Securities Industry Commentator by Bill Singer Esq

December 7, 2020

Schemes From a California Restaurant ( Blog)
We got a restaurant owner and several customers, and one of the customers, Felix, a stockbroker, has a son, Derek, also a stockbroker, who runs a sports ticket business. I'll take fries with that. Also a dill pickle. Oh, and I'd like a side order of promissory notes from Felix's kid Victor. $1.2 million in losses later, the check arrives and the finger-pointing begins.
In the United States District Court for the Northern District of Texas, Vantage Benefits Administrators co-owners Wendy Richie, 59, and her husband, Jeffrey Richie, 55, pled guilty, respectively, to two counts of theft from an employee benefit plan and one count of aggravated identity theft; and to two counts of aiding and abetting theft from an employee benefit plan. Wendy Ritchie was sentenced to 132 months in prison and ordered to pay $12.6 million in restitution; and Jeffrey Richie was sentenced to 87 months in prison and ordered to pay $7.4 million in restitution. As alleged in part in the DOJ Release:

The Richie's company served as third party administrator for dozens of pension and retirement funds.

According to plea papers, Ms. Richie admitted to using fund beneficiaries' personal information to submit $15.2 million in fraudulent distribution requests to Matrix Trust, the funds' custodian.  Instead of depositing the money into beneficiaries' accounts, however, she transferred it into Vantage's operating account, then into personal bank accounts.

Even after a Vantage employee confronted Mr. Richie about Ms. Richie's conduct, Ms. Richie continued to embezzle money from the funds. At least $6.2 million of the $15.2 million Ms. Richie embezzled was taken with Mr. Richie's knowledge, he admitted.

In total, the pair admitted to submitting more than 90 unauthorized distribution requests from 13 pension plans and 7 retirement plans from 2014 and 2017.
Bryan John Cohen pled guilty in the United States District Court for the Western District of North Carolina to wire fraud. As alleged in part in the DOJ Release:

[F]rom 2015 to 2020, Cohen defrauded at least 10 victims of more than $385,000, by inducing them to invest money in his purported investment businesses, OTC Bully, Ascension Trading, and Recharge Investments, and in other business ventures. Court records show that Cohen falsely represented to victim investors, most of whom were Cohen's friends and acquaintances, that he was a financially savvy investor with a successful track record in the financial industry, and that he would invest their funds using a computer algorithm called the "Dewey System."

As Cohen admitted today in court, to convince victims their investments were legitimate, Cohen provided them with bogus Investment Agreements that purported, among other things, that Cohen would not charge any investment fees, and that the money would be invested in a manner "expected of a reputable, experienced and competent professional investment manager." To further lull victims-investors into thinking their investments were safe, Cohen supplied them with fake profit and loss sheets on a monthly basis, which falsely indicated the victims' investments were growing.

Contrary to claims Cohen made to his victims, court documents show that Cohen did not invest their money as promised. Rather, Cohen used the money to pay for personal expenses and to make Ponzi-style payments to older investors using new investors' money.
Atorney Michael W. Kwasnik, 51, pled guilty to an Information filed in the United States District Court for the District of New Jersey to money laundering, and he was sentenced to 216 months in prison plus three years of supervised release, and ordered to pay $11.7 million in restitution. The DOJ Release alleges in part that:

Kwasnik was an attorney licensed in New Jersey and Pennsylvania who specialized in providing estate and financial planning services to his clients. He used his position as an attorney in estate planning to convince clients to open irrevocable family trusts to hold the client's money and provide the client an opportunity to earn interest on their funds. Kwasnik advised potential clients that estate planning was necessary to protect assets from federal and state taxes. As part of the estate planning, Kwasnik established various trusts, typically irrevocable family trusts for clients with Kwasnik named as the trustee. For each trust, an Employer Identification Number (EIN) was obtained and a bank account in the name of the trust was opened at TD Bank. As trustee, Kwasnik had signature authority on the bank accounts.

The underlying scheme ran from late 2008 to November 2011. Kwasnik advised clients to transfer money and assets into the trusts for financial protection. In some cases, Kwasnik advised clients that he would remain as the trustee until the estates were settled, at which time the assets would be turned over to the appropriate beneficiaries.

Dozens of his clients turned over approximately $13.2 million to Kwasnik for safeguarding of their beneficiaries' trusts. After the clients transferred funds into the trust bank accounts under Kwasnik's control, Kwasnik immediately began transferring the money out of the trust accounts and into the bank accounts of entities that he controlled until the money was entirely depleted from the trust accounts, usually in just a matter of days. Kwasnik then used that money to conduct thousands of intermingled financial transactions and pay personal expenses for himself and others and for the operations of the entities he controlled.

Bakersfield Man Indicted for Unauthorized Transfers of more than $450,000 from A Victim's Bank Account to a Brokerage Account He Controlled (DOJ Release)
In an Indictment filed in the United States District Court for the Eastern District of California, Ramon Armendariz was charged with multiple counts of wire fraud, bank fraud, and aggravated identity theft. As alleged in part in the DOJ Release:

[A]rmendariz unlawfully obtained personal identifying information and bank account information of the victim, S.L., which he used to open a brokerage account in the victim's name. Armendariz used S.L.'s personal bank accounts to fund the brokerage account. Armendariz listed himself as an authorized check writer on the brokerage account in order to access the funds when the transfers to the brokerage account were completed. Armendariz's scheme unraveled when S.L. discovered the unauthorized transfers and notified the financial institution, resulting in a freeze of the funds in the brokerage account.