California Ponzi Schemers: Class of 2013

Tuesday, January 28, 2014

Barry Minkow, one-time wunderkind of confidence scams, made the California Ponzi Schemers: Class of 2012, not as a perp, but as a resource for the Securities and Exchange Commission (SEC). He helped nail Dean P. Gross, who received a seven-year sentence for bilking 39 investors out of $35 million in his phony media business, Bridon Entertainment.

Minkow served seven years in prison a couple decades ago for his boyhood Ponzi scheme, ZZZZ Best carpet cleaners, before “changing” his evil ways. The Southern California native, who is Jewish, found Jesus in prison, obtained an advanced divinity degree and became a minister in San Diego after his release. He also founded the Fraud Discovery Institute to fight white-collar crime, and helped the SEC on dozens of cases.

He was featured on “60 Minutes” in 2006 for his good works.

Last week, Minkow pleaded guilty to swindling members of his former congregation out of $3 million over a decade’s time. He faces five years in prison and a $250,000 fine and restitution for embezzling church donations and not filing taxes on his ill-gotten gain.

Minkow is already in jail. He received a five-year sentence in 2011 for shorting stock in Lennar homebuilders before accusing the company publicly, in his crime-fighter role, of fraud, causing the stock price to drop precipitously. Minkow was also ordered to pay $585.5 million in restitution.

His case represents an auspicious beginning to a new year of scams, shams and sleight-of-hands that promises to be the equal of 2013. Ponzi schemes are characterized by their recruitment of investors, whose money is then used to pay off previous “investors,” rather that placed in profitable, income-generating enterprises. They are named after Charles Ponzi, a legendary scam artist of the early 20th century. 

The following are a list of notable California-based Ponzi schemers who had their day in court last year.    

Class of 2013

Assisted-Living Scam: James Stanley Koenig and Gary Armitage of Redding operated senior and assisted-living housing and sold ownership shares to at least 400 investors as tax-sheltered property exchanges between 1999 and 2008. They did not reinvest the money and Koenig did not tell the victims he had served two years in prison for a previous conviction for a gold-selling scam. Many of the investors were elderly people who placed their life savings in the securities. A judge gave Koenig 42 years in prison and Armitage 10. Estimated loss: $250 million

“Madoff of the Midwest”: Gerard Cellette called Andover, Minnesota, home, but he plied his trade throughout the Midwest and did a lot of damage in California. He told investors that his Minnesota Printing Service had contracts with Target and other big companies and offered 10% returns within the first month. He was sentenced to eight years in county jail by a Minneapolis judge in 2010, but was dragged to California in shackles last December to face 455 counts for various crimes. Marc Labreche, the senior deputy prosecutor in Orange County, said 80 victims suffered $21 million in losses in just his county. Estimated loss: $200 million

"James the Cash King": James Duncan of Riverside County was the mastermind of an outfit that targeted victims in the Filipino religious community and places like the Pechanga Casino. Duncan, who promoted himself in videos, convinced investors to max out credit cards, mortgage their homes and dip into retirement accounts to give him money he never invested, as promised, in real estate. He was sentenced to 19 years and eight months and was ordered to pay 33 victims $3.5 million in restitution. Estimated loss: $142 million

Doesn’t Compute: Anthony Vassallo of Folsom ran a Ponzi scheme with Kenneth Kenitzer that raked in $80 million, although his share was deemed less. Vassallo claimed he wrote computer software that allowed him to make 36% a year in online investments. In fact, he lost money. The judge called him a “liar” when he denied all the charges after copping a plea and claiming he was “blindsided” into signing the agreement. He was given a 16-year sentence. Estimated loss: $44.8 million

Charitable Day-Trader: Syed Qaisar Madad of Diamond Bar bragged to friends and business acquaintances of his day-trading, stock handling skills before spending most of their investments on himself and family. He gave $1 million of it to charity. Madad received 151 months in prison. Estimated loss: $30 million     

Got Moni: Ronald Lee and wife Bonnie Brito of Rancho Mirage began operating a Ponzi scheme in 2005 using money invested in, presumably a high-interest lender to construction and mining interests. None of it existed. Ronald Lee was sentenced to 12 years and seven months in prison and Bonnie got 18 months. Estimated loss: $25 million

Victim Joins the Party: John Missitti gets an honorary inclusion in the list, although he was a resident of Michigan. He was a victim of Ronald Lee Brito, above, in 2006, but he figured out the swindle and became Brito’s partner in the Wolverine State. He was sentenced to 6 years in prison. Estimated loss: $4 million

Scammed His Parents: Kaveh Vahedi of Glendale did not play favorites; he scammed everyone, including his folks. His 80-year-old father forgave him. Vahedi victims included cancer patients and a disabled police officer. Judge Dean Pregerson, who called the mortgage investment scam “one of the most heartbreaking, vicious fraud schemes” he had ever seen, sentenced Vahedi to 18 years in prison and ordered him to pay restitution of $9.8 million. Vahedi was said to have finished a personal-growth program while in jail. Estimated loss: $12 million

Covenant with the Devil: David Lee Hardin, Jr. of Coto De Caza defrauded more than two dozen victims by telling them their money would pay for a home building project, originate mortgages and fund his business. He used it to pay off previous investors. The CEO of Covenant Mortgage, Covenant Marketing, Covenant Debt Solutions, Covenant Insurance, and HRE Mortgage was sentenced to 41 months in prison. Estimated loss: $6.7 million

Family Man: James G. Berghius of Sacramento defrauded “family members, friends and other acquaintances” between 2005 and 2007 by promising to invest their money in real estate, but not doing it. The FBI said he offered a deed of trust on commercial property he owned and the same second position on the title to multiple people. Estimated loss: $2.5 million

–Ken Broder


To Learn More:

World-Class Sleaze Barry Minkow Guilty Again (by Robert Kahn, Courthouse News Service)

Fraudbuster Barry Minkow Convicted of Cheating His Own Church Out of $3 Million (by Kate Tracy, Christianity Today)

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