Amidst Questions Over Husband’s Death And Misuse Of Little League Funds, West Virginia Pharmacist Arrested For $2.5 Million Ponzi Scheme

In a story seemingly pulled from a Hollywood screen, a West Virginia woman has been arrested on allegations that a company she operated with her late husband ran a Ponzi scheme that raised at least $2.5 million from investors who thought they were funding lucrative government contracts.  Natalie Cochran, pictured above in a “Tailgate Socialite” shirt after being arrested yesterday morning, was indicted on twelve counts of wire fraud, one count of bank fraud, one four counts of aggravated identity theft, seven counts of money laundering, one count of bankruptcy fraud, and one count for false oath in a bankruptcy proceeding.  If convicted on all counts, Cochran could face a maximum sentence of decades in federal prison.  The charges come amidst a separate investigation into Cochran’s alleged misuse of funds from a Little League baseball program when she served as treasurer as well as a court order ordering the exhumation of her late husband’s body over questions about his death.

According to the indictment, Cochran and her late husband Michael Cochran owned and operated Technology Management Solutions LLC (“TMS”) and Tactical Solutions Group LLC (“TSG”), both of which were registered as federal government contractors.  TMS allegedly operated as an information technology company that provided consulting services while TSG held itself out as a wholesale merchant and provider of durable goods.   

Beginning in mid 2017, TMS and TPG were touted as successful government contractors, including that TPS was a “leading supplier to the U.S. Department of Defense, national security agencies, federal civilian agencies, prime contractors, and worldwide non-profit organizations.” Investors were told that they could invest in individual contracts that had been awarded to TMS or TSG and receive a percentage of the ensuing profits from the government work.  Investors were provided with various information confirming the status of their investment, including contract numbers representing the purported government contract they were funding and forwarded emails from federal government employees or bank personnel about the contracts.  In total, TMS and TSG raised at least $2.5 million from 11 investors.

Several months later, federal authorities filed a civil forfeiture complaint seeking to confiscate several properties owned by Cochran that had allegedly been purchased with illegal funds.  The filing alleged that TSG and TMS never had any government contracts and were instead used as a Ponzi scheme to pay fictitious returns to new investors using existing investor funds.  Investor funds were also purportedly used by the Cochrans “to support their outwardly lavish lifestyle by making luxurious purchases, dining out frequently, taking vacations and making payments towards the defendants' properties.  Cochran filed personal bankruptcy the next day, listing less than $600 in bank accounts and cash on hand and $1.4 million in liabilities that did not include any investors in TSG or TMS.  

The Indictment echoes allegations that TSG and TMS failed to ever secure a single government contract, instead claiming the companies used new investor funds to pay purported returns to existing investors and also secured cash advances from several financial institutions by claiming that investor deposits were actually business sales.  Cochran is also accused of stealing the identities of various government employees through the forwarding of emails and other communications purporting to come from those officials lending credence and legitimacy to the alleged scheme.  The Indictment also accuses Cochran of committing bankruptcy fraud by misrepresenting her income, failing to disclose transfers and gifts she had made, omitting her ownership of property and interests in TSG and TMS, and testifying as to those facts during her meeting of creditors.  

Cochran is also under a separate investigation by West Virginia state police for her alleged misuse of funds while serving as treasurer of the Shady Spring Youth Baseball League, a private boy’s baseball league.  Authorities are looking into a variety of suspicious transactions in the league’s bank account including:

• a $1,364 charge to Amazon;

• investments in crowdfunder.com, an online investment site;

• $1,142 in charges at Dunham’s and Dick’s Sporting Goods;

• a $402.60 charge to Parker Compound Bows for a bow and arrow;

• $2,099 in Yeti cooler purchases;

• $53 spent at Olive Garden;

• $528 for baseball season tickets at West Virginia University;

Additionally, TSG had hosted a fundraiser for the league earlier this year at the Cochran’s residence that included a bingo game and the raffling of semi-automatic weapons and apparently raised more than $16,000 for the league’s coffers.  However, TSG’s check for the donation subsequently bounced.

Authorities are also looking into the circumstances surrounding Michael Cochran’s death this February, with one outlet reporting that Cochran’s attorney claimed that Michael Cochran had been vomiting in a sink and broke a countertop when he collapsed.  Natalie Cochran maintains that she called authorities and that her husband was transported to a hospital within 20 minutes of his fall; however, it is being reported that multiple witnesses have suggested that a longer amount of time may have elapsed between Michael Cochran’s fall and when he was taken to a hospital.  Michael Cochran’s body was exhumed earlier this month pursuant to a sealed court order.

At an initial hearing following Natalie Cochran’s arrest, prosecutors urged the court to hold her indefinitely on fears she was a flight risk.  Cochran was ordered to be placed on home confinement, but she is expected to remain in the state jail over the weekend while the logistics of the home confinement are resolved.

A copy of the Indictment is below:

SEC Says Chicago Rabbi’s $10 Million Nursing Home Ponzi Scheme Targeted Orthodox Jews, Including Holocaust Survivor

The Securities and Exchange Commission charged a well-known Chicago rabbi with running a Ponzi scheme that raised at least $10 million from primarily Orthodox Jewish investors who thought their funds were being used to buy, operate, and sell nursing home facilities. Zvi Feiner, 49, his business associate Erez Baver, 39, and several companies operated by Feiner were charged with violating federal securities laws in a complaint filed on September 19, 2019.  Baver and his company, Cedarbrook Management, Inc., agreed to settle the Commission’s charges without admitting or denying the allegations and consented to disgorgement and prejudgment interest of over $2.25 million and a civil monetary penalty to be determined at a later date.  Feiner is contesting the Commission’s allegations.

According to the Commission’s complaint, Feiner formed FNR Healthcare, LLC (“FNR”) in 2007 and told investors it was “a private equity group focused on quality healthcare assets throughout the United States.”  But FNR did not actually hold those assets; instead, Feiner would establish a separate LLC for each nursing home facility he purchased and then sell membership interests in those entities to investors.  In private placement memorandums that were prepared for each entity, prospective investors were told they would receive an above-average annual return - often around 15% - from the operation of the specific facility they invested in, that an investment would be “low-risk,” and that they could expect a full return of their investment within three to five years.  

Some PPMs also contained language or provisions designed to reassure investors of the safety and success of the investment, including claims that (i) Bayer and/or Feiner were also making a personal investment in the facility; (ii) investors would receive quarterly distributions that were paid out before any profits were paid to the managers; (iii) the investment would be so profitable that the investor would be entitled to an additional “windfall” return when the facility was sold; and (iv) that the principals had extensive experience in the industry and were currently operating a significant number of “beds” in other facilities.  In total, and based on these claims, FNR and Feiner rated at least $10 million from over 60 investors from March 2014 to 2017.  Many of those investors came from Feiner’s connections in the Orthodox Jewish community, including an 86-year old Holocaust survivor who alone invested over $1 million.

But the Complaint alleges that many of Feiner’s claims to investors were misleading at best and in some instances fraudulent.  For example, Feiner is accused of misappropriating investor funds in at least four LLCs “upon receipt,” using those funds to pay promised distributions to investors in separate LLCs, fund operations in other struggling facilities, and misappropriate funds for his and Baver’s own personal use.  Nor did Feiner and/or Baver purportedly make the personal investments they touted in various PPMs, often either failing to invest at all or making a substantially lower investment than advertised.  In another instance, investors who believed their funds were being used to purchase two nursing homes were not informed about or given equity in a third facility that was purchased with their funds.  Feiner also allegedly sold at least three separate facilities without telling investors who would have been entitled to a portion of the sale proceeds, instead misappropriating funds to support other separate projects, fund distributions to other investors, and for his own personal use.

The Complaint alleges that Feiner and FNR raised “at least $10 million” from March 2014 to 2017, likely focusing on that period because of the current legal uncertainty over whether the Commission is limited to a five-year statute of limitations to obtain disgorgement.  But the Complaint contains other allegations showing that the actual amount raised during the entire duration of the scheme - which may have dated back as far as 2010 - may have been much higher.  For example, and in addition to the four primary LLCs highlighted in the Complaint during the relevant period, the Commission claims that Feiner raised at least $8 million by selling interests in three different LLCs during 2013.  When the facilities owned by those LLCs were sold, Feiner purportedly concealed the sales from the respective investors and instead misappropriated the sales proceeds by making transfers to other LLCs and paying back loans.  

While the sales of the nursing facilities were often profitable, the Commission alleges that the scheme eventually collapsed under the weight of increasing obligations and eventually ceased paying investor distributions by late 2016.  Only then did investors begin to ask questions, with several investors in a 2014 project learning with their attorney’s assistance in early 2017 that the property at issue had been sold back in 2015.  

A copy of the Complaint is below:

Judge Won't Force Arbitration Of Receiver's Suit Against Law Firm That Allegedly Aided $100 Million Timber Ponzi Scheme

Madison Timber would not have grown without Defendants’ encouragement and assistance. Defendants lent their influence, their professional expertise, and even their clients to Adams. They made a fraudulent enterprise a fraternity. Defendants contributed to the success of the Madison Timber Ponzi scheme, and therefore to the debts of the Receivership Estate to investors.

- Receiver’s Lawsuit against Baker Donelson, Butler Snow, and others.

A Mississippi federal judge dashed efforts by a national law firm to send a lawsuit filed by the court-appointed Receiver for a $100 million timber Ponzi scheme to arbitration, holding that ambiguities in the contract between the Ponzi schemer and the law firm about the parties’ intended method of resolving disputes weighed against sending the case to arbitration. Alysson Mills, the court-appointed receiver for the Madison Timber Properties Ponzi scheme run by Arthur Lamar Adams, filed a lawsuit in December 2018 alleging that several law firms, including Butler Snow, contributed to and aided Adams’ Ponzi scheme. The law firm has appealed the Court’s decision.

The Scheme

Adams touted Madison Timber to investors as a timber harvesting company that could provide 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 over $160 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. Adams never obtained the requisite harvesting rights to the land as he had claimed, and he also forged many of the investment documents provided to investors including the timber deed and cutting agreements as well as the tract summary showing the purported timber value.  In many cases, the same plots of land (to which he had no rights) were pledged to multiple parties.  Adams also 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 Sues Law Firms That Provided Services To Madison Timber

Following her appointment, the Receiver learned that several well-known law firms had provided various services to Madison Timber prior to the scheme’s collapse and subsequently filed a complaint in late 2018 naming Butler Snow, Baker Donelson, and other defendants.

Butler Snow, a Mississippi-based firm, was originally hired by Madison Timber back in 2009 to assist in preparing a private placement memorandum (“PPM”) for a related fund outlining Adam’s vision to raise investor funds based on his timber strategy. While the fund did not raise any investments, the PPM succeeded in introducing investors to Madison Timber who entered into joint ventures with the company. Several years later, Madison Timber hired Butler Snow’s newly-created subsidiary, Butler Snow Advisory Services (“BSAS”) to raise $30 million to $50 million from new investors. According to the terms of this arrangement, BSAS agreed to pitch Madison Timber to wealthy clients in exchange for a $3,500 monthly retainer, commissions for each completed transaction, a portion of the fund’s management and carried interest fees, and other expenses.

The Receiver alleges that BSAS quickly went to work, using pitches to solicit investors that peddled the secrecy of Adams’ investments by claiming that Adams “has an extremely stringent NDA with his mill partners.” On another occasion, investors were told by BSAS’s CEO that Madison Timber:

“been vetted by several $1.5 billion family office(s) in Texas, encompassing a 75+ day due diligence period [and] as you would imagine, Lamar passed with flying colors!”

According to the Receiver, each of these claims were false; Adams did not have any NDAs with mill partners because, in fact, he did not have any mill partners. And investors were not told that the family office that purportedly vetted Adams’ scheme ultimately declined to invest. During that time, investors poured into Madison Timber which resulted in commissions for BSAS.

The Receiver alleged that Butler Snow lawyers and salesmen “recklessly ignored numerous red flags,” including their failure to ever call a landowner or mill to verify Adams’ claims or verify a title prepared by Adams.

The Motion to Compel Arbitration

The Butler Snow Parties, comprised of Butler Snow, BSAS, and BSAS’s CEO, subsequently moved to compel arbitration of the Receiver’s claims based on what they contended was Madison Timber’s agreement in its engagement agreement to arbitrate any disputes. The operative agreement between the parties was a seven-page contract containing an “Engagement Letter” and corresponding “Standard Terms.” As the Court succinctly explained:

The dilemma can be stated simply. In the Engagement Letter, the parties agreed to the following:

“The state and federal courts in Mississippi shall have exclusive jurisdiction in relation to any claim, dispute or difference concerning this Engagement Contract and any matter arising from it. The parties hereto irrevocably waive any right they may have to object to any action being brought in that Court, to claim that the action has been brought to an inconvenient forum or to claim that that Court does not have jurisdiction.”

This is a typical forum selection clause.

In the Standard Terms, however, the parties agreed

“to sub‐ mit their dispute to binding arbitration under the authority of the Federal Arbitration Act. . . . [T]he parties hereby waive trial in a court of law or by jury.”

The parties disagree as to which term applies to this case.

The Receiver opposed the Motion to Compel Arbitration, noting that “[t]he veil of arbitration is in no one’s interest, except Butler Snow’s.”

The Court focused on the plain language of the contracts, noting that the parties certainly had the ability to write the outcome urged by the Butler Snow Parties in the contract but did not. Ultimately, the Court concluded that the inherently-conflicting provisions rendered the contract ambiguous and thus prevented the Court from determining “which provision the parties intended to be dispositive.” The Court also ordered the claims stayed while Butler Snow pursued an interlocutory appeal.

The Court’s Order is below:

SEC Says Sports Betting Club Offering "Quintillion-Fold" Returns Was $29 Million Ponzi Scheme

“[w]e grow money a million times faster than Warren Buffet . . . actually we grow it a quadrillion times faster.”

The SEC has filed civil fraud charges against two convicted felons and several businesses they controlled alleging that their purported sports betting operation offering 250% - 600% annual returns was in reality a Ponzi scheme that raised nearly $30 million from hundreds of investors nationwide. John F. Thomas, 74, and Thomas Becker, 72, along with multiple entities they controlled and several of the top scheme sales agents, were named as defendants in an action filed August 30, 2019 in Nevada federal court. The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, and imposition of civil monetary penalties.

According to the Complaint, Thomas and Becker previously pleaded guilty to felony money laundering and conspiracy charges in 1991 arising from a pyramid scheme they ran together. Beginning sometime in mid 2014, Becker and Thomas began offering identical investments in six entities they controlled:

• Einstein Sports Advisory, LLC;

• QSA, LLC;

• Vegas Basketball Club, LLC;

• Vegas Football Club, LLC;

• Wellington Sports Club, LLC; and

• Welscorp, Inc.

Potential investors were told that Becker and Thomas had developed a “proprietary handicapping system that is highly accurate in predicting the outcome” of sporting events, and were told that their funds - known as the “bankroll” - would be pooled with other investor funds to make bets until the original investment grew by a predetermined “target” range of 500% to 1,200%. According to the Sports Advisory Agreement entered into by each potential investor, the profits purportedly generated using the proprietary strategy would then be split between the company and the investor.

The SEC alleged that Becker and Thomas were responsible for running the companies’ daily operations, which ranged from communicating with financial institutions and investors, analyzing sports games, and recruiting and managing various sales brokers and agents to recruit potential investors. Thomas and Becker purportedly drafted various form marketing letters to be forwarded to potential investors that made claims including that the investment was a “low-risk way to TRIPLE your funds in less than 6 months” and also including a falsified history of returns.

Thomas allegedly expounded on his claims of extraordinary returns, telling investors in emails that he was able to “grow money 10-fold in 4 months,” a “quadrillion-fold in 5 years, and a QUINTILLION-FOLD in 6 years.” The Complaint also details claims made by Thomas to an investor that:

“we grow money 10 times faster than Warren Buffet….”

“[w]e grow money a million times faster than Warren Buffet . . . actually we grow it a quadrillion times faster.”

“[t]he King - Warren Buffet - takes more than 6 years to triple an investor’s funds. We triple money in less than 6 months.”

In total, the scheme raised nearly $30 million from more than 600 investors nationwide.

The Complaint details the vast network of over 150 brokers and agents used by the operation to solicit investors. Those brokers and agents received lucrative commissions for locating new investors, including a 10” “front-end sales SEC” and a 10” back-end commission based on investor payouts. As the SEC alleges, these sales commissions were not disclosed to investors. The three highest-paid brokers, who were charged by the SEC with operating as unregistered broker-dealers, were:

• Douglas Martin (and his entity EFS): $458,000 in commissions;

• Paul Hanson: $281,000 in commissions;

• Damian Ostertag: $414,000 in commissions.

Rather than generate extraordinary returns by using investor funds for sports betting, the SEC alleges that the vast majority of investor funds (over 85%) was misappropriated for various purposes including the payment of over $13 million to investors as fictitious returns, more than $8 million for personal and business expenses, and nearly $6 million for broker and agent commissions. The Complaint identifies roughly $4.4 million that may have been used for “possible sports betting,” but notes that spreadsheets maintained by Thomas and Becker and provided to investors showing the purported investment performance were false and significant overstated any investment returns.

A copy of the Complaint is below:

SEC Alleges Illinois Developer Ran $41 Million Real Estate Ponzi Scheme

The Securities and Exchange Commission has charged a Chicago property developer and his companies with violating federal securities laws based on allegations that a fix-and-flip real estate investment pitched to hundreds of investors was in reality a $41 million Ponzi scheme. Glenn C. Mueller, 72, and seven entities were named as defendants in an action filed by the Commission in a Chicago federal court on Thursday, September 5, 2019. In addition to seeking the standard injunctive relief, disgorgement of ill-gotten gains, and civil monetary penalties, the Commission has also requested the appointment of N. Neville Reid as a federal equity receiver to take control of Mueller’s entities and marshal assets for the benefit of defrauded victims.

In addition to Mueller, the Commission’s Complaint also named Northridge Holdings, Ltd., Southridge Holdings, Ltd., Eastridge Holdings, Ltd., Brookstone Investment Group, Ltd., Guardian Investment Group, Ltd., Unity Investment Group I, Ltd., and Amberwood Holdings, L.P. as defendants. According to the Complaint, potential investors were told that Northridge was in the business of buying and improving undervalued or mismanaged multi-family residential buildings. The company touted its “nearly 50 years” of real estate business expertise, with its recent February 2019 marketing materials claiming to operate 11 different properties with 935 total units.purchased with a total of $57 million.

Beginning no later than May 2014, Northridge began offering “real estate promissory notes” that paid annual interest of 3% until the funds were invested in a specific property. At the same time, the company also began selling promissory notes characterized as “CDs” or “CD loans” carrying terms ranging from one year to five or more years and annual interest rates ranging from 3% to 6% depending on the note term. Mueller also promised higher interest rates to certain noteholders who invested a larger amount or agreed to a longer note term. From at least May 2014 to April 2019, the Defendants sold at least $41.6 million in promissory notes to 319 investors across 32 states.

As is increasingly common in alleged investment frauds, the Complaint highlights Mueller’s appeal to potential investors based on charitable and religious beliefs by, for example, touting the presence of a church-sponsored resource center located at a large Northridge apartment complex. A Fall 2016 newsletter sent to investors again promoted the church and concluded by saying,

“Your investment in Northridge is growing financially and I believe God rewards those who help others in need. You are benefitting [sic] from both areas. Thank you for working together with us to make this a good investment.”

Northridge’s marketing materials told potential investors that their funds would be used to buy and renovate real estate assets, that each loan was secured by “any and all of the properties and their cash flow,” and the ensuing cash flow would “back up the promissory notes.”

But, the Commission alleges, Mueller and Northridge made numerous misrepresentations to investors in the course of operating a Ponzi scheme that depended on the inflow of new investor funds. When Northridge’s cash expenditures began to exceed the company’s cash inflows, it began using new investor funds to make interest and principal payments to existing investors. The Commission also claims that Mueller diverted nearly $2.5 million in investor funds to trade stocks and options and to make loans to family members. After Mueller learned of the Commission’s investigation in March 2019, he allegedly solicited two new investments totaling $650,000 and used a significant portion to make Ponzi payments, pay legal fees, and to settle a lawsuit involving two previously-purchased properties. Mueller also invoked his Fifth Amendment rights against self-incrimination when subpoenaed for testimony by the Commission.

The action comes almost exactly a year after the Commission filed charges against a separate Chicago-based real estate investing company on charges it was operating a $135 million Ponzi scheme.

The charges also mark the latest scheme discovery in what has been an active 2019. In a recent Ponzitracker analysis of Ponzi scheme discoveries in the first half of 2019, the number of schemes discovered was nearly statistically identical from the same period in 2018. However, the average and median scheme size in the first half of 2019 was nearly double and triple, respectively, from the same period in 2018, perhaps indicating that schemes have recently been able to raise money at a quicker clip.