THREE MORE TRADERS IMPLICATED IN GRIFPHON PONZI SCHEME

As reported in a December 6th article in The Oregonian, the Securities and Exchange Commission has charged three more men with securities violations in connection with Grifphon Asset Management. The Grifphon Alpha Fund was the $37 million hedge fund scheme run by Yusaf Jawed from offices in Portland, Oregon that has now resulted in a number of SEC charges.

The three newly implicated men are Dominic O’Dierno of Portland, Stephen Persad of Milwaukie, and Benjamin R. Daniels of Indio, California. These three funneled 40 investors and a total of $16 million into the scheme, acting as brokers while unregistered. Although they were not accused of having knowledge of or aiding the fraud, Jawed paid them an enormous $800,000 in commissions. Daniels’ commissions were more than 6.6% of the amount he brought in. The three have settled with the SEC and each are barred from the investment industry for three years.

Banks Law Office was the first firm to write about its investigation into Grifphon. In fact, we began representing investors seeking to recover money they entrusted to Yusaf Jawed more than ten years ago. We currently have two pending cases against Raymond James to recover Grifphon investments that were sold by Ben Daniels, who was based in Raymond James’s Palm Springs, California office at the time. We continue to talk with investors who fell victim to the Grifphon investment scheme.

Anyone who sustained investment losses through dealings with Dominic O’Dierno, Stephen Persad, or Benjamin Daniels, are encouraged to contact us and share your story. We may be able to help.

“ZEEK REWARDS” PONZI SCHEME WILL BREAK NEW GROUND IN CLAWBACK LITIGATION

The collapse of the online Ponzi scheme called “Zeek Rewards” this past August threatens to break new ground in the area of Ponzi clawback litigation. With an estimated 800,000 victims identified, another 100,000 former affiliates are being targeted by the receiver as “profiteers”, and forced to defend themselves against demands to pay back the returns they received on their investments.

Banks Law Office issues this Investment Alert to urge these former affiliates to be fully informed of their rights in this situation.

On August 17, 2012, the Securities and Exchange Commission filed a complaint against Zeek Rewards which shut down the site. The complaint described Zeek Rewards as both a Ponzi and a pyramid scheme on the verge of collapse, having taken in some $600 million since its launch in January 2011. The central figure is Paul Burks, a 65-year-old multi-level marketing veteran based in North Carolina. Burks is the sole owner of the associated penny auction site Zeekler, also closed, and of their parent company, Rex Venture LLC.

The receivers of this bankrupt Ponzi operation are now attempting to recover — to “claw back” — hundreds of millions of dollars from the affiliates who were fortunate enough to have gotten their money back before Zeek Rewards was shut down. Many of these clawback targets could be innocent investors.

As of the end of October, the receiver Kenneth Bell, of McGuire Woods LLP in Charlotte, North Carolina, believe they identified 100,000 “affiliates” who were repaid more than they contributed, based on Paul Burks’ records. The receiver has sent out 1,200 subpoenas for information to those who reportedly profited the most. These subpoenas were accompanied by a “letter offering to negotiate voluntary surrender of profits”. This clawback action is taken against those who may have been totally unaware that they had been involved in a Ponzi scheme. The likely next step is that some of those former affiliates will be sued.

Senior attorney at Banks Law Office, Bob Banks, says, “These communications from the receiver are phrased to appear authoritative and neutral, as if it these clawback amounts had already been legally decided somehow. That’s not true. This is not the SEC or the government demanding money back. It’s simply a receiver making his best attempt to collect as much as he can. Anyone who receives a proposal to voluntarily surrender profits ought to seek legal advice before making any agreement to pay.”

Banks Law Office currently represents multiple clawback defendants in the ongoing Washington Meridian Funds bankruptcy proceedings. “Trustees and receivers are increasingly pushing the envelope as to which innocent investors they can sue. We help innocent investors push back,” said Banks.

A federal law signed by President Obama earlier this year is almost certain to lead to new kinds of investment fraud. Banks Law Office issues this Investment Alert to urge individual and institutional investors to be aware of these changes, and to safeguard themselves against the risks they bring.

The principle behind the JOBS Act (Jump-Start Our Business Start-Ups), signed on April 5, 2012, is that small businesses, as the “true engine” of job creation, are more likely to create jobs if they have easier access to capital. This approach to economic stimulus gained so much bipartisan support that it passed both houses of Congress in record time.

The single most attractive new source of small-business capital will be online crowdfunding. In the last year crowdfunding sites, such as Kickstarter, Indiegogo, and a wave of their imitators, have proven a new and surprisingly effective source of money for political campaigns, philanthropists, independent film projects, etc. Sellers of securities also see crowdfunding as a very attractive source of capital. They want access to it.

The JOBS bill delivers that to them, by loosening the Securities and Exchange Act, Regulation D, section 506, to allow online advertising of unregistered securities. Regulation D’s restrictions on public advertising of unregistered securities have been effectively removed. Unfortunately those restrictions, now vanished, protected investors from a whole array of problems such as unregistered dealers, lack of disclosure, misrepresentations of risk, and other violations, exposing the investors to potential harm.

Among many other critics, former New York Attorney General Eliot Spitzer urged President Obama to veto the bill in April. Spitzer called it the “Let’s bring fraud back to Wall Street Act.” Rulemaking is still under way at the Securities & Exchange Commission and within FINRA to deal with the many regulatory implications of the JOBS Act. Many significant details are still to be worked out in the coming months. In the meantime, small businesses have been warned by state regulators not to start using the internet to raise capital.

Banks Law Office attorney Darlene Pasieczny says, “Even after these rules are fully developed and in effect, the Act is going to open the door for new varieties of investment fraud. Wall Street fraudsters will inevitably take advantage of this lack of regulation. Main Street investors will be the casualties. Don’t invest online. Offline, proceed with caution, use common sense, refuse to be rushed when making important decisions, and be aware that the rules of this game are changing.”