Lack of due diligence in Massachusetts Ponzi scheme
01.10.10
The numerous Ponzi schemes unearthed
in 2009 highlight the point that some very sophisticated investors
skipped basic steps in conducting due diligence. Lawyer Jay L.
Fialkow and his partner, Jeffrey P. Ross, a Boston businessman, are
facing civil charged filed by Massachusetts Secretary of State for
failing to register as dealers-dealers or investment advisors while
referring clients to Richard L. Elkinson, who the SEC has charged with running a Ponzi scheme. The SEC
complaint alleges that Elkinson, of Framingham, Massachusetts,
lured 130 investors to invest $28 million with him through his
d/b/a Northeast Sales. Ross and Fialkow allegedly referred clients
to Elkinson (they dispute that charge, and claim they merely
introduced clients to Elkinson). Ross and Fialkow earned $319,000
in commissions from Elkinson, according to Mass SOS filings.
The Boston Globe highlights red flags: "In 1992 Elkinson declared bankruptcy, and court filings reflected a man with virtually no assets, and just $600 in a bank account. When Fialkow and Ross visited Elkinson at his office, they found a sloppy desk in a bedroom of his Framingham home, with a computer and a few papers that looked like contracts. Elkinson would call Ross and Fialkow’s office daily, asking if they had raised new money for him. The pair never received tax forms from Elkinson reporting their investment gains, as required by law, according to regulators. And a cursory check of public filings would have revealed that Elkinson never submitted incorporation papers for his company, Northeast Sales."
A Jan. 2006 letter to a CPA firm from the RossFialkow firm noted that Elkinson had earned 9-13% per contract, which ran 6 to 10 months--a tidy rate of return that sounds too good to be true.
The Boston Globe highlights red flags: "In 1992 Elkinson declared bankruptcy, and court filings reflected a man with virtually no assets, and just $600 in a bank account. When Fialkow and Ross visited Elkinson at his office, they found a sloppy desk in a bedroom of his Framingham home, with a computer and a few papers that looked like contracts. Elkinson would call Ross and Fialkow’s office daily, asking if they had raised new money for him. The pair never received tax forms from Elkinson reporting their investment gains, as required by law, according to regulators. And a cursory check of public filings would have revealed that Elkinson never submitted incorporation papers for his company, Northeast Sales."
A Jan. 2006 letter to a CPA firm from the RossFialkow firm noted that Elkinson had earned 9-13% per contract, which ran 6 to 10 months--a tidy rate of return that sounds too good to be true.
Trader sues after being fired for relationship with Ponzi schemer Nicholson
10.04.09
Lindy Boville, a former trader, has sued RBC Capital
Markets for gender bias over her firing, which she said stemmed
from her dating a hedge fund manager later charged with fraud for
running a Ponzi scheme. Boville accused RBC of using her
relationship with James Nicholson as a pretext to fire her in March
2009 and assign her accounts to male workers, RBC spokesman Kevin
Foster denied those allegations: "Ms. Boville showed poor judgment
in helping Jim Nicholson raise money for his hedge fund and failing
to disclose her activities to her supervisors. It is irrelevant
that she had a personal relationship with Nicholson, and she should
have told RBC what she was doing."
Nardizzi & Associates had warned an investment banking client in 2007 that something was amiss with Nicholson and his Westgate Capital firm. A grand jury in April indicted him for a scheme that caused $150 million of losses.
Nardizzi & Associates had warned an investment banking client in 2007 that something was amiss with Nicholson and his Westgate Capital firm. A grand jury in April indicted him for a scheme that caused $150 million of losses.
Kroll sued for conflict of interest & faulty due diligence
08.12.09
Kroll, a risk consultancy firm (which
is what private investigation firms morph into when they have
office space in New York City), has been accused of “gross
negligence” and of misleading investors via a “clean
report” on Sir R. Allen Stanford. Kroll has fired its Latin
American office chief Tom Cash over the incident.
Federal lawsuits allege Kroll engaged in a conflict of interest when it vetted Stanford for a trade group looking to protect its investments after the firm had previously worked for the Texas billionaire’s companies.
In a pair of lawsuits filed in May, the National Electrical Contractor’s Association reached out to Kroll in October 2006 to determine if it should continue buying high-interest certificates of deposit from Stanford International Bank. The association ended up losing all of its $2.5 million investment in what is believed to be a $8 billion Ponzi scheme.
NECA had paid Kroll $15,000 to perform due diligence on Stanford in April 2007. The contract had a stamped signature for Tom Cash, who took the money even though he and Kroll had been retained by Stanford in a prior case. “Kroll never disclosed Mr. Cash’s connection with Mr. Stanford and the obvious conflict that this relationship presented,” the NECA lawsuit states. NECA said Kroll’s due diligence report failed to reveal what industry experts have called “major, major, major red flags,” including:
~ The National Association of Securities Dealers levied a $20,000 penalty on Stanford
~ The U.S. Treasury Department issued an advisory in 1999 warning U.S. banks to scrutinize transactions involving Antigua due to corrupt regulation of offshore banks. The British Treasury issued a similar warning.
~ Kroll never highlighted the small size and unsophisticated nature of Stanford’s auditor, Antigua-based C.A.S. Hewlett.
The lawsuits also quotes one of Kroll’s own investigators, William Brittain-Catlan. “I’m amazed by the way people were taken in by ‘Sir Allen.’ There’s so much stuff out there that anyone who wanted to do a cursory check would have seen. Various allegations have been flying around for years,” said Brittain-Catlin, author of “Offshore: The Dark Side of the Global Economy.”
Federal lawsuits allege Kroll engaged in a conflict of interest when it vetted Stanford for a trade group looking to protect its investments after the firm had previously worked for the Texas billionaire’s companies.
In a pair of lawsuits filed in May, the National Electrical Contractor’s Association reached out to Kroll in October 2006 to determine if it should continue buying high-interest certificates of deposit from Stanford International Bank. The association ended up losing all of its $2.5 million investment in what is believed to be a $8 billion Ponzi scheme.
NECA had paid Kroll $15,000 to perform due diligence on Stanford in April 2007. The contract had a stamped signature for Tom Cash, who took the money even though he and Kroll had been retained by Stanford in a prior case. “Kroll never disclosed Mr. Cash’s connection with Mr. Stanford and the obvious conflict that this relationship presented,” the NECA lawsuit states. NECA said Kroll’s due diligence report failed to reveal what industry experts have called “major, major, major red flags,” including:
~ The National Association of Securities Dealers levied a $20,000 penalty on Stanford
~ The U.S. Treasury Department issued an advisory in 1999 warning U.S. banks to scrutinize transactions involving Antigua due to corrupt regulation of offshore banks. The British Treasury issued a similar warning.
~ Kroll never highlighted the small size and unsophisticated nature of Stanford’s auditor, Antigua-based C.A.S. Hewlett.
The lawsuits also quotes one of Kroll’s own investigators, William Brittain-Catlan. “I’m amazed by the way people were taken in by ‘Sir Allen.’ There’s so much stuff out there that anyone who wanted to do a cursory check would have seen. Various allegations have been flying around for years,” said Brittain-Catlin, author of “Offshore: The Dark Side of the Global Economy.”
Great assets of Bernie Madoff
03.13.09
Rumblings of massive asset searches
underway worldwide (investors are not waiting for the feds to
conclude work) for accounts linked to the businesses run by Bernie
Madoff.
One question bantered about recently by veteran researchers: does Gramm-Leach-Bliley Act cover business accounts? More specifically, are businesses considered "customers" under the act and thus protected by the sort of tactics once used to find assets hidden by scam artists like Madoff? General counsel for one large firm advised me the act does cover business accounts, but others disagree--off the record. No one wants to be the test case.
One question bantered about recently by veteran researchers: does Gramm-Leach-Bliley Act cover business accounts? More specifically, are businesses considered "customers" under the act and thus protected by the sort of tactics once used to find assets hidden by scam artists like Madoff? General counsel for one large firm advised me the act does cover business accounts, but others disagree--off the record. No one wants to be the test case.