Bernard Madoff Is Dead.

As U.S. District Judge Denny Chin prepared to sentence Bernard Madoff in a New York courtroom in June 2009, months after Madoff had been arrested and subsequently pleaded guilty to the largest Ponzi scheme in history, his defense counsel addressed the Court after a slew of moving statements from Madoff’s victims - each of which recounted the disastrous turn their lives had taken. Acknowledging those harrowing tales, Madoff’s counsel insisted that a 12-year sentence would be “just short…of a life sentence.” Although Judge Chin would reject this suggestion and go on to sentence Madoff to a 150-year term, Madoff died on April 14, 2021 - two months shy of the twelfth anniversary of his sentencing date.

Madoff masterminded the largest Ponzi scheme in history, defrauding tens of thousands of victims out of nearly $20 billion in principal losses in a fraud that spanned decades. He managed to keep the fraud undetected and thriving through both good and bad economic times, and one wonders if the fraud would have ever been discovered had it not been for the unprecedented turmoil spawned by the Great Recession that finally caused the scheme’s collapse in December 2008. However, the massive outflows of investor funds choked the scheme of its lifeblood - new investor funds - and Madoff was arrested with roughly 100 checks totaling over $100 million sitting on his desk waiting to be sent to preferred family and friends. He was arrested December 11, 2008, pleaded guilty on March 12, 2009, and received his 150-year sentence on June 29, 2009.

The scope, depravity, and damage associated with Madoff’s fraud were unprecedented. Although Madoff’s scheme carries the namesake of Charles Ponzi, the reality is that the nearly-$20 billion in investor losses in Madoff’s fraud was nearly 100 times larger than the estimated $200 million in Ponzi’s investor losses (in today’s dollars). The unraveling of Madoff’s fraud came at the tail end of the Great Recession, delivering a tragic blow to many victims who thought their generational wealth (and in many cases the wealth earmarked for future generations) were safe with “Bernie.” Many of those investors had a relationship with Madoff that spanned decades, trusting him implicitly and reassured no doubt by his prominent rise and stature in the financial industry. And tragically, many of those same investors ignored a cardinal investing rule by investing all, or nearly all, of their savings with Madoff.

Madoff’s death is, ironically and sadly, just the latest in a string of deaths that came in the wake of his fraud. At least three investors committed suicide in the wake of Madoff’s death. Madoff’s son, Mark Madoff, hanged himself two years after his father was arrested. Many other lives were irreversibly damaged.

Surprisingly, the largest Ponzi scheme in history may also one day have little to no actual investor losses. That’s because the team of court-appointed professionals tasked with recovering funds for Madoff’s victims has achieved extraordinary successes in their efforts. Irving Picard, who serves as the SIPA Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC, has recovered over $14 billion to date - of which $13.5 billion has been distributed to victims. Based on how the distributions have been made and with the assistance provided by the Securities Industry Protection Corporation, many of Madoff’s investors have been paid back in full. The Department of Justice is also separately making distributions of over $3 billion to Madoff victims from funds forfeited to the U.S. government in association with Madoff’s scheme, representing the return of 80% of the losses of those recipients. Given recent favorable court rulings, it is expected that Mr. Picard and his team will continue to be busy adding to this pot for the foreseeable future.

Madoff’s legacy will, rightly, be forever marked by his unforgivable betrayal of thousands of investors, many of which were family and friends. And even with the realization that many investors may be (or already have been) made whole, his legacy remains cemented in those investors’ minds. As he made one last effort in late 2019 to ask Judge Chin to free him on compassionate release grounds, claiming he had Stage 5 kidney disease and was living in the prison’s hospice ward, his filing prompted the submission of over 500 victim letters to Judge Chin - of which 96% opposed the request. In denying Madoff’s motion, Judge Chin Judge Chin concluded:

“When I sentenced Mr. Madoff in 2009, it was fully my intent that he live out the rest of his life in prison. His lawyers asked then for a sentence of 12 to 15 to 20 years, specifically with the hope that Mr. Madoff would live to see “the light of day.” I was not persuaded; I did not believe that Mr. Madoff was deserving of that hope. Nothing has happened in the 11 years since to change my thinking. While Mr. Madoff’s present medical situation is most unfortunate, compassionate release is not warranted.”

Although over 500 new Ponzi schemes have been discovered since Madoff’s fraud was revealed, none have been remotely close in size to Madoff’s. With luck, that trend will continue.

SEC Alleges California Actor Ran $690 Million Ponzi Scheme Reselling Film Rights

The Securities and Exchange Commission filed an emergency enforcement action alleging a Los Angeles actor and his company operated a massive Ponzi scheme that raised nearly $700 million from investors who thought they were receiving 35% returns from funding the purchase and resale of film rights to Netflix and HBO. Zachary Horwitz and his company 1inMM (one in a million) Capital, LLC (“1NMM”) were named in a complaint filed by the Commission in the Central District of California and charged with violating numerous federal securities laws in connection with the scheme. At the Commission’s request, the federal judge overseeing the action temporarily froze Horwitz’s and 1NMM’s assets. Horwitz was also arrested earlier today on a wire fraud charge. He was released on a $1 million secured bond.

Horwitz, 34, is a Los Angeles based actor whose IMDB page shows he appeared in approximately 15 moves in the last 12 years. According to the Commission’s complaint, in or around 2014, Horwitz began soliciting investments in short-term promissory notes issued by 1NMM that promised total returns exceeding 35% purportedly generated by Horwitz’s experience and expertise in acquiring and licensing film rights to HBO and Netflix. Horwitz described Netflix and HBO as 1NMM’s “strategic partners,” while also showing investors documentation of his dealings with the movie behemoths including movie distribution agreements. The following, included in the Commission’s complaint, is a representative example of several promissory notes indicating the investments were tied to a specific film project and movie studio:

Horwitz told prospective investors that he would use his experience in the movie industry and relationships with HBO and Netflix to profit from the acquisition and sale of film rights, claiming that he was able to realize such significant profits because the studios were in desperate need for new content. Horwitz apparently raised the majority of funds from five principal investors who in turn combined funds from over 200 “downstream” investors. In total, Horwitz and 1NMM raised nearly $700 million.

According to the Commission, neither Horwitz nor 1NMM ever had any contractual or other business relationship with HBO or Netflix nor did they ever enter into any distribution or acquisition agreements. Instead, Horwitz and 1NMM allegedly used new investor fund to make payments to existing investors, a classic hallmark of a Ponzi scheme. In addition to misappropriating investor funds to repay new investors, Horwitz also allegedly used millions of dollars of investor funds to support a lavish lifestyle that included the cash purchase of a $5.7 million house (pictured below), to fund extravagant trips to Las Vegas and on chartered jets, and the payment of nearly $700,000 to a celebrity interior decorator.

Horwitz’s home, currently listed for sale on Zillow for $6.495 million.

Sometime in late 2019, Horwitz and 1NMM stopped making regular payments to investors, providing a number of reasons including that HBO and Netflix had stopped paying him. At one point in March 2021, Horwitz allegedly suggested to one investor group that they provide 1NMM funds to support legal efforts to obtain payment from HBO.

A copy of the Commission’s complaint is below:

California Woman Gets 15-Year Sentence For "Massive" $350 Million Liquor License Ponzi Scheme

A disgraced former prominent California businesswoman will spend the next fifteen years in federal prison after she ran a “massive” Ponzi scheme that raised over $350 million from investors on the guise that she was financing liquor-license transactions. Gina Champion Cain, 57, received the 15-year sentence from U.S. District Judge Larry Alan Burns - almost 50% higher than the nearly 11-year sentence recommended by prosecutors after Cain pleaded guilty back in July 2020. The sentencing comes after the former Chief Financial Officer of Cain’s company received a four-year sentence for her role.

The Scheme

Cain was a well-known fixture in the San Diego business and hospitality scene, operating ANI Development, LLC (“ANI Development”) and an affiliate known as American National Investments, Inc. (“American National”). Sometime in 2012, Cain began pitching high-interest short-term loans to investors that would purportedly be used to fund the necessary capital requirements for third-parties going through the process to purchase a liquor license. Cain’s first investor, a high net-worth real estate investor who had previously invested with Cain, prepared an escrow agreement that provided, among other things, that his investment would only be used for the promised purpose and that his money would be kept in an escrow account for the duration of the license transfer process.  Cain allegedly falsely told investors she had cleared the form of the escrow company and also warned investors not to contact the company, in one instance emailing the escrow company and instructing them:

“[I]f they call asking about escrow agreements and alcohol licenses, blah, blah, blah… just say ‘SURE WHATEVER NOW SHOW ME THE MONEY… HAHAHAHA’” 

After Cain’s first investor personally invested approximately $250 million through accrued principal and interest rollovers, he began to bring in other investors who were provided with a list of potential liquor licenses they could fund that Cain claimed to have received from a California attorney.  Authorities alleged that the list “contained largely cancelled or expired liquor licenses.” ANI also raised funds from a second investor group that was provided with short-term promissory notes promising annual returns ranging from 15%-25% depending on the loan type.  Investors were provided with an escrow agreement signed by the company’s escrow officer.

However, authorities alleged that the investment strategy was nothing more than a massive Ponzi scheme, with ANI appearing to have used little of investor funds as promised. For example, investors allegedly deposited nearly $88 million in 2017 to a pooled escrow account yet not a single dollar was ever escrowed to “actually facilitate….the transfer of the alcohol licenses identified in the false investor escrow agreements.”  Instead, Cain allegedly used those funds to support other unrelated businesses controlled by relief defendant American National and also to make principal and interest payments to existing investors - a classic hallmark of a Ponzi scheme.  Through the unauthorized diversion of investor funds and the payment of above-average returns, the scheme also depended on an infusion of new investor funds since there apparently were no legitimate liquor license loans being made.  The escrow agreements were also purportedly phony, with Cain accused of forging the signature of escrow officers. 

DOJ Also Filed Obstruction Charges

When Ponzitracker originally reported on the Securities and Exchange Commission’s filing of an emergency enforcement action against Cain, that story noted the likelihood of potential criminal liability given the allegations of fabricated escrow agreements and doctored emails. While that prediction has since come to fruition in the form of securities fraud and conspiracy charges, Cain also pleaded guilty to obstruction of justice charges resulting from multiple actions taken to thwart the government’s investigation. As the Department of Justice stated:

Beginning in July 2019, after learning of investigations being conducted by federal agencies, she instructed her employees to destroy emails; not produce electronic calendar, messaging, and trash files; alter accounting records to hide the fact that investor funds were used to pay her personal expenses; and shred paper records. Champion-Cain even attempted to solicit an investment of $150 million in the hopes that she could use the funds to hide her scheme. Despite her efforts, investigators were able to recover a significant volume of the evidence Champion-Cain attempted to destroy.

There is no parole in the federal prison system, so Cain will serve at least 85% of her sentence assuming credit for good behavior. She was taken into custody immediately.

Victim Recovery

The Court-appointed receiver overseeing the recovery for Cain’s victims has obtained approval to pursue “net winner” investors who ultimately received a windfall from the scheme, but the Court has delayed the receiver’s request to pursue Chicago Title based on allegations the company may have liability for its role in the fraud. Cain’s investors have been free to pursue Chicago Title, however, which has to date resulted in multiple class action lawsuits and at least one settlement allowing certain investors to recoup nearly $15 million representing 65% of their losses.

The Court-appointed Receiver’s website is here.

West Virginia Woman Gets 135-Month Sentence For "Unusually Sinister" $2.5 Million Ponzi Scheme That Swindled Family And Friends

A West Virginia woman will serve 135 months in federal prison after pleading guilty to operating a $2.5 million Ponzi scheme that victimized family and friends as questions still swirl over her late husband’s death. Natalie Cochran, 38, received the sentence after previously pleading guilty in an agreement with prosecutors that called for a sentence between 37 months to 135 months to be decided by the sentencing judge. At sentencing, U.S. District Judge Frank Volk described the fraud as “one of the most complex and practiced frauds the Court has seen” in handing down a 135-month term.

The Scheme

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 and 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, including testimony from Cochran’s mother-in-law that she invested $250,000 in retirement savings.

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.  

Prosecutors claimed that neither TSG nor TMS ever had any claimed government contracts, 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 was accused of forging documents from a business valuation service, Senator Joe Manchin’s office, and a fictitious Federal Reserve employee that corresponded with investors.

Cochran pleaded guilty to wire fraud and money laundering charges in September 2020.

Investigation Into Little League and Michael Cochran’s Death

Cochran’s sentence comes as separate investigations remain open into Michael Cochran’s death and Cochran’s alleged malfeasance while serving as treasurer of the Shady Spring Youth Baseball League. Authorities have an open criminal investigation into Michael Cochran’s death and had previously exhumed his body as part of that investigation. Cochran’s activities as treasurer of the Shady Spring baseball league are part of a separate ongoing investigation looking into a variety of suspicious transactions in the league’s bank account, as well as a league fundraiser hosted at the Cochran’s residence that purportedly raised over $16,000 from a bingo game and the raffling of semi-automatic weapons.  However, TSG’s check for the donation subsequently bounced.

Cochran’s indictment is below:

SEC Says New York Firm Ran $1.7 Billion 'Ponzi-like' Scheme, Violated Whistleblower Laws

The Securities and Exchange Commission filed an enforcement action against a New York asset-management firm and its related entities and principals, alleging that the group ran a “Ponzi-like” scheme that raised over $1.7 billion from nearly 20,000 investors and also retaliated against a whistleblower. The Commission’s lawsuit, filed in a New York federal court, named GPB Capital Holdings, LLC (“GPB”), Ascendant Capital, LLC (“Ascendant Capital”), Ascendant Alternative Strategies, LLC (“AAS”), David Gentile, Jeffry Schneider, and Jeffrey Lash as Defendants. The Commission is seeking disgorgement of ill-gotten gains, civil monetary penalties, and pre-judgment interest. The allegations, if proven, would make GPB one of the largest Ponzi schemes in history and the largest in the last several years; by comparison, the total amount of investor funds involved in Ponzi schemes during the entire year of 2020 would be roughly half of the funds allegedly invested in GPB.

Allegations

According to the Complaint, GPB held itself out as an asset-management firm overseeing limited partnerships that invested in the automotive retail, waste management, and healthcare sectors. Those limited partnerships marketed the investments through Ascendant and AAS which in turn enlisted the services of a series of broker-dealers across the country to reach potential investors. To entice those investors, GPB touted a promised annual return of 8% paid through monthly dividends as well as “special distribution” payments ranging from .5% to 3% on top fo the promised 8% return. In the various marketing documents provided to investors, GPB represented that those payments would be funded from the operations fo the companies in the limited partnership’s portfolio.

But the Commission alleges that GPB began experiencing difficulties in meeting the distribution obligations as early as August 2015. Instead of suspending or reducing the distributions, GPB allegedly paid over $260 million in annual and specialized distributions for the next three years until distributions ceased in late 2018. The Complaint alleges that the majority of those disributions from August 2015 to October 2018 were funded not with cash flow from the limited partnerships’ portfolio companies, but rather with other investor funds.

In order to create the appearance that the distributions from August 2015 forward were coming from operations, the Commission also alleges that GPB and Gentile, with assistance from Lash, manipulated certain financial statements (that were provided to broker-dealers and prospective investors) to paint a rosier picture.

The Complaint also accuses the Defendants of violating the whistleblower provisions of the Securities Exchange Act of 1934, both by failing to include necessary carve-outs in employee departure agreements as well as retaliating against another employee. Specifically, GPB is accused of including language in termination documents for two former employees that restricted one employee’s disclosure of confidential infirmation without GPB’s approval while requiring another employee to contact GPB upon any outreach from any regulatory agency. Another employee who played a key role in automotive operations was fired shortly after he raised concerns to GPB management and later copied GPB on communications with the Commission about those concerns.

Lengthy Investigation

The filing of the enforcement action confirms widely-held beliefs that GPB had been the subject of a lengthy non-public investigation. In early 2019, GPB confirmed that the FBI and a New York agency had searched its offices while also acknowledging that it had received inquiries from the Commission. Later that year, a former SEC examiner who took a job as GPB’s chief compliance officer was indicted on charges that he illegally accessed information on the SEC’s investigation into GPB shortly before leaving the SEC. MIchael Cohn, the former CCO, later pleaded guilty to a misdemeanor in September 2020 and is scheduled to be sentenced on March 24th.

The Complaint also indicates that the Commission had entered into tolling agreements with all of the Defendants as early as February 2019. Tolling agreements are typically used by the Commission to toll the expiration of statutes of limitation during the pendency of an investigation and/or discussions about a potential resolution.

First FINRA Award Issued Involving GPB

As alleged in the Complaint, GPB used a series of broker-dealers across the country to reach potential investors. After GPB ceased distributions in late 2018, those broker-dealers have faced an onslaught of customer arbitrations filed in the Financial Industry Regulatory Authority’s (“FINRA”) arbitral forum. As those cases have worked their way through the arbitration forum largely outside of the public view, last week saw the first case reach a final award stage (after a Zoom trial) where a FINRA panel held Arete Wealth Management, LLC liable for the full amount of the claimant’s loss and attorney’s fees.

A copy of the Commission’s complaint is below.