Leucadia's Scott Bottolfson busted for $6 million Ponzi scheme

We've got our own Bernie Madoff Jr.!

Leucadia's Scott Bottolfson pleaded guilty to felony wire fraud and faces up to 20 years in prison:

According to a criminal complaint filed Nov. 30, 2010 with the U.S. District Court, Southern District of California in San Diego, Scott Bottolfson through at least two entities he owned and operated – Increase Investments, Inc. and Spirit Investments -- solicited more than $15 million from investors, many from neighbors in the Town of Newbold [Wisconsin] where he had lived for awhile, in exchange for fixed high-rate promissory notes, in at least one case of 20%.

The alleged fraud occurred from approximately September 2001 initially in the Newbold area and from 2005 through July 2010 from Bottolfson's base in Encinitas, California, prosecutors said.

The complaint said that as part of the scheme Bottolfson solicited investors via interstate e-mail and telephone calls and falsely claimed to investors that he could guarantee "high rates of return" for their investments that included commodities futures trading. The complaint said Increase was not registered with the National Futures Association (NFA).

The complaint read here said Bottolfson did not invest all investor funds as represented, but used “as much as 50% of investor funds for personal expenditures.” The “Ponzi” scheme involved giving new investor funds to previous investors and falsely representing those funds as investment returns, the complaint stated. “Defendant returned several million dollars to investors through the Ponzi scheme activity but still caused losses of approximately $6 million,” it added.

One victim, mentioned in the complaint by the initials only as “R.W.”, gave Bottolfson $1.3 million in December 2008 to invest in return for a promised guaranteed rate of return of 20%, but the money was used instead to pay previous investors, according to the complaint.

Details of the case are in this National Futures Association document and this criminal case.

Bottolfson bought the house at 1262 Urania in 2005 for $1.55 million.

HT: Encinitas Patch. Damn they're good.

Yet another Encinitas Ponzi scheme

Three years after we wondered whether Encinitas was the Ponzi capital of America, the answer seems to be yes, yes it is.

First there was Scott Bottolfson. Then there was John Clement's EdgeFund. And then Steven Hamilton.

And now meet Dennis Eugene Long:

Dennis Eugene Long stole a lot of money over the years — nearly $1 million from dozens of victims, including about 30 who showed up at his sentencing hearing Tuesday.

But it wasn't just the financial losses that prolonged their hurt.

"You stole not only money but trust," Suzanne Stoneall said to Long, who was inside a holding cell in a Vista courtroom. He had been the man she came to know through Bible study as a big brother.

[...]

Prosecutors said Long, 65, of Carlsbad defrauded at least three dozen families out of $5,000 to $87,000 after persuading them to invest in an herbal Viagra-type drug business. He told them the company had just been sold to a larger company for $4 million, but it wasn't too late to get them in on the deal because some earlier investors had backed out.

Long told the victims, who he had met through churches or his daughter's volleyball clubs, that he had been a successful businessman and a corporate-level official at Target. Court records show he worked as a retail clerk at an Encinitas Target until he was fired. An investigation by Carlsbad police indicated he had been selling shares of the bogus herbal supplement company since at least 2005.

Though the U-T cites Long as most recently having lived in Carlsbad, public records show him having lived on Swallowtail Road at the north end of the golf course in Encinitas, as well as having worked at the Encinitas Target.

What brings so many Ponzi schemers to Encinitas? Is it a population of gullible people with a lot of money?

In any case, if a middle-aged white male from Encinitas offers you an investment opportunity, just walk away.

Yet another Ponzi scheme alleged in Encinitas

Again?  Is Encinitas the Ponzi capital of America?

First there was Scott Bottolfson.  Then there was John Clement's EdgeFund.

And now Steven Hamilton:

This case involves three fraudulent investment Ponzi schemes operated by Steven Hamilton through three companies he owned and controlled, Covenant, Verde, and Verde FX.

From 2007 through January 2011, Hamilton solicited investors through the Internet and direct solicitation.  He represented that Covenant investors were investing in real estate loans secured by deeds of  trust, that Verde investors were investing in either real estate loans secured by deeds of  trust, or certificates of deposit, and that Verde FX investors were pooling their money to invest in the construction of  a new FedEx distribution facility in Las Vegas, Nevada.

Hamilton's representations to investors were materially misleading. In reality, Hamilton never invested any investor money in real estate loans secured by deeds of trust or certificates of deposit or in the construction of a new FedEx distribution facility in Nevada. Instead, Hamilton used the money he raised from these three fraudulent offerings to pay his personal living expenses. In order to perpetuate his scheme, and to make his purported investments appear successful, Hamilton also used a portion of the monies he raised to pay fictitious returns to investors when, in fact, his investments were non-existent and he was simply using investors' monies to pay other investors. In all, Hamilton raised approximately $1.6 million from at least 23 investors through his fraudulent offerings.

Encinitas dad gets 24 years for Ponzi scheme

For years we have wondered whether Encinitas was the Ponzi scheme capital of the world. First there was Scott Bottolfson. Then there was John Clement's EdgeFund. And then Steven Hamilton and Dennis Eugene Long.

The latest case is an accountant and family man who has lived in Encinitas and been active in the community for several years after swindling people out of millions in Colorado.

Gunnison Times:

A Ponzi scheme that swindled unsuspecting investors out of millions of dollars has landed a former Gunnison accountant behind bars.

District Court Judge J. Steven Patrick sentenced Laverne “Vern” Moter, 50, to 24 years in prison this past Thursday — the maximum presumptive sentence for the two counts to which Moter pleaded guilty this past May.

Over the span of four years beginning in 2009, Moter solicited more than $2.6 million from investors, promising hefty rates of return. However, a Colorado Attorney General’s office investigation found that Moter paid initial investors returns on their money with finances garnered from new investors — all while living a lavish lifestyle himself on the life savings of those victims.

Assistant Attorney General Jason Slothouber indicated that Moter spent investors’ money on past debts, credit card bills and “lifestyle.” A credit card bill for one month alone totaled $56,000. At the same time, Moter bought his wife a new Mercedes and used investors’ money to purchase a new home in Las Vegas.

Even at the time of Friday’s hearing, Slothouber noted that Moter rented a home in Encinitas, Calif., valued at about $1.5 million with a view of the ocean and paid $29,000 per year in private school tuition for three kids.

The defense asked for a few months in jail and probation, but the judge issued the maximum sentence.

Michael Pattinson of Barratt American whines about the banks

In an op-ed in the Salem News, the president of bankrupt developer Barratt American (builder of Leucadia's Rancho Tyvek Estates -- "Come for the tiny lots, stay for the low-income housing next door") complains that it's not fair that some people on Wall Street recognized the housing bubble and bet that it would burst, or that some banks stopped lending to overleveraged developers as the housing market cratered.

The developer industry spent millions of dollars lobbying Congress to keep the housing bubble going with tax incentives, lax lending standards, and easy credit from an alphabet soup of government and quasi-government agencies including FHA, Fannie Mae, Freddie Mac, and the Federal Reserve. I didn't hear Mr. Pattinson complaining as he was getting rich from the funny-money-fueled bubble. In fact, Pattinson was a frequent contributor to the industry's lobbying PAC.

The housing crash was the inevitable result of the greatest asset bubble in the history of the world. Any builders who were overleveraged at the peak of the biggest bubble in history have only themselves to blame for their demise.

Pattinson's argument is equivalent to saying that Bernie Madoff's Ponzi scheme was a good thing, and the only problem was that investors stopped giving Madoff money to keep the Ponzi going.

Pattinson should stop trying to shift the blame to those who recognized the bubble, and apologize for the wreckage that his industry has caused the entire economy.

Another apparent Encinitas Ponzi scheme: John Clement

What is it with Encinitas and Ponzi schemes? First Scott Bottolfson and now this:

The Securities and Exchange Commission filed an emergency enforcement action to halt a fraudulent scheme being conducted by John Clement of Encinitas, Calif., and his company Edgefund Capital LLC.

The SEC alleges that Clement ran a purportedly profitable day trading business out of his home and raised at least $2.1 million since August 2008 from 22 investors in the San Diego area. Clement hyped the profit potential by falsely promising returns of 1 to 2 percent per month to investors in his hedge funds (The Edgefund, LP and The Edge Fund Ltd., LP). He falsely claimed that the risk potential was limited because of his purported 5 percent stop-loss rule, and he falsely assured investors that they could request a return of their investments at any time upon written request. The SEC alleges that Clement has misappropriated and misspent all of the investor funds.

The Honorable Larry A. Burns, U.S. District Judge for the Southern District of California, granted the SEC’s requests for an immediate freeze of the assets of Clement and Edgefund Capital and an order prohibiting Clement and Edgefund Capital from destroying evidence. The court will hold a hearing on May 16, 2011, on the SEC’s motion for a preliminary injunction.

The SEC alleges that in order to conceal his fraud, Clement sent fabricated account statements to at least one investor that reflected an inflated fund balance of $8.2 million. In fact, the hedge fund accounts at that time were not even funded. Beginning March 29, 2011, Clement began telling investors that an SEC investigation had impacted his ability to communicate with them, frozen his bank accounts, and blocked his securities trading activities. Although the SEC was investigating Clement’s operations, he lied in his other assertions to investors.

I guess it's that Encinitas is a great place to live, so when scammers get their hands on Other People's Money, they use it to fund the Encinitas lifestyle. Or maybe Encinitas living is so expensive that it pushes people to fraud.

Any time somebody tells you he makes a living day trading, ask to see his tax returns. Most self-proclaimed "day traders" have other assets or income and just call themselves "day traders" because it sounds cooler than "trust fund baby" or "disability malingerer."

Former Olivenhain fraudster Anthony Elgindy commits suicide

We often refer to Encinitas as the Ponzi scheme capital of America due to its numerous Ponzi schemers, but it's been home to other types of financial fraudsters as well.

Perhaps the most famous was Anthony Elgindy, who made national news when his Olivenhain mansion was raided by the FBI.  Elgindy had been a penny-stock operator in the mode of Wolf of Wall Street and Boiler Room, then turned FBI informant.  What got him in trouble in 2002 was his relationship with crooked FBI agents who sold him information about pending FBI investigations into public companies.  Elgindy then profited by shorting the stocks of those companies.

The lavish mansion raided in 2002 was on Calle Tres Vistas in Olivenhain.  Public records also show Elgindy having lived on Rancho Encinitas Drive, at the opposite end of the loop from the Olivenhain drug house.  Elgindy was believed to be living elsewhere in the San Diego area more recently.

Now Don Bauder in the San Diego Reader tells us:

Elgindy's son, Adam Elgindy, says on his Facebook page, "My dad, Anthony Elgindy, passed away yesterday. He was under so much stress and panic and he took his own life." Several of Adam Elgindy's friends sent him condolences such as "I'm sorry man, "if you need anything at all hit me up man," and "I'm praying god watches over you."

Our condolences to the Elgindy family.

More background on the stock-shorting scheme and trial here and here.