An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
HYIP HYIP Hooray As FBI Busts Fed High Yield Scam
November 26, 2013
I dunno but lately I seem to be writing far too much about far fetched investment schemes that are composed more of nonsense than substance. And yet, notwithstanding, the investors line up to pour their hard earned dollars into these seemingly bottomless pits of garbage.
According to federal prosecutors, from February to December 2006:
• William J. Ferry, 70, Newport Beach, CA, a former stock broker and investment adviser;
• Dennis J. Clinton, 64, San Diego, CA, a former real estate investment manager,
• Paul R. Martin, 63, Wycoff, NJ a former senior vice president and managing director of Bankers Trust,
• John Brent Leiske, OR
• Alex Chelak, Burlington, Ontario,Canada
• Richard Arthur Pundt, Esq., Cedar Rapids, IA
• Brad Keith Lee, San Diego,CA
• Ronald J. Nolte, Cooper City, FL
conspired to defraud a wealthy investor of $1 billion in a high-yield investment fraud scheme. Oh, yes - this gang of securities fraudsters found themselves one big, fat, juicy pigeon of a victim and they fed him a little trail of breadcrumbs until they could reach out and strangle the financial life out of this mark.
HYIP HYIP Hooray
The little birdies sought out by the conspirators would be duped by a story extolling the virtues of another in a long line of so-called high-yield investment program ("HYIP") fraud schemes that always promise an astronomical return involving, you betcha, little if any risk to the investment. In this case, the HYIP (you know it's a widespread fraud when we refer to it by an acronym) was billed as a "Fed Trade Program.
Now if ya really gotta ask what a Fed Trade Program HYIP is, well,you know, you're just struttin' your ignorance for all the world to see; and, c'mon, you don't want nobody to think that you're financially unsophisticated, right? So, of course, you nod along as if the words that come out of the con artists' mouths are making sense. They're not. But you're too proud to let on. If you had asked, the scamsters would have told you that the Federal Reserve Bank - the "Fed" in their lingo - was involved with this deal and had set very strict guidelines. There was a Fed trade administrator overseeing the whole shebang and another Fed compliance officer made sure that the program was operating in accordance with all sorts of rules and regulations.
Saving The World And Making Big Bucks Doing It
As the conspirators worked their spiel, they made the investment more palatable, more attractive, more noble, so to speak. They falsely claimed that these Fed HYIPs existed primarily to generate funds for project funding and humanitarian purposes. Remember Hurricane Katrina? There was an example you might be given as to such a project/purpose.
Of course there was a catch, and with this HYIP it was a whopper of an explanation about how the profits had to be equally divided between the purpose, the project, and the investor. Not to worry, the folks setting this complicated program up for your financial benefit had found a Swiss banker to manage their offshore bank account, and, luckily, this banker was already managing billions of dollars for these same folks. You know, the same folks that for some reason were willing to cut you in on this Fed HYIP thing. Nice guys. Great humanitarians.
Having baited the hook, the conspirators let out just enough line; and when they felt the nibble, they set the hook with a gentle tug. When the deeply pocketed investors to whom the HYIP was pitched expressed some interest, the scamsters falsely represented that they would arrange for a meeting with a Fed official or the chairman of the board of a major U.S. bank as confirmation of the existence of the HYIP.
Cast of Characters
According to prosecutors, the cast of characters filled the following roles:
- 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;
- Leiske acted as the trader; and
- Chelak acted as a compliance officer.
Oops!!!
Alas, everything was going so smoothly and some of the conspirators likely had rubbed their hands together in glee of getting a big whoppin' billion bucks from their pigeon and his advisors.
Except. Yeah, there's this lovely except. Except the Federal Bureau of Investigation had created a purported financial advisory firm in Newport Beach, CA, and a Special Agent acting undercover posed as a partner of the firm. Another FBI agent posed as a wealthy client of the firm and was paired with the purported partner. The undercover FBI team posed as wealthy investors and investment managers as a way to preemptively intercept these frauds and their masterminds. The con artists were, in the end, the pigeons in this sting within a sting.
Indictment
On August 21, 2008, Ferry, Clinton, Martin , Leiske, Chelak, Pundt, Lee, and Nolte were indicted.
Pleas
On April 13, 2009, Lee pleaded guilty to wire fraud and conspiracy to commit mail and wire fraud.
On January 24, 2012, Leiske pleaded guilty in the District of Oregon to conspiracy, mail fraud and wire fraud.
Guilty
On August 3, 2012, Martin was found guilty in federal court in the Central District of California on one count of conspiracy, two counts of mail fraud, and six counts of wire fraud.
August 28, 2012, Ferry and Clinton were found guilty by a federal jury in Santa Ana , CA. of one count of conspiracy, two counts of mail fraud, and six counts of wire fraud.
Dismissed
In August 2010, charges against Pundt were dismissed by the government.
Acquitted
On August 28, 2012, Nolte was acquitted by a jury in the Central District of California.
On The Run
Chelak remains a fugitive.
Sentences
On January 11, 2010, Lee was sentenced to 24 months in prison.
On February 14, 2013, Leiske was sentenced to 120 months in prison.
On November 19, 2013, the following sentences were handed down:
- Ferry: 15 months in prison.
- Clinton: 30 months in prison.
- Martin: 30 months in prison.