd McCall of the FBI’s Memphis Division and Special Agent in Charge Christopher Henry of the Internal Revenue Service-Criminal Investigation (IRS-CI) in Nashville made the announcement today after the sentences were handed down by U.S. District Judge Todd J. Campbell in the Middle District of Tennessee.

According to court documents, Daryl Bornstein, 55, of Kinston Springs, Tennessee, a former Hanover salesman, and Robert Haley, 55, of Lebanon, Tennessee, the former Hanover CFO, colluded with Hanover CEO, Terry Kretz, to steal $18 million of investors’ money in a Ponzi scheme. Specifically, Kretz and Bornstein solicited investors with the promise that the monies would be invested in stock options and startup companies. More than half of the money, however, was actually used to repay earlier investors, to pay Hanover’s salaries and overhead, and to benefit the defendants personally. Such personal benefits included golf memberships and $100,000 in cash for Bornstein. Kretz and Bornstein also issued Hanover promissory notes to reimburse individuals who had previously lost money investing in ventures recommended by Bornstein before he joined Hanover. In some cases, these former investors contributed new money to Hanover, therefore unwittingly paying off their old investment losses with their new investments.

Haley furthered the fraud by sending investors checks for purported “interest,” knowing that they were simply monies recently taken in from new investors. He also prepared a false balance sheet that overstated Hanover’s financial health to be shown to investors.

The case was investigated by the FBI, IRS-CI, Tennessee Bureau of Investigation, and Tennessee Department of Commerce and Insurance. The case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Scarlett S. Nokes of the Middle District of Tennessee.

SEC OBTAINS FINAL JUDGMENTS IN $415 MILLION PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Obtains Final Judgments Against Martin C. Hartmann III and Laura Ann Tordy

The Securities and Exchange Commission announced today that on July 9, 2013, the Honorable Denis R. Hurley of the United States District Court for the Eastern District of New York entered final judgments against defendants Martin C. Hartmann III and Laura Ann Tordy, sales agents for Agape World, Inc. (“Agape”), an offering fraud and Ponzi scheme that raised $415 million from at least 5,000 investors nationwide.

The final judgment as to Hartmann permanently enjoins Hartmann from violating Sections 5 and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and requires him to pay $3,591,388 in disgorgement, $560,932 in prejudgment interest, and a civil penalty of $3,594,818.  The final judgment as to Tordy permanently enjoins Tordy from violating the same provisions of the federal securities laws as Hartmann, and requires her to pay $1,048,485 in disgorgement, $163,761 in prejudgment interest, and a civil penalty of $1,048,485.

In its complaint, the Commission alleged that Hartmann worked as a sales agent for Agape from at least September 2006 to January 2009 and Tordy worked as a sales agent for Agape from at least February 2007 to January 2009.  The complaint alleges Hartmann and Tordy each made misrepresentations to investors concerning the Agape investments they sold and sold the Agape investments despite the incredible returns promised by Agape, their knowledge of previous defaults by Agape, and dire warnings from Agape’s president about Agape’s financial condition.  The complaint further alleged the Agape investments were a sham with, at best, a small fraction of investor funds used as represented; the Agape investments were neither registered with the Commission nor exempt from registration; and, neither Hartmann nor Tordy was associated with a registered broker or dealer while selling them.

The Commission acknowledges the assistance of the U.S. Attorney’s Office for the Eastern District of New York, United States Postal Inspection Service, Federal Bureau of Investigation, and Commodity Futures Trading Commission.

FUTURES TRADING COMPANY GETS JUDGED AS BEING A PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
May 29, 2012
Securities and Exchange Commission v. New Futures Trading International Corporation and Henry Roche (United States District Court for the District of New Hampshire, Civil Action No. 11-CV-532-JL, Complaint Filed November 16, 2011)
Court Enters Final Judgments Against New Hampshire Futures Day-Trading Business and Canadian Resident In Ponzi Scheme Case

The Securities and Exchange Commission announced today that, on May 24, 2012, the U.S. District Court for the District of New Hampshire entered final judgments by default against New Futures Trading International Corporation (“New Futures”), a New Hampshire business and Henry Roche, a Canadian resident who directed New Futures, in a Ponzi scheme action the Commission filed in November 2011.  Among other things, the court ordered the parties to pay a total of over $2.8 million.

In its complaint, filed on November 16, 2011, the Commission alleged that Roche, through New Futures, had been engaged in an ongoing unregistered offering of securities in the United States through operations in New Hampshire and Ontario, Canada. The Commission alleged that, since December 2010, Roche had raised over $1.3 million from at least 14 investors in nine states through the offer and sale of high yield promissory notes purportedly yielding either 5-10% per month, or a 200% return within 14 months.

According to the Commission’s complaint, Roche represented to some investors that funds supplied would be invested in bonds, Treasury notes and/or 10-year Treasury note futures contracts, and to others that the funds would be invested directly in New Futures, purportedly an on-line futures day-trading training business Roche was operating from Canada. The complaint alleged that, instead of using the funds for either purpose, Roche used approximately $937,000 provided by New Futures investors to make Ponzi “interest” payments to investors in prior Roche-controlled entities.  According to the Commission’s complaint, Roche also misappropriated at least another $359,000 to support his lifestyle, to operate a horse breeding venture, and to buy horses.  At the time the action was originally filed by the Commission, the court issued a temporary restraining order (later converted to a preliminary injunction) that, among other things, froze the assets of New Futures and Roche and prohibited them from continuing to solicit or accept investor funds.

The court, acting on the Commission’s motion for default judgments, entered final judgments: (1) imposing permanent injunctions against both New Futures and Roche enjoining them from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; (2) ordering them each to pay disgorgement of their ill-gotten gains in the amount of $1,242,972 plus prejudgment interest of $40,917.47; and (3) ordering Roche to pay a monetary penalty in the amount of $150,000 and New Futures to pay a monetary penalty in the amount of $150,000.