Saying "Restitution Comes First," Judge Slashes Prison Sentences For Brothers Convicted Of Running Ponzi Scheme

"The longer you're incarcerated, the longer the victims go without any money...Restitution comes first." 

- Ingham County Judge Rosemarie Aquilina

A Michigan judge drastically reduced the sentences of twin brothers convicted of operating a multi-million dollar real estate Ponzi scheme, reasoning that their ability to pay restitution to defrauded victims weighed in favor of a reduced prison sentence.  James and Thomas Mulholland had their 10-to-20 year prison sentence reduced to 3.75-to-20 years by Ingham County Circuit Court Judge Rosemarie Aquilina after an appellate court vacated the brothers' previous sentence over an error in applying sentencing guidelines.  With the new lower sentence range and because they have been in prison since 2016, the brothers will be eligible for parole in mid-2020.

The Mulholland twins - who incredibly are one of at least three sets of twins accused of running Ponzi schemes (see here and here) - were convicted by a Michigan jury in 2016 of eight charges stemming from their operation of Mulholland Financial.  The company, which they started in 1987, invested in residential real estate in Michigan.  Shortly after forming the company, the Mulhollands began raising money from investors to purportedly buy, maintain, and rent residential housing.  Prospective investors were promised a guaranteed 7% annual return which would purportedly be generated from company profits.  The Mulhollands recruited clients of thier insurance business as well as those clients' friends and relatives, and many of those clients were retirees with limited or no investment experience.  Despite Mulholland Financial's dissolution in 2006, the brothers continued raising funds until 2010.

Perhaps unsurprising given the company's real estate focus, the financial downturn was devastating to Mulholland Financial and resulted in the twin brothers filing bankruptcy in February 2010.  In late 2012, the Securities and Exchange Commission filed a civil enforcement action against the brothers alleging that they conducted a fraudulent and unregistered securities offering and accusing them of making numerous misrepresentations about the business and the use of investor funds.  For example, despite the brothers allegedly telling investors in late 2009 that the business was doing well and would be expanding soon, the SEC alleged that Mulholland Financial had been experiencing financial hardship since at least January 2009 and frequently operated at a loss during 2009.  The SEC also alleged that the brothers used investor monies raised in 2009 to, among other things, "shore up their money-losing business" and make repayments to existing investors - the hallmark of a Ponzi scheme.  The Mulhollands consented to the entry of final judgments in 2012 ordering them to pay disgorgement and civil monetary penalties.

The Mulhollands were later charged by Michigan authorities several years later.  After an August 2016 trial where a jury convicted the brothers of eight charges, a sitting Ingham County judge sentenced each of the brothers to 10-20 years in prison and ordered them to pay approximately $200,000 in restitution.  The restitution paled in comparison to the estimated $18 million in losses because Michigan law limits the awarding of restitution only to victims whose cases resulted in the conviction.  The Michigan Court of Appeals vacated the brothers' sentences last year over errors in the application of applicable sentencing guidelines, including the improper maximum scoring for one scoring variable that allowed an increase where victims experienced serious psychological injuries.  At a hearing this week, Judge Aquilina observed that keeping the Mulhollands in prison would only delay their ability to pay the $208,000 in restitution they owe to victims and reduced the twins' sentences to 3.75-to-20 years in prison.  

The brothers will be eligible for parole in mid-2020.

Suspected Ponzi Schemer's Suicide Could Mean 100% Recovery For Victims

Investors defrauded by a Charlotte businessman's suspected $50 million Ponzi scheme may ultimately recoup most or all of their losses in a proposed settlement due to the accused schemer's decision to purchase tens of millions of dollars in life insurance policies.  Richard Siskey is alleged to have committed one of the largest investment frauds in Charlotte's history and committed suicide in December 2016 just before the unsealing of an FBI affidavit accusing him of operating a Ponzi scheme for several years.  However, the revelation that Siskey's family received tens of millions of dollars in life insurance payouts has given victims hope that they could recover a a significant portion of thier losses.  A federal bankruptcy court will now decide whether to approve a proposed settlement that will allow victims to recover at least 90% (and potentially all) of their losses and also permit Siskey's family to maintain a portion of the payouts. 

The Scheme

Siskey operated several companies including TSI Holdings, LLC, WSC Holdings, LLC, and SouthPark Partners, LLC (collectively, the "Siskey Entities").  Siskey also operated Wall Street Capitol, a financial services firm that was operated under the Metlife Insurance Co. ("MetLife") umbrella. Siskey told potential investors that he would either manage or invest their money and that they could expect to receive a promised or guaranteed varying return.  Siskey was linked to MetLife in multiple ways besides selling MetLife insurance policies, including renting space in offices leased by MetLife and overseen by MetLife employees.  And at least one investor has alleged that MetLife employees were sent to her house on Siskey's behalf to pick up checks and documents.  

Unbeknownst to Siskey, law enforcement opened an investigation in late 2015 into whether Siskey was commingling personal and business funds.  This included interviews with Siskey clients, analysis of Siskey business accounts, and ultimately an interview with Siskey himself in December 2016.  Siskey committed suicide shortly after the December 2016 FBI interview, and a later-unsealed FBI affidavit concluded that "Siskey is operating what is commonly referred to as a 'Ponzi' scheme."  

The Bankruptcy

Shortly after Siskey's suicide, several creditors petitioned to have the Siskey Entities involuntarily placed into Chapter 7 bankruptcy.  Joe Grier was appointed as Trustee over the Siskey Entities.  In reports to the Bankruptcy Court, Grier has stated that "the Trustee and his professionals are of the opinion that [the Siskey Entities] were each operated as part of a Ponzi scheme."  But Grier also recognized that Siskey did have some legitimate investment ventures, including various business lines and investment deals that were not part of the Ponzi scheme.  This includes Siskey's apparent realization of nearly $20 million in returns from participation in a securities offering relating to Carolina Beer & Beverage Holdings, LLC.  Siskey's victims submitted claims to the Bankruptcy Court and the Trustee subsequently approved nearly $37 million in outstanding claims.  

Siskey's MansionSiskey used investor funds for various unauthorized reasons in running his scheme, including paying fictitious returns to other investors and supporting a lavish lifestyle for himself and his family.  For example, Siskey was an avid wine collector whose extensive collection was ultimately liquidated by the Trustee for approximately $1.5 million.  Siskey's antique car collection was also put up for auction, along with his 6,000 square foot mansion and various furnishings including a 5-carat diamond ring.  According to the auctioneer, the auction took place after Siskey's son threw an unauthorized party at the mansion.

Siskey's Life Insurance Policies

But those assets paled in comparison to what may have been Siskey's best investment: the purchase of life insurance policies that made nearly $50 million in payouts to his family after his death.  Those proceeds were the subject of immediate scrutiny following Siskey's death, with the Trustee asserting that they were purchased using stolen investor funds and Siskey's wife disputing that position.  The source of the funds used to purchase and maintain the policies has significant ramifications, as the Trustee has taken the position that those funds belong to the bankruptcy estate and should be used to compensate Siskey's defrauded victims.  Siskey's wife agreed to initially return $11 million of the proceeds to the Trustee, and $10 million of those proceeds were used to fund an initial distribution to creditors that constituted roughly 28% of each investor's approved claim.

Following negotiations with various parties including Rick Siskey's family and MetLife, the Trustee filed a motion seeking approval of a settlement in which Siskey's family would return a total of $33.1 million (which includes the initial $11 million that was paid by the family) in insurance proceeds to the bankruptcy estate in exchange for a release of all claims the Trustee could assert against the family.  MetLife agreed to a similar arrangement whereby it would pay $250,000 to the estate in exchange for a release of claims by the Trustee.  Both MetLife and the Siskey family also agreed to make additional payments to a separate settlement fund in the bankruptcy estate that would be used to pay victims agreeing to release any individual claims they might have against MetLife and/or the Siskey Family, with MetLife agreeing to chip in an additional $750,000 and the Siskey family agreeing to pay another $8.2 million. 

Investors' decision to release the Siskey family and/or MetLife would be completely optional and independent of their ability to participate in distributions stemming from the $33.35 million paid by Siskey's family and MetLife.  The Trustee estimates that investors could ultimately recoup approximately 90% of their approved losses should they agree to release MetLife and the Siskey family.  In the event that investors chose not to release the Siskey family or MetLife, they would receive nearly 70% of their approved losses and be free to pursue MetLife and/or the Siskey family for any additional amounts.  Already, at least some investors have announced their opposition to the settlement because they contend it would be used to "shield the company" from those investors' pending claims against MetLife in state court.  MetLife has characterized those investors' position as "based upon a fundamental misunderstanding of the" proposed settlement and asked the Court to deny the opposition.

Another 'Holy Grail' of Recovery?

It should be noted that the proposed recovery scenarios - i.e., that investors will recover 90% of their investment if they participate in all available recovery options - are contemplated only based on funds contributed in the settlement and do not include their potential to receive additional distributions of funds already marshaled by the Siskey estate.  For example, the Trustee's settlement motion indicates that the Administrator of Siskey's estate has at least $5.5 million in cash on hand (funded in part by the liquidation of Siskey's personal property, cars, and eal estate) as well as other assets that are expected to be converted to cash in the future.  The administrator of Siskey's estate was also included in the Trustee's settlement and agreed in relevant part to pay 100% of the net value of the estate into the Trustee's settlement fund to allow future distributions to Siskey's victims. 

Thus, it is possible - and indeed more than likely - that Siskey's investors are moving closer to the "holy grail" possibility of recovering all of their losses through the efforts of court-appointed fiduciaries.  To date, Ponzitracker is aware of three such scenarios in the past eight years: the Management Solutions $220 million Ponzi scheme, Scott Rothstein's $1.2 billion Ponzi scheme, and David Dadante's $58 million Ponzi scheme. Such an outcome is extremely rare, as it is estimated that the average investor recovery from a Ponzi scheme is less than 10%.   

The common denominator in those rare instances where a 100% (or more) recovery is possible is the existence of a third-party recovery or source of funds that might not otherwise be typically available.  In Rothstein's case, the alleged complicity of a TD Bank vice president led to TD Bank's payment of over $100 million towards the recovery and suits by various investors.  In the case of Dadante and Management Solutions, the existence of other appreciating assets in the receivership estate (and shrewd decisions by the respective receivers) served as a windfall used to plug the gap.  While the pursuit of "net winners" for excess profits is typically the tool most used to generate assets for defrauded victims, it is the availability and identification of third-party recoveries or assets that typically leads to any meaningful recovery.

A hearing on the Trustee's Motion to Approve Settlement is scheduled to take place today. 

A list of top Ponzi recoveries is here.

The Trustee's case website is here.

The Trustee's motion to approve the settlement is here. 

Accused Ponzi Schemer Caught Passing Note To Wife Urging Her To Hide Assets And Replace Good Wine With "Sh-t Wine"

“Have your dad take my golf clubs...Hide cash or checks … drink good wine in sub zero’s, replace with sh-- wine in basement...F--- them. They have taken enough! Get stuff out..."

- Letter allegedly written by Kevin Merrill and intercepted by prison guards

Facing an asset freeze and stuck behind bars pending trial on charges he masterminded a $354 million Ponzi scheme, a Maryland man's attempt to surreptitiously slip his wife a note urging her to conceal and dispose of assets ended in disaster when authorities intercepted the note and filed criminal charges against the wife. According to authorities, Kevin Merrill and his wife, Amanda Merrill, communicated over several months about hiding and disposing of certain luxury assets that were subject to a court-ordered asset freeze. The scheme ultimately culminated in prison officials' discovery of a note in Kevin Merrill's sock during a jailhouse visit containing directions for his wife to dispose of golf clubs, hide cash, and to substitute high-end wine with "sh-- wine in [the] basement."  Amanda Merrill was subsequently charged with conspiracy, obstruction, disobeying a court order, and removing property to prevent its seizure.

The Scheme

Kevin Merrill and two business partners were the subject of civil and criminal charges in September 2018 for what authorities alleged was a massive Ponzi scheme touting outsized returns from a purported consumer debt operation. Authorities alleged that Merrill, Jay B. Ledford, and Cameron Jezierski operated a number of entities including Global Credit Recovery, LLC; Delmarva Capital, LLC; Rhino Capital Holdings, LLC; Rhino Capital Group, LLC; DeVille Asset Management LTD; and Riverwalk Financial Corporation (the "GCR Entities").  The GCR Entities allegedly solicited investors through promises of steady returns from the deeply-discounted purchase of consumer debt portfolios.  Consumer debt, including automobile, credit card, and student loan debt, is often bundled into portfolios and sold in bulk to investors, which the GCR Entities told investors they were purchasing for their benefit.  While the scheme involved the actual purchase of some debt portfolios, authorities allege that the vast majority of purported debt purchases were fraudulent and that the actual purchases of debt portfolios were used as part of the scheme to solicit more investors. 

Using a dizzying array of interwoven entities and bank accounts, the trio allegedly solicited both individual and institutional investors across the nation through the provision of documentation describing the investment structure and presentations offering projections about the anticipated investment returns.  These promises included offering some investors 100% of collections of up to 25% of their principal investment annually - meaning those investors were offered annual returns of up to 25% along with the option for even higher returns.  Potential investors also received "due diligence" documents prepared by Ledford or Jezierski providing a supposed analysis of the portfolio(s) they were purchasing as well as the anticipated purchase price. In total, the GCR Entities are believed to have raised over $345 million from at least 230 investors. 

But authorities allege that the GCR Entities had not been in the business of buying consumer debt since 2014, and that the purported investment opportunity was a giant Ponzi scheme that used new investor funds to pay returns to existing investors.  Approximately $197 million was paid out as purported remittances, collections, or profits, meaning that investors are facing total losses of roughly $150 million.  Unfortunately, authorities believe that a significant portion of those losses were diverted to sustain the trio's extravagant lifestyles.  The indictment alleged that investor funds were used to buy over 20 high-end automobiles, at least nine houses, and over $8 million in jewelry, as well as at least $25 million in casino gambling. 

Merrill's Vast Assets

Merrill was apparently not frugal with the riches generated from the alleged scheme, with authorities seeking to forfeit a stunning array of real estate, luxury goods, and automobiles that were purportedly purchased with scheme proceeds.  In addition to a $10 million waterfront residence, a brand new 35' boat, an interest in an Gulfstream aircraft, and a 9+ carat diamond ring, Merrill also accumulated more than two dozen luxury automobiles that includes four Lamborghinis, two Rolls-Royces, and four Ferrarris.  Prosecutors also claimed that Merrill spent nearly $1 million at luxury goods retailer Louis Vuitton over a five-year period and was also an avid collector of red wine.

Following Merrill's arrest in September, authorities claim that he conspired with his wife to conceal and dispose of assets in violation of the Court's orders during coded jailhouse phone calls that included reference to their $10 million waterfront Florida home as the "restaurant."  Apparently unbeknownst to the pair, authorities were recording those calls.  During one of the calls, Merrill allegedly provided his wife with the code to a safe at their Florida home after which Amanda Merrill flew back to Maryland with two oversized suitcases.  Authorities later found $15,000 in cash at Amanda Merrill's residence and were then able to open the Florida safe using the code provided by Merrill to his wife. 

Agents later found a note in Merrill's sock prior to a scheduled jailhouse visit that contained instructions to sell his golf clubs, drink his high-end wine and replace it with "shit" wine, and to "get stuff out."  Amanda Merrill was then charged with multiple criminal counts in a December 10th complaint including conspiracy and removing property to prevent its seizure.  She was released without bail the following day.  

A link to the SEC's Complaint is here.

A link to the Indictment is here.

Mississippi University Will Return Most Of Ponzi Schemer's $400,000 Donation

A Mississippi university has reached an agreement to return nearly 90% of funds its athletic department received from a Mississippi man who pleaded guilty last year to operating a $100 million Ponzi scheme. The University of Mississippi, also known as Ole Miss, agreed to return a total of approximately $350,000 to the court-appointed receiver overseeing the recovery of assets for victims defrauded by the Ponzi scheme perpetrated by Arthur Lamar Adams.  The scheme, which is believed to be the largest Ponzi scheme in Mississippi history, was uncovered last year and Adams is currently serving a 20-year prison sentence.

The Scheme

Adams founded Madison Timber Properties, LLC ("Madison"), which held itself out as a timber harvesting company.  The company began soliciting potential investors in 2004, offering annual returns ranging from 12% to 15% through the harvest of timber from plots of lands owned by third parties.  In many cases, investors were told that they had sole rights to timber harvested from specific plots of lands.  Investments were typically memorialized by a one-year promissory note that could be rolled over, a timber deed and cutting agreement, a security agreement, a tract summary with the purported timber value, and a title search certificate.  Adams and Madison raised at least $85 million from 150 investors throughout the southeastern United States that would purportedly be used to purchase additional timber tracts.  

Many of these promises, however, were false according to authorities.  For example, Adams is accused of never having obtained the requisite harvesting rights to the land as he had claimed.  Many of the investment documents were allegedly forged by Adams, including the timber deed and cutting agreements as well as the tract summary showing the purported timber value.  In many cases, Adams is accused of pledging the same plots of land (to which he had no rights) to multiple parties.  Adams also allegedly misappropriated investor funds for unauthorized purposes, including for his own personal benefit and the development of unrelated construction projects in Oxford and Starkville, Mississippi.  New investor funds were also used to pay returns to existing investors - a classic hallmark of a Ponzi scheme.  

Adams was charged by civil and criminal authorities in May 2018, pleaded guilty, and was sentenced to a 20-year term in October 2018.

The Receiver's Appointment and Pursuit of Transfers

At the SEC's request, Judge Reeves appointed Alysson Mills as a receiver tasked with recovering assets for defrauded victims (among other things).  The Receiver has focused her efforts on third parties that received transfers from Adams, including "recruiters" tasked with attracting new victims as well as charities and educational institutions.  One of those recipients was Ole Miss, which received over $400,000 from Adams in the past ten years.  The university initially agreed to return approximately $40,000 of that amount which had served as prepayment for 2018 football and 2019 baseball tickets and remained in discussions with Mills about the use and nature of the remaining funds.  In a report filed in December 2018, Mills indicated that the university had agreed to return an additional $310,169 which would result in the total recovery of roughly $350,000 of the $402,100 transferred by Adams.  Mills indicated that she would not seek the return of the remaining $52,264 based on her conclusion that Adams had received "tangible benefits" such as athletic event tickets.   

Mills' reports describe her efforts in seeking the repayment of transfers to other third parties, which include both pending litigation and informal discussions.  Those lawsuits not only target "recruiters" who were paid to funnel investors to Adams' scheme, but also various professionals who are accused of aiding the scheme.  On December 19, 2018, Mills filed suit against a number of defendants including two law firms that she alleged "lent their influence, their professional expertise, and even their clients to Adams and Madison Timber."  A copy of that complaint is available here.

The Receiver's website is available here.

SEC, CFTC Accuse Utah Man Of $170 Million Silver-Trading Ponzi Scheme

State and Federal regulators have accused a Utah man and his company of scamming hundreds of investors out of up to $170 million on promises that trading in silver could yield annual returns of 20% to 40%.  Gaylen Dean Rust and his company Rust Rare Coin, Inc. were the subjects of enforcement actions filed by the Commodity Futures Trading Commission ("CFTC"), Securities and Exchange Commission ("SEC"), and the State of Utah Division of Securities ("State of Utah") alleging that Rust and Rust Coin operated a massive Ponzi scheme and violated federal securities and commodities laws.

Rust Coin has been in business since 1983, operating as a coin and precious metal dealer in Salt Lake City.  Rush served as Rust Coin's President and sole Director and was assisted by his wife, Denise Rust, and son, Joshua Rust, who served as the Secretary and Manager, respectively, of Rust Coin.  Beginning no later than 2008, Rust and Rust Coin began soliciting potential investors for an exclusive investment opportunity involving the purchase and sale of silver (the "Silver Pool").  Potential investors were told that their money would be pooled with other investors' funds to purchase and store physical silver for investment, and that the physical silver would be stored at one of two Brink's, Incorporated ("Brink's") depositories in Salt Lake City and Los Angeles. 

Those potential investors were told that Rust and Rust Coin were able to buy and sell silver based on market trends that resulted in annual returns ranging from 20% to 25% and at times reaching 40%.  Those investors were not provided with any written agreement, disclosures, or prospectus, but rather received a single-page receipt documenting their investment.  Rust and Rust Coin raised staggering amounts from investors.  The SEC alleges that Rust raised over $85 million from roughly 300 investors from just January 2017 to August 2018.  According to the CFTC, this total increases to over $170 million during the period from May 2013 to August 2018.

As the CFTC states, "the Silver Pool was a sham."  Rust and Rust Coin did not consistently obtain extraordinary annual returns ranging from 20% to 40% from astutely timing the purchase and sale of silver, but instead allegedly used funds from new investors to pay returns to existing investors - the classic hallmark of a Ponzi scheme.  Indeed, many of the representations Rust and Rust Coin made to investors were demonstrably false.  For example, neither Rust nor Rust Coin had any contract with Brink's to store or hold any silver at any of their locations in the United States.  And while Rust claimed that he had an account with HSBC Bank through which he traded silver held in the Silver Pool, neither Rust nor Rust Coin ever had an account with HSBC Bank to trade silver.  

According to authorities, it appears that Rust and Rust Coin instead misappropriated investor funds for personal expenses such as mortgage payments and transfers to other entities controlled by Rust.  For example, over $1 million was transferred to a Rust business that specialized in horse racing while another nearly $10 million was transferred to another Rust-controlled entertainment company where it was used for upkeep for a music and production studio.  From January 2017 to August 2017, over $70 million of the $85 million raised was used to make payments to investors.  

Ironically, one of the investors named in the CFTC and Utah's Complaint may have inadvertently drawn attention to his status as a net winner.  H.H., who was employed by Rust Coin as an IT specialist from July 2017 to July 2018, received a $35,000 share in the Silver Pool as part of his employment and later decided to invest $96,000 of his own funds based on the promises of outsized returns.  This resulted in an initial investment of $129,000.  Yet when H.H. was terminated from Rust Coin in July 2018, he sought to terminate his investment and ultimately received a wire transfer of $171,793.02 representing his initial investment and employment benefit of $129,000 and purported investment gains of approximately $42,793.  Given the appointment of a Receiver and the significant gains that investors have suffered, it is a near certainty that H.H. will be asked - either voluntarily or through litigation - to return the excess "net profits" he received by virtue of his investment that were actually stolen funds from other investors if the operation was a Ponzi scheme.  

At the request of the CFTC and State of Utah, a U.S. District Judge for the District of Utah entered an Order appointing Jonathan O. Hafen as a Temporary Receiver to marshal and secure assets belonging to Rust, Rust Coin, and other defendants and relief defendants.  It is unclear as to whether any assets remain for potential distribution to investors, although the SEC alleges in its complaint that approximately 99% of the funds raised from January 2017 to August 2018 were either paid to investors or misappropriated.  

A copy of the SEC's complaint is here.

A copy of the CFTC's Complaint is here.