Wednesday, October 19, 2011

Ponzi Scheme Warrants Disbarment

An Illinois Hearing Board has recommended the disbarment of an attorney who participated in a Ponzi scheme as set forth in the report:

Beginning in November, 2007, and continuing through November 2008, Respondent participated in a scheme by which he and others advised 93 individuals ("the investors") of a purported opportunity to invest in Omicron by making "investments loans" to Omicron. Respondent and others told the investors those "investment loans" were to be used for purposes of "trading platforms" and other purported investment opportunities. Respondent and his business associates also told the investors, both orally and in writing: that Omicron would use the investors’ money to invest in trading platforms; that the investors could expect an annual return of the greater of fifteen percent paid quarterly, or sixty percent of the net profits generated by Omicron; that their initial investments would be secure because none of the money obtained from the investors would be placed directly in trade; that the funds in the trading account would be leveraged by the trader and never touched; and that investors could request withdrawals from their account which would be paid out within 72 hours.

Between November 2007 and November 2008, Respondent and others agreed to accept at least $1,915,205 in purported "investment loans" from the investors; provided those individuals with purported loan agreements and promissory notes relating to investments platforms; and promised to repay the loans with investment returns one year after the loan agreement. Pursuant to the agreements for the investment loans, the term of the purported "investments loans’ were to be one year, calculated from the first day of disbursement, or on demand of the lender.

The "loans" were then run through an escrow account on their way to the pockets of the attorney and his associates:

Between December 2007 and March 2009, Respondent made a series of disbursements and directed a series of transfers to various accounts maintained by Respondent and his business associates. Respondent also used the account to make periodic payments of purported interest and principal to investors. Those payments were not made from the purported profits of the Omicron investments, but were instead made with money obtained from other investors in what is commonly referred to as a "Ponzi scheme"...At no time after receiving the funds from the investors did Respondent invest in their funds in a secure investment opportunity from which any of the investors benefitted. To date, Respondent owes various investors $1,866,316.31, which represented the difference between the amounts Respondent, had received from the investors and the amounts that have been repaid to one investor.

(Mike Frisch)

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