September was an active month for Ponzi litigation with nearly a dozen new complaints filed alleging fraudulent investment activity. The SEC continues to drive Ponzi-related litigation; in addition to four enforcement actions brought last month, previous SEC litigation precipitated several complaints filed by investors and court-appointed receivers. Consistent with the trends discussed in Ponzi Perspective’s Midyear Roundup, the majority of actions filed in September involved real estate investment schemes and targeted solicitation of affinity groups.
Notable litigation filed in September 2023 includes: (1) Conlan v. Roach, et al.; (2) Reispec Develop. LLC v. Pina, et al.; (3) Dottore v. SDR Realty; (4) SEC v. Kubler, et al.; (5) McGrath v. Palowet Inv., LLC; (6) SEC v. Feloni, et al.; (7) SEC v. Aras Inv. Bus. Grp., et al.; (8) American Eagle Oil & Gas Co., et al. v. Navarro Prod. Co., et al.; (9) Luppino v. Spano, et al.; and (10) SEC v. Motil, et al.
Conlan v. Roach, et al., No. 1:23-cv-02460 (D. Colo.)
A court-appointed receiver filed suit against defendant property purchaser in Colorado federal court to recover misappropriated investor money and property transferred in violation of a September 2023 asset freeze order in a related SEC action. The SEC action was filed in 2019 against Michael Stewart and his company Mediatrix for allegedly operating a fraudulent foreign currency exchange trading scheme in which they induced investments through false representations regarding the profitability of their purported trading algorithm. In late September 2023, after a sweeping asset freeze order was entered, Stewart and his wife transferred properties from entities named as defendants in the SEC action to other businesses they owned and their attorney in violation of the freeze order. The Receiver seeks avoidance of the property transfer, judgment in the full amount of the transfers plus interest, and attorneys’ fees under theories of fraud, fraudulent transfer, and unjust enrichment.
Reispec Develop. LLC v. Pina, et al., No. BER-L-004746-23 (N.J. Super. Ct. L. Div.)
A Ponzi victim filed suit against defendant schemers in New Jersey state court for losses arising from an alleged Ponzi scheme in which real estate investment seminar attendees were invited to invest in properties purportedly owned by the schemers. The complaint alleges that defendants induced victims to sign investment contracts for the properties and promised returns of 20-40% of their principal, but defendants failed to provide any returns and ceased contact with victim investors who ultimately lost the entirety of their capital. Plaintiff seeks the recovery of damages under theories of violation of the New Jersey Consumer Fraud Act, fraud, breach of contract, negligent misrepresentation, securities fraud, conspiracy, and a civil RICO.
Dottore v. SDR Realty, No. CV-2023-09-3527 (Ohio Ct. Com. Pl., Summit Cnty.)
A court-appointed receiver filed suit in Ohio state court against Ponzi scheme “net winner” investors who received fictitious profits to the detriment of other defrauded investors. This action stems from prior litigation filed by the State of Ohio Department of Commerce against Mark Dente where defendant operated the Dente-AEM Ponzi scheme by inducing investors with promises of significant returns on real estate investments, but instead used investor money as his personal slush fund. The receiver seeks recovery under the Ohio Uniform Fraudulent Transfer Act to avoid the transfers and recover their value of $9,658,575.00, to impose a constructive trust over the funds to be distributed equitably among the Ponzi scheme victims, for post judgment interest, and for costs of the action including attorneys’ fees.
SEC v. Kubler, et al., No. 8:23-cv-00408-RFR-CRZ (D. Neb.)
The SEC filed suit against a schemer and companies he managed in Nebraska federal court for an alleged ongoing multi-million-dollar Ponzi scheme run through investments purportedly associated with commercial real estate. The complaint alleges that defendants fraudulently misappropriated 96% of investor funds by making Ponzi payments, running a shell game by comingling funds, and paying defendant’s personal expenses. The SEC alleges violations of the Securities Act and Securities Exchange Act, permanent injunctive relief against defendants to prevent future violations of the federal securities laws, disgorgement of ill-gotten gains, and civil penalties.
McGrath v. Palowet Inv., LLC, No. 5:23-cv-02002 (C.D. Cal.)
A Ponzi victim filed suit against the purchaser of property sold by a deceased schemer’s estate in California federal court for losses arising from an alleged Ponzi scheme run through investments in a purported golf cart operation. The complaint alleges that the schemers previously induced investors to finance a golf cart operation with a promise to pay both interest and a premium. Instead, the schemers allegedly used the new loan funds to pay off older loans, and victim investors were left with large losses which led to previous litigation against the schemers. Following the death of one of the schemers, his estate sold assets for a fraction of their fair market value to shield them from Ponzi victims’ reach. The victim seeks avoidance of the property sale under the California Uniform Voidable Transactions Act, injunctive relief to prohibit further disposition of the property, damages including punitive damages, pre- and post-judgment interest, and court costs.
SEC v. Feloni, et al., No. 1:23-cv-12233-DLC (D. Mass.)
The SEC filed suit against defendant schemers in Massachusetts federal court for losses arising from their deception of approximately 180 retail investors that invested in the purported development of a “Stock Squirrel” smartphone application. The complaint alleges that defendants issued investors stock in Stock Squirrel and promised high returns on their investments, but instead used the majority of investor funds to pay defendants’ unrelated personal expenses. The SEC seeks recovery under theories of violations of several provisions of the Securities Act and Securities Exchange Act, permanent injunctive relief against defendants to prevent future violations of the federal securities laws, disgorgement of ill-gotten gains, and civil penalties.
SEC v. Aras Inv. Bus. Grp., et al., No. 3:23-cv-353 (W.D. Tex.)
The SEC filed suit against the defendant schemers in Texas federal court for losses arising from an alleged multi-million-dollar Ponzi scheme targeting the Mexican American community to invest in real estate and Mexican mining operations. The complaint alleges that the schemers misrepresented to investors that their funds would be used for property investments, but the funds were instead used to make $9 million in Ponzi payments and were used for personal expenses, causing investors to incur more than $6 million in losses. The SEC seeks recovery under theories of violations of several provisions of the Securities Act and Securities Exchange Act, permanent injunctive relief to prevent future violations of the federal securities laws, disgorgement of ill-gotten gains, and civil penalties.
American Eagle Oil & Gas Co., et al. v. Navarro Prod. Co., et al., No. 048-346635-23 (Tex. Dist.)
Ponzi victims filed suit against the defendant schemers in Texas state court for losses arising from an alleged Ponzi scheme run through investments purportedly associated with oil and gas leases. The complaint alleges that the schemers fraudulently misrepresented amounts of oil production to continuously solicit investor funds, and ultimately stole the funds, resulting in a December 2022 felony conviction for wire fraud. Plaintiffs seek recovery under theories of common law fraud, fraud by nondisclosure, violations of the Texas Securities Act, violations of the Texas Theft Liability Act, negligent misrepresentation, breach of fiduciary duty, civil conspiracy, and unjust enrichment, and demands actual and exemplary damages, court costs, and attorneys’ fees.
Luppino v. Spano, et al., No. BER-L-005143-23 (N.J. Super. Ct. L. Div.)
Ponzi victims filed suit against the defendant schemers in New Jersey state court for losses arising from an alleged Ponzi scheme by which schemers fraudulently misrepresented themselves as a certified financial advisor and certified financial advisory company. The complaint alleges that the victims entrusted the schemers with $110,000 for a promise of a positive return, distributions, quarterly returns, and assurances of security. However, the money was never invested, distributions were never paid, and the schemers continuously ignored victim demands for the return of funds. Plaintiffs seek recovery under theories of conversion, breach of fiduciary obligations, breach of suitability obligations, breach of contract, fraud, and unjust enrichment, and demands damages, court costs, and attorneys’ fees.
SEC v. Motil, et al., No. 23-CV-1853 (N.D. Ohio)
The SEC filed suit in an Ohio federal court against an alleged fraudster and his companies, asserting that defendants solicited investments for residential real estate renovations with the promise of substantial returns upon sale of the properties. However, the schemer issued multiple promissory notes for each property to numerous investors, defrauding them of their investment and leaving most or all investors without a secured interest. The SEC seeks recovery under theories of violations of several provisions of the Securities Act and Securities Exchange Act, permanent injunctive relief to prevent future violations of the federal securities laws, disgorgement of ill-gotten gains, civil penalties, and the creation of a Fair Fund pursuant to Section 308(a) of the Sarbanes-Oxley Act.
