Proceeds of crime from US$550 million Ponzi scheme run by “obscenely greedy con artists”, including diamonds, gold coins, sports memorabilia, art, comic books, go on sale at online auction next week as Covid-19 solution

By Christine Duhaime | May 31st, 2020

The proceeds of crime from a massive US$550 million Ponzi scheme perpetrated by two convicted fraudsters in the US – Kevin Merrill and Jay Ledford – are being auctioned at an online auction house starting next week, in part because of Covid-19.

Diamonds, sports memorabilia, art, gold coins, comic book from securities fraud being sold online

The auction house is selling the assets from one of the largest forfeitures from a Ponzi scheme in the US. Items up for auction include gold coins, a collection of Spider Man comic books, art, autographed sports memorabilia, diamonds, luxury watches, rare wines and other items seized by and forfeited to the US government, as part of its investigation of Merrill and Ledford for wire fraud, securities fraud and money laundering in 2018 in Maryland.

Covid-19 impacting forfeiture sales

Because of Covid-19, the sale of several mansions bought by Merrill and Ledford have fallen through, as buyers have backed away from buying. The sale of an interest in a Gulfstream G200 private jet and many exotic cars have had to be placed on hold due to Covid-19.

The online auction takes place on this site here, starting on June 3, 2020.

Gulfstream G200 (Source: BJ Traveller)

Indicted in 2018 for massive fraud

Merrill and Ledford (an accountant), raised more than US$550 million from investors selling fictitious securities in debt collection portfolios. They were the subject of a complaint by the Securities and Exchange Commission (“SEC“) for securities violations arising from their operation of the Ponzi scheme and were indicted and charged with money laundering, wire fraud, conspiracy and identity theft.

Fabricated wire confirmations

Merrill and Ledford sold securities through several layers of corporate entities to obfuscate their activities. They fabricated the value of the debt assets of the company to lure in investors and re-sold the same securities to newer investors, sometimes seven times over. They also sold what are called phantom securities or assets, which are assets that do not exist.

They then engaged in fraud related to banking, fabricating bank documents, including paperwork to show wire transfers took place when they hadn’t, and paperwork of purported wire confirmations from banks to prove that funds had been wired when they hadn’t. They also fabricated accounting records.

Investors’ money spent on cars, mansions, private jets, casinos

Lavish US$11 million mansion bought by Merrill (Source: Vimeo)

Merrill spent a large portion of investor funds on himself, including as follows:

  • an art collection;
  • a luxury watch collection;
  • US$500,000 interest in a private jet;
  • prepaid life insurance policies;
  • diamonds and jewellery;
  • a comic book collection valued at US$200,000;
  • 12 mansions;
  • 25 exotic cars including two Rolls Royces, two Lamborghinis, a Ferrari and a Bugatti worth over US$10 million;
  • sports memorabilia;
  • fine wine collection;
  • gold coins;
  • Bitcoin; and
  • shares in tech companies.

Merrill also rented exotic cars and took numerous private jet trips. He and Ledford spent US$25 million of investor money at various casinos. The accountant Ledford, also used investor funds and bought diamonds, cars and mansions.

Lies to investigators to obstruct justice

Before being indicted, Merrill was questioned by investigators for the SEC. He lied to the investigating agents and gave them fabricated documents, presumably to divert their attention away from him.

“Out and out fabricating”

US Attorney Robert Hur, who prosecuted the criminal case against Merrill, Ledford and a third man, said that the defendants told lies to prospective investors about almost every conceivable aspect of the scheme and took extraordinary steps, including identity theft, to fool investors and engaged in “out and out fabricating” of documents, including wire transfer confirmations.

He described the case to reporters as one that involved wading through layers of lies and deception. The identity theft involved using the names of employees without their consent on corporate documents. Some sophisticated investors did due diligence on the investments but were given fake bank, asset and trading records by Merrill and Ledford and relied upon them and were duped, without suspecting Merrill and Ledford had created falsified documentation.

“Wading through layers of lies and deception” US Attorney Robert Hur (Source: WJZ YouTube Channel)

Mental health and gambling addiction

Shortly after their arrests, Merrill and Ledford negotiated guilty pleas on the condition that it be recommended to the Courts that they be housed in minimum security prisons.

Merrill sought, as part of his plea, special treatment to address mental health issues during incarceration, suggesting that he may have had mental health issues that may have impaired his judgment.

“Obscenely greedy con artist”

At sentencing, the government called Merrill a “con artist” who was “obscenely greedy.” He was sentenced to 22 years in jail.

Sentencing of Merrill (Source: WJZ YouTube Channel)

Ledford sought, as part of his plea, special treatment to address a gambling addiction problem, as well as the ability to enter a drug detox and rehab program, and to avail himself of mental health treatment programs in prison. He was sentenced to 14 years in prison.

But that wasn’t the end of it.

Violating Court order restraining assets

In violation of a Court order temporarily restraining all the identified and unidentified personal accounts and assets of Merrill and of the corporate entities, Merrill and his wife, Amanda Merrill, proceeded to deal with and dispose of some of those assets, including an account in Merrill’s name that the government had not discovered (but was part of the temporary asset restraint order).

When Merrill was arrested, the FBI had seized a number of assets and property including US$520,000 in cash in his Maryland home, his cars, jewellery and watches. Merrill was subsequently incarcerated and held in remand because the Court held that he posed a flight risk and a risk of the obstruction of justice. The lies to investors and investigators, as well as the fabrication of bank wires and the possibility of the dissipation of assets to defeat the asset restraint order, gave rise to a heightened risk of obstruction of justice and mandated remand, particularly since authorities were still investigating the extent of the fraud and attempting to locate victims. Merrill’s fraudulent conduct demonstrated that he would not likely respect any Court order, including in respect of the order over assets.

“Drink the good wine and replace it with s**t”

Concerns that Merrill was unlikely to abide by a Court order turned out to be valid.

While in remand, Merrill expressed his resentment to his wife that his accounts were frozen, and also realized that the government had failed to identify all his accounts and assets, and he was determined to use those unidentified assets.

He told her that the government had “taken enough” and instructed her to go to Florida and take cash that he had stashed there and hide it from authorities and to drink all the good wine in the house and replace it with “shit” wine.

“Fuck them” he wrote in a jail house note for her. Prison guards found the note in one of Merrill’s socks.

Ignoring the restraining order in respect of assets, Amanda Merrill dealt with an account in Merrill’s name without disclosing it to authorities and traveled to the mansion in Naples, Florida, where she removed bulk cash in suitcases. She instructed her lawyer to inform the US government that she had traveled to Florida for baby clothes. The FBI then executed search warrants at the Maryland and Florida houses and found US$23,000 in cash.

Amanda Merrill was charged with violating a Court order, obstruction of justice and conspiracy to remove property.

Merrill’s wife guilty of illegally dealing with assets

She pled guilty in a deal to one count of obstruction of justice. At sentencing, the Court was told that Merrill had conned and lied to her, as well as everyone else. Her lawyer said that she suffered a break down and should be given some accommodation. The Court disagreed and held that a message needed to be sent to deter violations of Court orders in respect of asset restraint in such cases and obstruction of justice. She was sentenced to house arrest and six weekends of jail time.

Merrill is incarcerated at Allenwood, Pennsylvania, until June 17, 2037, and Ledford is incarcerated at Safford, Arizona, until August 23, 2030.

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Rewind to 2019’s most unusual financial crime case – the Ponzi schemer who paid US$720,000 for online spiritual rituals and filled freezers with beef tongues to cast voodoo spells on SEC lawyers to stop an investigation

By Christine Duhaime | May 30th, 2020

This case wins first prize as the most unusual financial crime case of 2019. It’s about Dawn J. Bennett, a former stock broker from Maryland, who first worked with Western International Securities. In addition to selling securities, Bennett was a financial expert on a radio show where she dispensed investment advice and believed that she could use witchcraft to control lawyers at the SEC and cause them to end a financial crime investigation.

Things didn’t go so well for Bennett at any of the companies she worked at or started, including at Western International Securities.

In 2015, she was allowed to resign from Western International Securities in the midst of concerns that arose from the organization as to her handling of some of the firm’s accounts.

Dawn J. Bennett (Source: Financial Myth Busting)

Radio show expert

Having been essentially asked to depart, she then set up her own company called DJB Holdings, LLC, and commenced to sell securities to the investing public using, inter alia, her appearances as an expert on the radio show. It was called Financial Myth Busting.

On the radio show, social media and in material provided to prospective investors, Bennett made numerous misrepresentations in connection with her company, particularly about the amount of assets under management, exaggerating the size of her company and number of customers, to lure in money. The misrepresentations were repeated. It seems that every time she hit the radio waves, she lied or exaggerated in one way or another to drive business or to give the illusion that her company could, would and did safeguard investments and could, would and did provide remarkable returns to investors.

Initial SEC investigation

Her misrepresentations on the radio show and on social media attracted the attention of the Securities and Exchange Commission (“SEC“), who investigated whether they were true and substantiated or were untrue and misrepresentations made to lure investors.

When the SEC came calling, Bennett decided that they had no jurisdiction over her and refused to participate in an SEC process. She did not appear for a hearing. As a result, she was barred from the industry and fined.

At that point, the SEC was only alleging that she exaggerated and misrepresented information to attract investments, but Bennett then proceeded to mount a public campaign to defend herself, alleging that she had not engaged in any wrongdoing and was being targeted on groundless allegations.

Bennett protested too much

For whatever reason, perhaps because of the “[thou] doth protest too much” syndrome, the government decided to continue with a deeper look into Bennett.

What they discovered was not pretty.

Ponzi scheme discovered

It turns out Bennett was indeed protesting too much to try to divert the SEC away from her because she was operating a Ponzi scheme, taking money from new investors to pay out old ones, all the while living a lavish lifestyle. She was still on the radio show, pumping her experience and expertise to drive money to the firm from people who trusted her and believed that their money would be safe.

Fabricated financial records

Two complaints were then filed – one from the SEC and the other from the DOJ, both in Maryland, alleging, in essence that Bennett sold US$20 million in fake securities to investors, some of whom were elderly, and that she spent investors’ money on jewellery, cosmetic surgery procedures for Botox, luxury items and to start a new business that she intended to use as an exit strategy. She appears to have never used investor money to buy anything for investors; rather she just straight spent it and gave investors fake statements so they had the illusion that they held investment products.

The SEC complaint stated that Bennett made false statements, lied and fabricated documents to SEC investigators as part of their investigation, and created falsified documents attached to a financial institution to obtain more money; in essence committing bank fraud to keep the Ponzi scheme going because it was out of money.

It got wonky

And here is where is gets wonky.

Before the filed complaints, Bennett was aware of the 2nd SEC investigation. Among other things, they were asking for documents and taking statements from her staff.

Bennett paid US$720,000 for online spiritual rituals to deal with the SEC investigation

During the investigation, Bennett sought help from unusual sources.

She located a website that sells spiritual yagya ceremonies, which is a ritual that takes place over a sacred fire (allegedly in India except that it was in Washington State) that sends out a curse or a blessing, and proceeded to spend US$720,000 on those yagyas. She emailed the yagya provider to say that she needed help with her “enemies”, and hired five of their people to do yagyas for 29 days straight.

Deep freezer of beef tongues under a voodoo spell (Source: Affidavit in Support of Criminal Complaint)

Bennett cut up beef tongues and froze them with voodoo spells against SEC lawyers

When yagyas had no effect, she then consulted witch doctors, possibly also online, to place a voodoo spell over three SEC lawyers involved in her case. To activate the voodoo spells, Bennett bought beef tongues, split them in two and stated “I cross and cover you, come under my command. I command you to hold your tongue” over the tongues and then stored them in mason jars and put them in freezers. She believed that she had magical power to cast spells using voodoo that would cause three SEC lawyers to stop the investigations. She cast so many voodoo spells over the SEC lawyers, that the tongues filled two freezers at her home.

She ran out of freezer space and when the FBI showed up, she was out of magic and out of time.

Fake a breakdown

Bennett also paid the legal fees of her employees and prepped them to meet with the SEC and went so far as to prepare scripts for them. One employee was coached to claim that they suffered some sort of a temporary mental illness.

Bennett was charged with wire fraud, securities fraud and making false statements to obtain credit from a bank and customers.

Personal debt disappeared

At her trial, her lawyers alleged that she believed that the business was legitimate, and worked hard to make it successful, and alleged that she put her own money into the business to keep it afloat.

But according to the trial, that wasn’t true – she had no money of her own to begin with. She simply put back in customer money she had previously taken from investors. The evidence showed that before starting her last company, she owed significant debt and was being sued for collection and that she used money from the new company (from investors) to pay off that personal debt and keep debt collectors at bay.

She was convicted and sentenced to 20 years in jail. She is currently incarcerated at a minimum security facility in West Virginia until November 15, 2034.

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Launder money; lose your hand – two judges in Brunei caught laundering money avoid harsh sharia law punishment after taking $15 million from Court bank account and spending it on luxuries

By Christine Duhaime | May 29th, 2020

Two High Court judges in Brunei convicted of money laundering and breach of trust for looting a Court trust account, will not be punished under Brunei’s new sharia law, which involves the hudud punishment of having their right hands amputated. Instead, they are going to jail.

Judge Badaruddin and Ramzidah (Source: The Scoop)

In July 2018, the two judges, Haji Nabil Daraina bin Pehin Udana Khatib Dato Paduka Seri Setia Ustaz Haji Awang Badaruddin (“Badaruddin“) and Ramzidah binti Pehin Datu Kesuma Diraja Haji Abdul Rahman (“Ramzidah“), were arrested for embezzlement and money laundering for allegedly taking $15 million from the trust account of the High Court held for bankruptcy proceedings. Originally, they were charged with 157 charges, which were reduced to 40.

Ramzidah was convicted on January 15, 2020, of 14 counts of criminal breach of trust and 10 counts of money laundering.

Ramzidah was the Court receiver for bankruptcy cases and in such capacity, she oversaw payments into the Court’s trust account for creditors. She removed funds from 255 judgment debtors’ sub-accounts that were to be paid out from the Court’s account. In most countries, certain garnished or seized sums are paid to a Court receiver in a pooled trust account until the resolution of cases. It was the pooled trust account that she used to withdraw funds.

Badaruddin, who was a former prosecutor before becoming a judge, was convicted of six counts of money laundering. They were both charged with possession of unexplained wealth but those charges were stayed.

The couple had bought several luxury cars worth over $3 million, a few expensive watches worth $150,000, and funded private school tuition fees. Over $6 million was sent offshore to the UK and disappeared.

Sentencing of judges (Source: YouTube)

Their judge’s salaries were each only US$3,500 annually, inconsistent with their ability to have spent in the manner they did.

Ramzidah’s lawyer argued that the funds came from relatives and not from the Court’s pooled trust account, and then for Badaruddin, the lawyer argued, inconsistently, that Badaruddin was unaware that his wife was taking funds from the Court’s trust account and did not realize the cars, watches, lifestyle and funds chilling in their joint bank account were not legitimately earned. The lawyer informed the Court that Ramzidah suffered a severe mental collapse and both had mental health issues.

Both were sentenced to jail – 10 years for Ramzidah and 5 years for Badaruddin. However, on April 3, 2019, sharia law was implemented in Brunei and under its penal code, technically, the punishment was amputation of their right hands. After Brunei implemented sharia law, there was a backlash globally with calls to boycott hotels of its ruler, sultan Hassanal Bolkiah, primarily over the death penalty by stoning for homosexuality and adultery. For now, Brunei says it is practicing a dual legal system of its former English common law and sharia law.

As judges, Badaruddin and Ramzidah are politically exposed persons under anti-money laundering law, and as such, are more at risk statistically, to engage in corruption and launder proceeds of crime.

New sharia law allows stoning to death (Source: France24 YouTube channel)

The sultan’s hotels include The Beverly Hills Hotel, Hotel Bel-Air, Hotel Principe di Savoia, Hotel Eden, Hotel Plaza Athenee, Le Meurice, The Dorchester, and 45 Park Lane. Most US banks prohibit their employees and executives from staying or booking events at, any hotel owned by the sultan.

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BCSC and SEC jointly temporarily cease trade Vancouver company over Covid-19 PPE promotion

By Christine Duhaime | May 28th, 2020

The British Columbia Securities Commission (“BCSC“) and Securities and Exchange Commission (“SEC“) have jointly issued temporary cease trade orders in respect of a Vancouver company called Micron Waste Technologies Inc. (“Micron“). The BCSC cease trade order is here; the SEC cease trade order is here. It has been a number of years since a joint cease trade order has been issued by both.

The SEC suspension was issued after Micron hired a number of promotional-type companies on short-term contracts, one for $350,000. It then presumably caused to be promoted, or acquiesced in respect thereof, its stock on representations that it had the ability to rapidly make PPE to meet the needs of the global medical community during Covid-19. On the regulatory side, questions arose regarding the accuracy and adequacy of information in the marketplace about those representations.

PPE for bio-hazards

According to its website, Micron makes cannabis waste technology solutions, which it states on its website, is a booming industry.

Despite the boom, it appears to be also pivoting into Covid-19 solutions and says that it has acquired a licence to manufacture PPE, which it states will protect against bio hazards, pathogens, and superbugs. This article here describes what bio-hazard protective gear is, and this article here also describes the levels of PPE, including level 4 for bio-hazards which is what Micron suggests it is manufacturing in a week. And this company here, describes PPE for law enforcement safety, dealing with bio-hazard threats in theatre.

In a news release, it states that it bought raw materials from China to make its own PPE and bought machinery from China to make its PPE, and that both are en route to Vancouver. It may not be known to Micron, but the chances of obtaining usable PPE raw materials and usable PPE manufacturing machinery from a government licensed company in China are slim. Literally, the whole world is seeking such things from China and the PPE fraud from China is astronomical at the moment.

According to its corporate filings, Micron is managed by a former RCMP officer who was in drug enforcement.

There is not yet filed on SEDAR, a material change report, or a copy of the material contracts in respect of its change to pivot into the PPE business through a new acquisition and loan arrangement, and in respect of its new licence to manufacture PPE for bio-hazards. Investors will also be able to know more when they can read the material contracts with China for PPE.

According to its financial statements on SEDAR, Micron has $2.5 million in the bank.

It paid $1.5 million to consultants in the past year, and made several payments to companies it says are controlled by its insiders.

The non-arms length consulting contracts have not yet been filed on SEDAR. The contracts for short-term investor relations and promotional services, including the one for $350,000, have not yet been filed on SEDAR either. Its short-term IR and promotional services contracts expire at the end of July 2020. Presumably there is a material event planned between now and the end of July 2020, such that $426,000 had to be paid for IR and promotional services, but what that event is remains unknown.

On the good news side, Micron represented in its SEDAR filings in May 2020, that its new PPE business will be self-funding. Thus it will not need to raise any more money from investors for a very long time.

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Iran said to be officially moving into digital currencies with central bank

By Christine Duhaime | May 22nd, 2020

According to an article from Iran, summarized in CoinDesk, it seems that the Central Bank of Iran may have agreed to a policy of working with digital currency exchanges in Iran to provide the connective banking relationships to facilitate international transactions of the movement of digital currencies and money in and out of Iran. One of the exchanges is this one.

Typically, the government of Iran works 24/7 to find ways to exit billions of dollars from Iran for its politically exposed persons and to buy goods and services, often through sanctions avoidance methods. The concern is that any use by Iran of digital currencies, especially mining activities, will help it move funds out anonymously anywhere in the world.

Concerns are heightened by the fact that digital currency exchanges have historically not applied or implemented sanctions laws to prevent transactions from Iran. For example, here is an article of a politically exposed person on a sanctions list who created a digital currency which a Canadian digital currency exchange is facilitating the sale of.

Older articles on Iran and digital currencies are here and here.

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“There is no point to a lawsuit if it merely applies the law to lies” – SEC wins extreme remedy against digital currency exchange founder whose credibility is shot

By Christine Duhaime | May 17th, 2020

The founder of a digital currency exchange lied so much to the Securities and Exchange Commission (“SEC“) during its investigation and to a California Court, and made himself so not credible, that a Court has recommended one of the harshest remedies available – to deprive the defendant of the constitutional right to be heard – and to end a lawsuit against him with a default judgment.

Inherent jurisdiction of Court to terminate proceedings

All Courts have what is called inherent jurisdiction to punish parties in a litigation when untruthful evidence is created, tendered, sworn or filed in connection with an investigation, proceeding or litigation. When evidence a person gives ends up being so not credible because they made so many untrue statements or created fake documents or doctored others, often all that happens is their evidence is not taken into account or given any weight in the disposition of a litigation.

But a Court may also, on application of a party, punish the lying person by ending the litigation with a default judgment. This happens when the lying party’s conduct has been so harmful to the administration of justice that it’s impossible or prohibitively expensive to press the investigation or litigation reset button to ascertain the truth.

Forever cursed with losing litigation

There are other costs when a person is determined to be so not credible that the opposing party moves for default judgment successfully. Such a person is going to have to pay all the costs of litigation of all the parties. And more permanently such a person, having no credibility left, will never succeed in any future litigation even with different parties if their evidence is required or necessary. The latter is not the law but it’s the reality.

Here’s how the case with this digital currency exchange founder ended up there.

Rahim’s Instagram (Source: Instagram)

Untrue statements about ICO

In 2018, the SEC commenced an investigation into a digital currency exchange and initial coin offering (“ICO“) operated by a company called Blockvest LLC and its founder, Rasool Abdul Rahim El, who uses the name Reginald Ringgold III (“Rahim“).

The digital currency exchange and Rahim made statements to the public that the exchange and / or the ICO was licensed and regulated by the SEC, among other agencies, and that it was “approved” by the SEC and worked with Deloitte and was audited by them. The statements were untrue. The SEC believes such statements were made to induce the public into believing that the exchange had been vetted by the SEC, was safe and subject to regulatory oversight, when it was not.

On this promo page, it links to a (now deleted) Facebook post that says that Blockvest is moving to Malta.

Blockvest roadmap (Source: TopICOList)

Untrue statements wasted SEC’s time and public resources

During the SEC investigation, the SEC stated that Rahim lied to the SEC in respect of issues that were germane to the investigation and in respect of his exchange. The statements Rahim gave the SEC at the commencement of their investigation appear to have sent them down a path where they spent a substantial amount of time and resources investigating what ended up being untrue statements.

The SEC says that they engaged in costly and lengthy investigations as a result of Rahim’s deceit; and it caused the potential dissipation of assets depriving investors of recovery, in addition to wasting public funds with an investigation that was fruitless because it was based on untrue information.

In the midst of the investigation, the SEC filed an application ex parte for a temporary restraining order against Rahim and the exchange, alleging securities fraud. The Court granted the SEC’s application for a temporary restraining order.

Untrue statements used in Court

Rahim and Blockvest successfully applied to overturn the temporary order. Except that the application by Rahim and the digital currency exchange relied on untrue statements made by Rahim and some of his employees and/or investors.

The SEC then investigated the evidence filed by Rahim for that hearing and learned that some of that evidence was untrue, fabricated and involved at least one doctored document.

SEC applies to deprive Rahim of right to due process

When the SEC became aware of the extent of the conduct by Rahim in making untrue statements to the public, to its investigators and then to a Court, including the manufacturing of fake documents, they filed an application to end the Court case against Blockvest and Rahim, relying upon the Court’s inherent jurisdiction to sanction a deceiving litigant.

Sanctions that end a litigation, called terminating sanctions, are a severe remedy that can be imposed in circumstances where a litigation is pointless. A litigation is pointless when the objects of justice cannot be achieved such as where a party has engaged in practices that undermine the integrity of judicial proceedings and the deceptive conduct relates to the matters in controversy in such a way as to potentially interfere with a rightful decision. If a party engages in conduct that can cause severe damage to proceedings and there is a real risk that the truth might not come out, default judgment is an available, albeit rare, remedy. It’s rare because it’s a denial of due process and the right to be heard.

Statement made by at least four persons for Rahim were false or deceptive and Rahim had at least one of his people lie during an SEC investigative interview to support his version of an untrue reality. The SEC learned that some documents submitted to the Court were forged. The lawyer withdrew from the file.

Litigation rendered pointless by fake documents and untrue statements

In his defence, Rahim brought up his mental state and said that he was stressed by the SEC investigation and also suggested that some of the problematic documentation may have been his lawyer’s fault, ergo opening the door to the SEC taking the position that he and his company waived privilege and confidentiality in respect of the advice.

Rahim did not file statements to correct the falsehoods.

The SEC argued that the making and submission of false statements and fake documents so tainted the credibility of Rahim and the company generally, that there was no reason to pursue a litigation because there was no ground for a Court to review evidence that was so not credible.

One can see how this makes sense – if a person has lied so often in connection with a statutory investigation or legal proceeding, why would or should a Court allow the public purse to be used a second longer and how will the SEC or a Court ever know what statements can be relied upon and which cannot? A person who is not credible does not suddenly become credible over time or on a different day.

The Court found that the defendants’ misconduct greatly impeded the resolution of the case by obscuring critical facts, and would essentially make it impossible to separate fact from fiction.

In this case, the Court noted that dismissal is appropriate where a pattern of deception makes it impossible for a Court to conduct a trial with any reasonable assurance that the truth would be available, citing case law that “there is no point to a lawsuit if it merely applies law to lies. True facts must be the foundation for any just result.”

The Court recommended terminating the litigation with a default judgment.

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Selfie while driving Rolls Royce (Source: Instagram)
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Canadian who hid out in Canada for several years to avoid US prosecution, pleads guilty to securities fraud in New York

By Christine Duhaime | May 16th, 2020

A Canadian, possibly Iranian Canadian, pled guilty in New York today to conspiracy and securities fraud in connection with a scheme where fake securities of tech companies, such as Twitter and Uber, were sold to investors who suffered losses of US$18 million.

Fred Elm, whose real name is Frederic Elmaleh from Toronto, led an investment fund in Florida that sold units in shares of big tech companies such as Twitter, Alibaba, Square, Uber, Snapchat and others. Investors were guaranteed returns of 338% for holding shares in Twitter and 250% for holding shares in Square.

Elmaleh’s 4.644 sq. ft. house in Florida

Only the fund did not hold those all those shares for investors, as represented. Investors lost millions of dollars when investor funds were used for the acquisition by Elmaleh of, among other things, fancy fast cars, such as a Bentley Continental GT and Maserati Gran Turismo, a 4,644 sq. ft. 5-bedroom Florida mansion with its own elevator, expensive watches and diamond jewelry. Elmaleh also bought a number of guns.

When investors sought the repayment of their investments, Elmaleh created fake financial documents, and doctored other documents to buy time and pacify investors, according to the pleadings.

On January 15, 2015, the SEC commenced an action in Florida for injunctive and other relief alleging that from 2013 to 2015, Elmaleh through several corporate entities he controlled, ran a Ponzi scheme selling fraudulent investments and that Elmaleh looted some of the proceeds from the Ponzi scheme.

Elmaleh fled to Canada in June 2017, and a few years later in November 2019, was located, arrested and extradited to the US. During the time he was in Canada, he appears to have moved into buying Bitcoin and Tron in Toronto.

US prosecutors sought repayment of over US$2 million from the 70 year old parents of Elmaleh in Toronto – at first for unjust enrichment because they received money from Elmaleh’s fund and provided no services – but later, they were alleged to have operated Ontario companies to front the movements of funds for their son. Over 20 people in Toronto were sued by the US government and funds were clawed back from them for unjust enrichment because payments were made by the firm and / or the fund and no services were rendered.

As part of his plea deal, Elmaleh agreed to pay back US$8.3 million and is expected to be sentenced to 17.5 years in federal prison. He is currently held at New York’s MCC. You can read more here.

Another Canadian who was part of the investment firm, Ahmed Naqvi, who also fled the US for Canada and who was also located, arrested and extradited, is expected to be sentenced in June 2020 in New York.

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Vancouver man arrested trying to smuggle 134 pounds of cocaine into Canada

By Christine Duhaime | May 15th, 2020
Cocaine in duffle bags (Source: US Customs and Border Protection)

The US Customs and Border Protection and HSI announced the arrest of a Canadian, Ajitpal Singh Sanghera, who tried to smuggle 134 pounds of cocaine into British Columbia at the Blaine crossing, using a tractor trailer. The cocaine is estimated to be worth US$3 million and was hidden in duffle bags in the trailer.

Sanghera has crossed the border as a trucker more than 40 times in 2020, and police officers stated they believe he may be part of a drug trafficking organization.

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3 Canadians who operated a $233 million binary financial biz accused of lies and illegal securities distribution by Ontario Securities Commission

By Christine Duhaime | May 11th, 2020

Three Canadians who ran a binary financial business that allegedly took in $233 million from investors, are alleged to have engaged in the illegal distribution of securities that impacted investors from several countries in the world.

The three are Josh Cartu, Jonathan Cartu and David Cartu. The binary business was allegedly operated in Israel.

OSC proceeding

The Ontario Securities Commission (“OSC“) commenced proceedings against them, inter alia, to enjoin them from selling securities or acting as directors or officers of an issuer in Ontario and seeking the payment of a fine of $1 million each for violations of the Ontario Securities Act.

The three allegedly operated under a number of corporate entities including Tracy PAI Management Limited, UKTVM Ltd. and Greymountain Management Limited.

Payment processing operation

Greymountain was alleged to be a payments processor for the brothers and many other binary financial companies who presumably were de-risked by financial institutions or unable to obtain banking. It provided services to a company operated by California native Jason Scharf, who pled guilty to wire fraud as CEO of a binary finance company that took US$8 million from investors for binary options products. Scharf is incarcerated in a medium security jail in Oregon until January 2024.

The sales to residents of Ontario are alleged to have been placed through two online platforms – beeoptions.com and www.glenridgecapital.com, both of which are now defunct websites.

In Ontario, the scheme is alleged to have taken $1.4 million from 700 residents of Ontario over a four year period. The OSC says that the brothers lied about their operations, used aliases, and obscured their connection to the payment processing companies they owned and operated.

Not YouTube shy

The Times of Israel reported that one of the Canadians formerly ran an online gambling website from Limassol, Cyprus. The Times of Israel posted some social media coverage of one or more of the Canadian brothers, including the birthday celebration of one of them, below.

A birthday party (Source: YouTube)

And a tour of the condo of Josh Cartu in District V in Budapest.

Condo in District V in Budapest (Source: YouTube)

One son put his father from Canada on YouTube in one of the beeoptions.com logo’ed racing cars.

The Beeoptions logo’ed car (Source: YouTube)

The Times of Israel reported that the brothers, or one of them, may be in Canada now. Two of the three brothers are in the Ferrari database as owners of a 2017 Ferrari 458 Challenger.

House always won even when it didn’t

Options, even if they are binary, are a securities and securities activities are regulated.

The way it works is that a person is asked to buy an option. Unlike a stock option, this type of option is a gamble on the future price of a publicly traded stock (or Bitcoin, a currency or a commodity) at a certain time. The gamble on the future price is a yes / no proposition (hence the word binary). The terms of this type of option typically promise a percentage (for example, 25%), if the bet placed by the investor is correct. If the bet placed on the option loses, the person loses the money wagered in the bet.

However, in the case of beeoptions.com and its sister operation, the OSC says that it operated like a boiler room cold calling centre, where employees called Canadians from Israel to solicit sales, and that the house always won, even when it didn’t.

In the US, the CFTC regulates the trading of options contracts and regulated activities are listed on regulated exchanges.

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Money laundering and securities fraud indictment unsealed against key promoter of OneCoin who raked in hundreds of millions of dollars selling fake coins

By Christine Duhaime | May 6th, 2020

After two years, the Attorney General for the Southern District of New York has unsealed the indictment against Karl Sebastian Greenwood, a key promoter of the Bulgarian initial coin offering, and supposed digital currency called OneCoin. Greenwood was allegedly extradited to the US from Thailand in 2018.

Karl Sebastian Greenwood (Source: Facebook)

Indictment unsealed

In the indictment, Greenwood is charged, inter alia, with money laundering, securities fraud and wire fraud in connection with promoting OneCoin for four years; his promotional efforts alone allegedly resulted in the payment by investors of over US$1 billion to OneCoin. Greenwood is incarcerated pending his trial at the New York City MCC.

In 2016, here, Greenwood gave an interview on his role in OneCoin, wherein he disclosed he knew nothing about the product he was promoting and yet promoted and sold it to millions anyway, he said.

Greenwood, the unidentified co-founder?

Although the indictment refers to Greenwood merely as a promoter, he is most likely the unnamed OneCoin co-founder in the criminal complaint filed against Ignatov.

Activities in Colombia

In a YouTube video below, (available in full here), Greenwood shows a Porche in Panama, and then a OneCoin private jet filled with other OneCoiners, taking off on a trip to the cocaine capital of the world, Medillín, Colombia, to sell OneCoin. In the video, he says he is going to Colombia for ‘The People,’ to change history. The video then cuts to champagne being poured on the jet for the OneCoin people on board.

OneCoin private jet en route to the cocaine capital (Source: YouTube)

A fraud through and through

OneCoin executives have given statements confirming to US government agencies that OneCoin was a fraud.

Investors from around the world lost between US$2 billion to US$3 billion investing in OneCoin from 2014 to 2016, and more after that period of time. It was sold using aggressive multi-level marketing (“MLM“) techniques and networks. It was pitched as a proof of work digital currency that had a native Blockchain with an explorer, and that also had a digital currency exchange attached to it to offer liquidity to purchasers of OneCoin so that they could cash out.

Over 3.5 million people bought into OneCoin but they were buying nothing at all. It was a fraud through and through.

No Blockchain; no tech; no ability to cash out

Despite being represented as such by MLM salesmen, OneCoin was not a digital currency; did not have a Blockchain; did not have a Blockchain explorer; did not have a digital currency exchange; and purchasers did not have the ability to exit out of their investments.

No one seems to know just what tech it had, if any.

Tattoo-loving brother; diamond-loving sister

Here, you can read how a team of two, comprised of a tattoo-loving brother called Konstantin Ignatov and a diamond-loving sister called Ruja Ignatova, seem to have led the operations of OneCoin. The company had an alleged exit strategy that involved taking the OneCoin money and running and blaming other people for its disappearance.

Greenwood and Ruja Ignatova (Source: Facebook)

Sister and brother were indicted in respect of OneCoin; brother was arrested and sister disappeared in October 2017. But to where – Colombia? Vienna? Canada?

Private companies – laundered money

Konstantin Ignatov pled guilty to money laundering and bank fraud and testified in a criminal proceeding that OneCoin was a fraud. He also testified that he left his job as a forklift operator and became an executive at OneCoin, eventually running the organization when his sister disappeared. He testified that he was involved in creating companies which were used to hide proceeds of crime from the OneCoin fraud and that such activities involved his sister and others, including Amer Abdulaziz, Irina Dilkinska and Gilbert Armenta. The latter was the boyfriend of Ruja Ignatova.

Ruja Ignatova warns her boyfriend about Russian guys

In the audio recording, below, Ruja Ignatova tells Armenta to be “fucking careful” and that he can’t imagine what Russian guys can do. She tells him to quit using email and says that she can get whatever she wants in 24 hours.

“Be fucking careful!” (Source: Inner City Press)

The man with the diamond skull and crossbones walking stick

OneCoin had another material person who was involved in its sales and promotion – Juha Parhiala. Over the years, he joined Greenwood and Ignatova to ramp up OneCoin sales from small to large events. All three were frequently photographed together in fancy formal evening wear, promoting OneCoin. Parhiala carries around a diamond skull and crossbones walking stick.

Greenwood, Ignatova and Parhiala (Source: Facebook)

Parhiala got €20 million per month selling OneCoin to the public

There appears to be a debate as to whether Greenwood or Parhiala were the top-selling salesmen at, and promoters of, OneCoin. At the beginning of 2016, Parhiala stated that he was the top salesman and promoter, earning commissions of US$4 million a month. So, he was selling a lot clearly as early as 2015, if not before.

However, Ignatov testified that Parhiala actually made way, way more, namely €20 million per month in commissions, selling OneCoin. If he earned such commissions over two years, that’s €480 million in money that came from investors. Parhiala now appears to be selling gold on Zoom connected to an office in Miami.

If €20 million per month in commissions seems like a lot – Ignatov then testified that Greenwood earned way more than Parhiala selling OneCoin. If that’s the case, it means that Greenwood raked in hundreds of millions of dollars selling fake coins, and millions more than Perhiala. If the testimony of Ignatov can be believed on this point, it confirms that Greenwood is the anonymous OneCoin co-founder referred to in the criminal complaint against Ignatov.

3,000 coin millionaires

In this video, excerpted below, Greenwood pitches the MLM scheme that fuelled OneCoin sales at a conference of the OneCoin faithful saying it would generate “3,000 coin millionaires” among them. It was touted again as for ‘The People.’

Greenwood et al hyping OneCoin (Source: YouTube)

Ignatova emerges somewhere in 2018

In Ignatov’s testimony, he appears to have stated that he had no communications from his sister since her alleged disappearance in October 2017. If that was the testimony, it can’t be accurate because law enforcement located a power of attorney executed by Ignatova in 2018, giving Ignatov power over assets registered in her name. That means that Ignatova met with a notary in 2018 in person to execute it, and through a proxy or in person, delivered the power of attorney in the original to Ignatov. The notary who witnessed the execution of the power of attorney with Ignatova in 2018, is the last person that anyone can identify who saw her.

Where is the Aurum gold ICO?

We don’t hear much about it but OneCoin had another coin project called “Aurum Gold Coins”, which was alleged to be backed by “real and solid gold” allegedly stored in vaults all over the world. It too was advertised as part of “one world,” similar to how OneCoin was advertised (here).

Aurum Gold Coins, part of the OneCoin Ignatova family

MLM scams and networks

OneCoin was a pure MLM activity.

MLM activities are not illegal per se.

MLM networks involve sales activities that are direct, or person-to-person. The person at the top earns revenues for sales completed by everyone underneath him or her. For example, a digital currency exchange that pays a referral fee to refer a person to sign up to a digital currency exchange is a type of MLM outfit – the more you refer, the more you potentially earn in revenues.

MLM outfits and their activities cross the line into illegality when, inter alia, they are based on fraud, untrue statements or misrepresentations. Some MLM networks are structured as pyramid payments but that doesn’t necessarily make them illegal unless they are a Ponzi scheme and payments paid to first entrants comes from later entrants.

Every office seems to have a person trying to direct sell pots and pans, vitamins, lipstick and other stuff to employees using company emails and on company premises — those are MLM salespeople. When someone buys their products, it feeds a whole network of upwards commissions and fuels the MLM ecosystem.

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