An irreverent Wall Street Blog
by Bill Singer
Join BrokeAndBroker blog on Facebook  Follow the BrokeAndBroker blog on Twitter  Connect with BrokeAndBroker on LinkedIn  Join Bill Singer on Google+  Subscribe to RSS Feed

The Sting Meets Reservoir Dogs In Epic FBI High Yield Investment Fraud Case
Written: August 28, 2012

Wall Street — an industry with millions of employees and millions of stories. From the shocking collapses of Lehman Brothers, Bear Stearns, and MF Global, to the inexplicable plummets of Madoff and Stanford, to the miscues of Knight Capital, Facebook, NASDAQ, JP Morgan, and Goldman Sachs. Everyday it’s another wild tale. Sometimes the hard news is more entertaining than efforts to fictionalize the Street.  Consider this story:

According to federal prosecutors, it was a conspiracy to defraud a wealthy investor out $1 Billion.  I mean, okay, if you’re going to take the risk of going to jail, you might as well go for broke and try to break the bank – so to speak.  In this case, a whole bunch of seemingly smart guys were charged with cooking up a scheme involving a high-yield investment fraud.

Perhaps not a bad idea but with so many of these scams, the proof is in the execution of the sting.  Here the defendants sort of shot themselves in the foot from day one.  Seems that their well-heeled pigeon wasn’t a wealthy investor sitting around waitomg to be parted from his billion in dead presidents. To the contrary. The mark here was an undercover FBI agent and part of a team that was posing as wealthy investors and investment managers.

Kudos to the FBI!  Someone finally figured out that a day late and a dollar short ain’t the best crime fighting strategy. The FBI went proactive. The FBI engaged in preemptive attack against the scam artists. For once, this is not about a post-mortem where regulators and prosecutors are reduced to reading the toe tags.

The Cast of Characters

On Aug. 21, 2008:

  1. William J Ferry, 70,
  2. Dennis J. Clinton, 64;
  3. Paul R. Martin, 63;
  4. John Brent Leiske;
  5. Alex Chelak;
  6. Richard Arthur Pundt,
  7. Brad Keith Lee; and
  8. Ronald J. Nolte

were indicted in the U.S. District Court for the Central District of California. What did these eight gents do to get on the FBI’s bad side?

HYIP, HYIP, Hooray!

The Feds alleged that from February to December 2006, Ferry, Clinton, Martin and others conspired to promote a high-yield investment fraud scheme. As I read through the allegations, it’s not all that sophisticated – more like a bigger price tag on the same-old-same-old pitch: You’re gonna get humongous returns and we guarantee, we promise, we swear to ya, there’s little if any risk to your principal.

As if we haven’t heard that one before!

Next comes the acronym: the high-yield investment program is known as the “HYIP.” And what’s an HYIP?

Oh silly boy, if you have to ask, move aside, let your momma and poppa come up front.  Anyone who knows anything knows that the HYIP is a Fed trade program. What’s a Fed trade program? Oh my, you really are a dumb one, aren’t you? A Fed trade program is regulated by the Federal Reserve Bank and, now listen here, a Fed trade administrator handles our program – what could be simpler, better, and safer? We even got a Fed compliance officer making sure that everything’s on the up and up.  In fact, we’re waiting right now to get approved and registered by the Fed to launch this HYIP. Can you say ground floor opportunity?

One other thing about the defendants’ HYIP, they falsely claimed all these Fed investment programs existed primarily to generate funds for project funding and humanitarian purposes, such as Hurricane Katrina relief.  What a lovely if cynical touch. You can just about hear the gentle strains of the violins being played.  And another thing, the scamsters admonished that the promised profits from investing in a Fed program had to be divided, in equal amounts, with one portion going for some humanitarian purpose, another portion for some kind of project financing, and the remainder to the investor.

Of course, to whom was this HYIP pitch being delivered?  Ah, yes, the undercover FBI agents.  How unfortunate for the talkative pitch men.

Places Everyone

The Feds alleged that the defendants falsely represented to FBI undercover agents that it had been arranged for them to meet with a Federal Reserve official and/or the chairman of the board of a major U.S. bank in order to confirm the existence of the defendants’ HYIP.  There was also the assurance that the offshore bank accounts used for the HYIP would be managed by a Swiss banker. Don’t know about you but if I’m coughing up a billion or so bucks, that would seal the deal right there – after all, how many honest to goodness Swiss bankers are there and this one was purportedly  managing billions of dollars for the defendants.

Whether you prefer the humor of The Sting or the brutality of Reservoir Dogs, all these crooks apparently had roles to play. The Fed claimed that:

Ferry acted as an underwriter and member of the compliance team;

Martin acted as a banking expert;

Clinton acted as a troubleshooter during the compliance phase and transfer of funds to the Swiss banker;

Lee acted as the contact with the Swiss banker; and

Leiske acted as the trader.

In an apparent cameo role, Chelak acted as a compliance officer.

Cuff ‘Em Dano

On April 13, 2009, Lee pleaded guilty to wire fraud and conspiracy to commit mail and wire fraud.  On Jan. 11, 2010, he was sentenced to 24 months in prison.

In August 2010, charges against Pundt were dismissed by the government.

On January 24, 2012, Leiske pleaded guilty to all counts in the District of Oregon, and he is scheduled to be sentenced on Sept. 19, 2012.

On August 3, 2012, Martin, a former senior vice president and managing director of Bankers Trust, was convicted of one count of conspiracy, two counts of mail fraud and six counts of wire fraud.  At sentencing, scheduled for Feb. 1, 2013, he faces a maximum penalty of 20 years in prison on each fraud count.

On August 28, 2012, Ferry, a former stock broker and investment advisor, and Clinton, a former real estate investment manager, were each found of one count of conspiracy, two counts of mail fraud and six counts of wire fraud.  They face a maximum penalty of 20 years in prison on each fraud count.  They will be sentenced on Feb. 1, 2013.

On August 28, 2012, Nolte was acquitted.

Chelak remains a fugitive.

 A Must See Double Feature:

FOREX Trading Platform Scam Ends In Guilty Plea

Feds Get Guilty Verdict In Social Media Shareholders’ Kickbacks To FBI Agent


Previous Entries
December 22, 2014
You recommend that a customer make a cash contribution in order to lock-in a minimum rate provision for a protection-plus policy. Within a year of tha... Read On
December 20, 2014
Till Death And Redemptions Do Husband, Wife, Stockbroker, And Bob Marley PartWe start with a wife and her children. We add a husband. We toss into tha... Read On
December 19, 2014
We start with a wife and her children. We add a husband. We toss into that scene a stockbroker. Then come the redemptions. All of which sets the stage... Read On
December 18, 2014
In a recent FINRA regulatory settlement, 18 registered folks sort of fell off their firm's compliance radar.  It's not a case involving eart... Read On
December 17, 2014
The road to Hell is paved with good intentions and a recent FINRA regulatory settlement involving a customer's email request for a wire transfer certa... Read On
December 16, 2014
A Personal Note From Bill Singer:It is with great sadness that I note the passing of my friend and veteran industry compliance professional Richard Be... Read On
December 15, 2014
If a public customer wants to place an idiotic order or insists on engaging in trading that seems destined to commit "economic suicide," what, if any,... Read On Job Search

Related Topics
Tag Cloud
Internet FINRA Bear Stearns Bloomberg SEC NASD NYSE Money Laundering Due Diligence Waiver Forbes China Chepucavage Broy Woody Allen Madoff NAC NPR Marketplace Stanford UBS Ketchum Antitrust NASDAQ RRBDLAW Schapiro Bill Singer BrokerAndBroker USERRA Morgan Keegan Arbitration Counterclaim Khuzami BrokeAndBroker Aleynikov Goldman Sachs brokeandbroker Promissory Note U4 Bill SInger EFL CFTC Huffington Post Flash Crash arbitration RBC Ponzi Affinity Fraud Wachovia Raymond James Expungement Fraud Securities Fraud Outside Business Activity Registered Rep Magazine FOREX FBI Banc of America Pro Se Supreme Court Morgan Stanley Smith Barney E*Trade Margin email Galleon Penson U5 Defamation Protocol Wells Fargo Punitive Damages Citigroup Merrill Lynch ARS Employee Forgivable Loan Street Legal Morgan Stanley AWC Fidelity Bankruptcy Broke And Broker HFT David Sobel Day Trading Ameriprise Commissions Spouse Schwab Commission CRD Kenneth Starr IRS CNBC Complaint ATM Skimming Hacking Phishing Malware Naskovets Poteroba Koval Lincoln Financial Selling Away Outside Business Activities Rakoff 2nd Circuit Second Circuit IRA 401k Forgery Tax Email Netschi Moore Whistleblower Street Sweeper Tran Bharara Facebook Online Severance Bonus Eligibility Rule TD Ameritrade Hedge Fund SAC 1099 Smith Barney Lehman Brothers SIPC IC3 Scottrade Lehman JPMorgan Chase Hertz Insider Trading Bank of America Department of Justice Elles Bribe Auction Rate Securities Raiding Spam Edward Jones Medicare Diabetes Dow Schumer Thain Walter Bid Rigging Real Estate Discrimination Wall Street Statutory Disqualification Form U4 Form U5 Indictment Boyland DOJ Corruption bill singer FTC Do Not Call FINRA Arbitration Costa Rica Settlement LIBOR Varney Plea Rule 8210 Eligibility RRBDlaw Appeal Fowler LPL Johnson US Airways Reg D MSSB Vault Loan SunTrust Discovery Employment Rosenthal Recruiting Lawyer Trading Platform JP Morgan Employment Tuesday Wrongful Termination Bank Guarantee WaMu Solicitation REIT Martin Credit Cards Rule 3050 Away Account Credit Repair PN Advisor Placement Group Forex Mortgage Private Placement Moon CGMI Merrill Anderson Exam Lee Borrowing Tax Lien Conversion Oppenheimer Wedbush Felony Misdemeanor Expenses ING Lien OTR Estate Jobs Florida Credit Card Elderly Flash Drive Annuity Expense Reimbursement FNMA BrokeAndBroke TIC DWI Promissory Notes Suitability Will POA Power of Attorney Casino NSF MF Global Counterfeit Preet Bharara Corzine Hacker RIA Prison Disclosure NASAA Aguilar FCPA Subway Identity Theft Gold Dell Bar Injunction Bank Deutsche Bank Hospital God HSBC Private Placements Eric Stein Wire Fraud FINOP CCO Audit Joshua Brown Backstage Wall Street Obstruction of Justice Reuters Retaliation Variable Annuity Arbitraiton Outside Account Options Telephone Wine Social Media ADA Pacifico Non-Prosecution Agreement Confirm Tax Fraud Retirement OBA Equity Indexed Annuities EIA MetLife Continuing Education Cheating OIP Tax Liens Willful CE Unregistered Impersonation Annuities BBVA Business Expenses ETF JOBS Act Mail Fraud Parking Variable Annuities Signatures BitTorrent Impersonator Wire Transfer Wire Crowdfunding Nasdaq Away Accounts WSP Laptop Dodd Frank Checks RMBS AML PST Solicited Unsolicited Congress SRO Wife Discretion Non-Solicitation Restaurant Commodities Private Securities Transaction Offer of Settlement Money Market employment jobs Great Recession Chase Investment Services Arrest Barclays Liens Failure To Supervise Apple Time And Price T&P Willfully Husband Letter of Authorization LOA Sexism Debit Card Knight Test Practice Sale Unfair Competition Signature Judgments Undisclosed Settlement Trainee Fee Trust Laser Side Bar Mattera Female Sales Assistant Kennedy Charge Sexist NML Argentina Embezzlement Silver Investor Alert Judgment Bank Fraud Deceased TSSB Mary Jo White Trustee Motion To Dismiss Frumento Conspiracy 6th Circuit Proctor Rule 3040 Class Action Beneficiary NYAG Schneiderman Gallagher White Self Regulation Short Sale Compromise Website TRO Supervision Vacatur SDNY BrokeAndBroker Bill Singer Piwowar Stifel Rule 1122 Article V signature Confidential Inside Information VA Regulation SP Customer Rule 3270 Rule 3240 Annual Compliance Questionnaire OWB 2Cir Stockbrokers Altered Records
Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+