Investor Fraud Summit Offers Strategies To Protect Retirement Funds

SAN FRANCISCO, Oct. 9 -- The U.S. Attorney for the Northern District of California issued the following news release:

An Investor Fraud Summit, designed to provide participants with the information they need to deter future violators and protect their retirement income during today's rise in investment fraud schemes was held today at Rossmoor Retirement Community in Walnut Creek, Calif., United States Attorney Melinda Haag and United States Attorney General Eric Holder announced. United States Attorneys for the Northern, Eastern, Central and Southern Districts of California; Western District of Washington; Alaska; and Oregon; along with representatives from the United States Department of Justice Criminal Division, the Federal Bureau of Investigation, and the Securities and Exchange Commission participated in the event.

"The U.S. Attorneys and the Department of Justice do not hesitate to bring the full force of federal law enforcement down on those who seemingly without conscience steal everything from some of the most vulnerable people in our society." United States Attorney Haag said. "In our perfect world, fraud schemes, however clever and creative, are simply no longer successful because people are armed with the information and resources they need to recognize scams and avoid being duped. This summit will help educate communities and assist us in realizing our goal of reducing investor fraud across the country."

"Investor fraud crimes can erode faith in our financial markets, threaten our nation's ongoing economic recovery, and undermine the fabric of our communities," said Attorney General Eric Holder. "That's why protecting the American people from fraud is a top priority for today's Justice Department. And through the Investor Fraud Summits we announce today, we'll take our anti-fraud efforts to a new level -- by raising awareness about these devastating offenses, educating consumers on how to report suspected fraud schemes, and empowering members of the public to fight back."

Today's summit featured United States Attorney Melinda Haag of the Northern District of California, United States Attorney Ben Wagner for the Eastern District of California, United States Attorney Andre Birotte of the Central District of California, United States Attorney Laura Duffy of the Southern District of California, United States Attorney Amanda Marshall of the District of Oregon, United States Attorney Karen L. Loeffler of the District of Alaska, United States Attorney Jenny A. Durkan of the Western District of Washington, as well as representatives from the FBI, the Financial Crimes Enforcement Network, the SEC, Google and CNBCs American Greed television show.

"Fraudsters who victimize small investors do not just steal money," said United States Attorney Benjamin B. Wagner. "They steal the ability to reach goals that are important to all of us: a college education for our children, a safe and secure retirement for ourselves, and freedom from worry about providing necessities such as health care for our loved ones."

"One of the best ways to fight crime is to prevent it and that is particularly true when it comes to fraud," says Andre Birotte Jr., the United States Attorney for the Central District of California. "The educated consumer is truly the best defense to fraud and the Department of Justice is committed to providing consumers with the tools they need to defend themselves against con artists and fraudsters."

"Since 2011, federal prosecutors in San Diego and Imperial counties have charged defendants with stealing over $115 million in investment fraud schemes," said United States Attorney Laura Duffy of the Southern District of California. "These figures, however, do not begin to tell the full story of shattered lives, families torn apart and seniors who have had their remaining years destroyed. This Investor Fraud Summit is part of our strategy to end these tragic attacks on our citizens' financial security."

"Fraudsters steal more than money; they can rob victims of their dreams of retirement, homeownership or college for their children. Sadly, we prosecutors often get a case after the money is long gone and there is little to recover for the victims," said United States Attorney Jenny A. Durkan of the Western District of Washington. "That's why summits like this one are so important - to educate investors before they make mistakes that can end in heartache."

"Many of us have a family member, friend or neighbor who has fallen for a fraudulent investment scheme," remarked Amanda Marshall, United States Attorney for the District of Oregon. "These scammers not only steal money, they steal something far more valuable: peace of mind. Fraudsters lure people in by building trust. Victims are left not only broke, but humiliated because they trusted someone who ripped them off. We can all help prevent the elders in our lives from losing their money, their dignity and their security. This summit is one important step in the continued effort of the Department of Justice and U.S. Attorney Community to educate the public about how to protect against investment fraud."

Karen Loeffler, United States Attorney for the District of Alaska stated, "Protection of our citizens earnings and savings is a top priority and we will vigorously pursue those who violate the trust of those who entrust their savings for investment."

The FBI reports an unprecedented rise in investment fraud schemes, involving thousands of victims and staggering losses. Since 2011, the Justice Department's Criminal Division and 85 United States Attorneys' offices have reported that approximately 800 defendants have been charged, tried, pleaded or sentenced in approximately 500 federal prosecutions involving investor fraud. The total reported amount swindled from victims for this time period tops more than $20 billion. This staggering number includes cases where the total amount victims lost range from tens of thousands of dollars to hundreds of millions, and, in some cases, billions, in hard-earned savings.

The United States Attorney's Office for the Northern District of California has prosecuted a significant number of investor fraud cases over the past 18 months. Examples include:

U.S. v. Banet

In October 2012, a federal grand jury indicted Hausmann-Alain Banet on multiple counts of wire fraud, mail fraud, and money laundering after he allegedly defrauded an investor out of more than $500,000. According to the Indictment, Banet was the CEO and President of Lion Capital Management, LLC. Banet allegedly told the victim that he would invest her money in the Lion Absolute Value Fund, a hedge fund. The Indictment alleges that Banet never invested the money, but that he created fake account statements reflecting false gains in the victim's account. Instead, Banet allegedly spent the victim's money on personal expenses and business expenses unrelated to this victim.

U.S. v. Banuelos

In July 2012, a federal grand jury in San Francisco charged Michael Steven Banuelos with wire fraud and money laundering resulting from his operation of an alleged investment scheme through which he defrauded investors out of more than $2 million. According to the Indictment, Banuelos falsely claimed to victims that he could arrange--and, in fact, had arranged--lucrative business deals for aspiring musicians. Banuelos promised his investors high rates of return on their substantial investments once the purported entertainment contracts came to fruition. Instead of using the invested funds to secure these purported deals, however, Banuelos allegedly used most of the funds on personal expenses such as alimony, luxury cars, private jets, a country club membership, expensive clothing, and jewelry.

U.S. v. Bhatia and Shelton

In September 2011, defendants Lal Bhatia and Steven Eugene Shelton were sentenced for their roles in a multimillion dollar investment fraud scheme. Bhatia, the leader of the scheme, enlisted Shelton and others to perpetrate a fraudulent scheme in which Shelton portrayed a fictional individual used to lure in investors/lenders. The defendants obtained almost $2 million through their fraudulent scheme. Bhatia was sentenced to 63 months in federal prison, and Shelton was sentenced to 6 months in federal prison.

U.S. v. Catledge and Elliott

In September 2012, a federal grand jury in San Francisco indicted James Catledge and Derek Elliott with conspiracy to commit mail fraud and mail fraud in resulting from an alleged scheme in which Catledge and Elliott fraudulently solicited more than $90 million from investors to build a resort in the Dominican Republic that never opened for business. According to the Indictment, Catledge and Elliott obtained a loan to purchase an old hotel in the Dominican Republic and then recruited investors to fund renovations to turn the old hotel into a modern resort. Catledge and Elliott, however, allegedly failed to disclose to investors that up to 44% of their funds would be used to pay sales commissions, that the renovations were underfunded, and that investor money would be used for projects unrelated to the resort.

U.S. v. Cohen

In November 2011, after a one-month trial, a federal jury convicted Samuel "Mouli" Cohen of fifteen counts of wire fraud, eleven counts of money laundering, and three counts of tax evasion after Cohen defrauded more than 50 victims out of more than $31 million. Evidence at trial showed that Cohen falsely told prospective investors--most of whom were affiliated with a non-profit foundation--that Cohen's company was about to be acquired by Microsoft. Based on those false representations, victims purchased more than $6 million of Cohen's "founders' shares" in his company. Cohen falsely represented that this investment was a wonderful opportunity for the investors to make money for themselves and for the non-profit foundation they supported. Cohen subsequently told investors that the acquisition was being delayed by United States and European regulators, who also required "bonds and fees" to fund the deal. Cohen falsely told investors that larger investors, including Silicon Valley venture capital firms, were paying their share of the "bonds and fees." Over several years, Cohen collected an additional $25 million in such "bonds and fees." As Cohen knew, however, there never was any purported acquisition. Instead, Cohen spent the victims' money on private jet rentals, jewelry, luxury automobiles, extravagant vacations across the globe, and renting mansions in Belvedere, California, and Bel Air, California. Throughout the scheme, Cohen paid no taxes. In April 2012, Cohen was sentenced to 22 years in federal prison and ordered to pay restitution of more than $31 million.

U.S. v. Hu

In June 2012, a federal jury in San Jose convicted international hedge fund manager Albert K. Hu of multiple counts of wire fraud for his role in defrauding multiple investors out of millions of dollars. Evidence at trial showed that Hu operated hedge funds in Northern California and overseas, and that he claimed to his investors that he managed more than $200 million and could produce returns up to 30 percent per year. Hu also falsely claimed that his hedge funds were affiliated with a prominent law firm and an auditing firm, adding false security to investors considering investing with Hu. Hu has been in custody since March 2009, and he is scheduled to be sentenced this month.

U.S. v. Kobayashi

In September 2011, Steven Kobayashi was sentenced to 65 months in federal prison after pleading guilty to stealing more than $5.4 million from his investment clients. Kobayashi, at the time a financial advisor at United Bank of Switzerland Financial Services, made unauthorized trades with his clients' investments and transferred their money to accounts he controlled. Kobayashi forged signatures and altered documents to allow him to perpetrate his fraudulent scheme.

U.S. v. Lin, Ward, Locker, and Tipton

In May 2012, a federal jury in San Francisco convicted David Lin, an attorney, of conspiracy to commit mail and wire fraud and multiple counts of mail and wire fraud for his role in a real estate investment fraud scheme that caused investors to lose more than $9 million. Evidence at trial showed that Lin and his co-conspirators--Ward, Locker, and Tipton--lied to investors to obtain funds purportedly to arrange private money loans to borrowers who built single-family homes. The defendants told investors that their funds would be secured by deeds of trust on real property. The evidence at trial, however, showed that the defendants generally did not secure investments, but, instead, used investors' money on failed projects and to pay off earlier investors. Ward was sentenced to 5 years in federal prison. Lin, Tipton, and Locker will be sentenced later this year.

U.S. v. McCant

In August 2012, Maurice Michael McCant, the former President and CEO of Billionaire Catt Entertainment, was sentenced to 46 months in federal prison after he pleaded guilty to an investment fraud scheme. McCant told investors that they could earn up to 30 percent on invested funds that McCant would use to promote rap concerts. Instead, McCant used investors' money to pay his personal expenses and to pay earlier investors. McCant also promised to pay the federal and state tax liability resulting from two victims who had to liquidate retirement accounts to invest with McCant. McCant fleeced multiple investors out of a total of approximately $2 million.

U.S. v. Moon

In March 2012, former Citigroup employee Tamara Moon was sentenced to 22 months in federal prison after defrauding her investment clients out of more than $800,000. While working at Citigroup, Moon was registered as a General Securities Representative and held both Series 7 and Series 63 licenses from the Financial Industry Regulatory Authority. To steal money from more than 20 of her clients at Citigroup, Moon falsified account records, forged client signatures, created fake letters of authorization, and made unauthorized trades in her clients' accounts.

U.S. v. Muhawieh

In June 2012, Maher Muhawieh was sentenced to 78 months in federal prison after he defrauded dozens of investors out of more than $12 million in connection with a real estate investment fraud scheme. Muhawieh's many victims included family members and close friends. Muhawieh told investors that investments would be used to purchase and to renovate residential properties in San Francisco, resulting in substantial profits when the properties were resold. He falsely told his investors that their investments were secured by deeds of trusts recorded on behalf of the investors. Muhawieh, however, did not record the deeds or he recorded multiple deeds on the same property. Over a three year period, Muhawieh received more than $28 million from investors; he used more than $16 million to pay off earlier investors and caused losses of more than $12 million.

U.S. v. Nilsen

In April 2012, David Nilsen was sentenced to 97 months in federal prison after he pleaded guilty to conspiracy to commit mail fraud and wire fraud. Nilsen operated a private money lending company, Cedar Funding, which connected residential real estate developers seeking to borrow money with individual investors willing to make such loans. Nilsen solicited millions of dollars of investments while failing to inform investors of the true conditions of the loans and the properties that purportedly secured them. Nilsen did not properly record deeds of trust to secure investments, and he used later investors' money to pay earlier investors' "interest" payments. Nilsen was ordered to pay almost $70 million in restitution to victims.

U.S. v. Prince

In February 2012, attorney David B. Prince was sentenced to seven years in federal prison after a federal jury convicted him of five counts of wire fraud after a three-week trial. Evidence at trial showed that Prince defrauded more than 30 victims out of approximately $1.1 million. Prince recruited investors to invest in two funds, promising investors that they would receive returns up to 25 percent per month. Prince, however, lost money through risky options trading, used later investors' money to pay earlier investors, and used investors' money to pay his credit card bills and lease a Mercedes. Evidence at sentencing showed that Prince's fraud caused investors to lose homes, college education funds, and retirement savings.

U.S. v. Ray

In June 2012, Krittibas Ray was sentenced to 65 months in federal prison for perpetrating a multimillion dollar fraudulent investment scheme. Ray enticed victims to invest in a promissory note program and in hedge funds he operated by falsely telling victims that by placing funds into banks in India he could guarantee returns of 7 percent to 8.5 percent. Ray also falsely told victims that the various hedge funds he operated were profitable. Ray failed to disclose to victims that he was using their money for personal expenses and to pay off earlier investors. Ray received approximately $3.3 million from investors over the course of a few years, and victims lost almost that entire amount.

U.S. v. Shields, Sims, and Stafford

In May 2012, the three founders of S3 Partners were indicted for allegedly defrauding individual investors and banks out of more than $21 million in connection with a real estate investment fraud scheme. According to the Indictment, these three defendants, operating under the name "S3 Partners," allegedly engaged in securities fraud targeting elderly investors by encouraging them to cash out their IRAs to invest in S3 Partners. The defendants allegedly falsely told investors they would receive high rates of return with little or no risk and that profits would benefit various charitable and religious organizations. Instead, however, the defendants allegedly converted most of the funds for their personal benefit and other unauthorized purposes, resulting in an almost complete loss to investors. The defendants have pleaded not guilty.

U.S. v. Terzakis, Estupian, and Ye

On Sept. 27, 2012, John Terzakis was sentenced to 84 months in federal prison for conspiring to defraud the clients of Vesta Strategies. Terzakis, formerly of Illinois, told Vesta clients that Vesta was a safe and financially secure entity through which investors could invest in a real estate investment exchange program. Vesta managers and executives, however, misappropriated invested funds for their own purposes and used investor funds to pay off earlier investors. Vesta eventually collapsed owing depositors approximately $25 million. Terzakis's co-defendants, Robert Estupian and Peter Ye, have pleaded guilty and are scheduled to be sentenced later in 2012.

U.S. v. Tunnell

Former attorney Robert G. Tunnell, Jr., was sentenced to 57 months in federal prison after pleading guilty to fleecing numerous victims, including family and friends, out of more than $7 million. More than 10 years ago, Tunnell had resigned as an attorney from the California State Bar while charges were pending against him that he diverted approximately $300,000 from his law firm to his personal account. After that, Tunnell held himself out as a successful investor, and he promised substantial returns while claiming he would invest funds in a conservative and safe manner. In fact, Tunnell engaged in risky options trading and lost approximately $7 million of the more than $10 million his victims provided to him to invest. Nonetheless, Tunnell consistently reported gains to his investors in bogus account statements.

U.S. v. Wise and Hoegel

In February 2012, a federal grand jury in San Francisco indicted William Wise and Jaquline Hoegel for their alleged roles in a massive Ponzi scheme that defrauded more than 1,200 investors out of approximately $130 million over approximately a ten-year period. In September 2012, Mr. Wise pleaded guilty to conspiracy to commit mail and wire fraud, multiple counts of mail fraud and wire fraud, money laundering, and tax evasion. Wise admitted that he and his co-conspirator sold fraudulent certificates of deposit through which they guaranteed substantial profits based on overseas investments. In fact, however, earlier investors' interest payments were made using the funds "invested" by later investors. Wise has been in federal custody since April 2012, when he returned from Canada to face the charges. He is scheduled to be sentenced in March 2013. Hoegel is out of custody, she has pleaded not guilty, and her case remains pending.

Although the defendants in these federal prosecutions used a variety of tactics and schemes, they often took the same approach, guaranteeing high returns and, in many instances, providing falsified investment documents to victims. As a result, those victims lost retirement savings, military survivor benefits, family death settlements, and money set aside for college tuition and mortgage payments. While the Justice Department has already obtained prison sentences for many of these scammers, including one sentence of up to 50 years, for many of the more than 100,000 victims the damage to their families is irreparable.

Since 2011, the SEC, an FFETF partner agency, has charged 887 individuals and entities in 359 actions involving retail investor fraud. Nearly $9.7 billion has been allegedly lost by over 1.2 million investors in those cases.

"Whether a cold-call, polished website, or email solicitation, fraudsters will use every means at their disposal to convince investors to part with their money," said SEC Director of Enforcement Robert Khuzami. "That is why investor education is so critical -- in maintaining financial health as much as physical health, an ounce of prevention is worth a pound of cure."

Attorney General Eric Holder and the Department of Justice'sUnited States Attorneys' offices, together with the Department's Criminal and Civil Divisions, representatives from the FBI, Securities and Exchange Commission, United States Department of Treasury'sFinancial Crimes Enforcement Network, Federal Trade Commission, U.S. Commodity Futures Trading Commission, United States Bankruptcy Trustees, the Financial Industry Regulatory Authority, the AARP and the Better Business Bureau are holding investor fraud summits across the country to help consumers protect their hard-earned money from fraud.

Prior to today's summit in Walnut Creek, summits were held in Stamford, Conn., and Nashville, Tenn. Three additional summits are scheduled to take place across the country: Oct. 10, in Denver, Oct. 11, in Cleveland, and Oct. 12, in Miami.

In addition to the investor fraud summits across the country, in the coming weeks the Victims' Rights Committee of the Financial Fraud Enforcement Task Force will host an unprecedented event, in partnership with the Justice Department, the Certified Financial Planner Board and the Foundation for Financial Planning, to offer free financial consulting services to 8,000 victims of an investment fraud scheme that was indicted in Chicago. In this case, the defendant falsely guaranteed high rates of return in a Ponzi scheme that caused the loss of more than $300 million of investors' funds. Many of the victims were retirees who found the promised high rates of return, coupled with other false promises, an attractive investment alternative for their individual retirement account (IRA) and other retirement-type investments.

Please note, an indictment contains only allegations against an individual and, as with all defendants, the defendants named in this press release must be presumed innocent unless and until proven guilty.

If you think you may be a victim of investor fraud, please call your local FBI office for assistance. To find your local office, please visit: www.fbi.gov/contact-us/field.

For tips on how to spot investor scams and for more information on investor fraud in general, please visit: www.stopfraud.gov.

For more information about the Department of Justice and United States Attorney's Investor Fraud Summits, visit: http://blogs.justice.gov/main/archives/2511.

The interagency Financial Fraud Enforcement Task Force (FFETF) was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force, chaired by Attorney General Eric Holder, includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets and recover proceeds for victims of financial crimes. For more information about the FFETF, please visit: www.stopfraud.gov.

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