Madoff Sentenced - 150 Years for Fraud

As Bernie Madoff begins his 150 year prison sentence, victims are now looking to lay blame at the door of the SEC (Securities and Exchange Commission) according to reports from Bloomberg.com

Whilst initial responses to the sentencing appear satisfactory, Madoff himself is 71 making a prison sentence of that length somewhat excessive other than to make a point.

It would seem many victims feel the US regulators should have had systems, either manual or technical in place to spot one of the largest ever Ponzi schemes, the penalty issued being 6 times that of the sentences issued to former Enron executives.

Quite how much change in regulation will happen and when remains to be seen. With new investment frauds coming to light as the economy hardens, it would seem there is no question that regulations will need to be tightened on a global scale.

Investment Warning - June 2009 Updates

Warnings have been issued by the relevant authorities about the following companies.

Warning against Wellesley International Group

Wellesley International Group is not authorised by Finansinspektionen (the Swedish Financial Supervisory Authority) and is therefore not entitled to provide financial services. Wellesley International Group has a website (www.welleslyinternational.com) using the following addresses:

2-4 Messogion Avenue,
Athens Tower (Building A),
115 27 Athens.
Greece.

Unite 10-18, 32/F,
Tower 1,
Millennium City 1,
388 Kwun Tong Road,
Kwun Tong,
Kowloon,
Hong Kong.

World Trade Center Building,
1st Floor - Commercial Area,
Marbella 53 Str.,
Panama City.
Panama.

Edificio D piso 1,
San Jose.
Costa Rica.

Wellesley International Group's representatives contact investors in Sweden by telephone, cold calling.

Courtesy of The Finansinspektionen

Warning against Omega Global Trading Inc.

Omega Global Trading Inc is not authorised by Finansinspektionen (the Swedish Financial Supervisory Authority) and is therefore not entitled to provide financial services. Omega Global Trading, Inc has a website (www.oglobaltrading.com) using the following address:

660 Fifth Avenue,
24th Floor,
New York,
NY 10103-0040.

Omega Global Trading Inc's representatives contact investors in Sweden by telephone, cold calling.

Courtesy of The Finansinspektionen

Warning against East Financial Group Inc.

East Financial Group, Inc. is not authorised by Finansinspektionen (the Swedish Financial Supervisory Authority) and is therefore not entitled to provide financial services. East Financial Group, Inc. has a website (www.eastfinancialgroup.net) using the following address:

1675 Broadway,
30th FL.,
New York,
NY 10019-5820.

East Financial Group Inc.'s representatives contact investors by telephone and offer to buy their holdings of shares in an American OTC company.

Courtesy of The Finansinspektionen

The UK's FSA has warned agianst the following companies, although fails to provide any further data to speak of. The FSA list of alerts can be seen here.

Dragon Partners Inc
Sullivan Investment Group
Barringer & Co
World Capital Group
Milton Hayward
Alpha Securities
Winthorpe Morgan Group

The Hellenic Republic Capital Market Commission has issued the following warning.

Plus500 Ltd., Universal Engine Ltd, which maintains the web-site "www.Plus500.gr" is not authorised or supervised by the Hellenic Capital Market Commission and therefore is not authorised to provide investment services in Greece.

It is noted that according to article 6 of Law 3606/2007, the provision of investment services without prior authorisation from the competent authorities is not permitted and constitutes a criminal offence, which is subject to criminal and administrative sanctions.

The original warning can be seen here.

The CBFA (Belgian Authorities) have issued the following warning.

The Banking, Finance and Insurance Commission (CBFA) warns the public against the offers of investment services made by McLeod Walker Capital Ltd. (www.mcleodwalker.com) from its alleged premises at

Uitbreidingsstraat 84 / 3,
2600
Berchem.

McLeod Walker Capital Ltd. does not have the authorization required to offer investment services in or from within Belgium. The CBFA thus advises the public against responding to any offers of investment services made in the name of McLeod Walker Capital Ltd. and against transferring money to any account number they might mention.

Courtesy of the CBFA

Warning against Doyle John Joseph LLP.

Doyle John Joseph llp is not authorised by Finansinspektionen (the Swedish Financial Supervisory Authority) and is therefore not entitled to provide financial services.

Doyle John Joseph llp has a website (www.doylejohnjoseph.com) using the following address:

2 Rector Street,
21st Floor
New York,
NY
10006.

Doyle John Joseph LLP's representatives contact investors in Sweden by telephone, cold calling.

Courtesy of The Finansinspektionen

Warning against Affinity Group Solutions

Affinity Group Solutions is not authorised by Finansinspektionen (the Swedish Financial Supervisory Authority) and is therefore not entitled to provide financial services.

Affinity Group Solutions has a website (www.affinitygroupsolutions.com) using the following address:

Pobřežní 95/74,
187 00 Prague 8,
Czech Republic.

Affinity Group Solutions' representatives contact investors in Sweden by telephone and offer them to buy shares in an OTC company, Tombstone Exploration Corporation, (TMBXF).

Courtesy of The Finansinspektionen

Not sure if you have been scammed?

Ponzi Style Property Fraud In Italy Uncovered

Major fraud scheme in Italy real estate uncovered

The fraud investigation unit of the Tax Office, the FIOD, has uncovered a major fraud case involving property investments in Italy. The independent supervisory authority for savings, investment and insurance markets (AFM) had reported WSM, a property and project development company, to the Tax Office, claiming that WSM did not conform to the standards set by AFM.

WSM offered to invest in Italian real estate on behalf of 130 private investors. The financial supervisory authority suspected that return on investment was paid with money from new investors. It is estimated that up to ten million euros have been paid by private investors to WSM. The FIOD made two arrests in Amsterdam and Hilversum, after conducting searches in private homes.

The website used by the company was www.wsmbv.com

Story courtesy of Radio Netherlands.

Investment Warning - New York Capital Investment

Investment warning against New York Capital Investment.

New York Capital Investment is not authorised by Finansinspektionen (the Swedish Financial Supervisory Authority) and is therefore not entitled to provide financial services.

New York Capital Investment has a website (www.nycapitalinvestment.com) using the following address:

2 Penn Plaza
44 Wall Street
New York,
NY 10121.

New York Capital Investment's representatives contact investors in Sweden by telephone, cold calling.

Courtesy of The Swedish Financial Supervisory Authority

Find out more about this type unauthorized investment offering.

Sir Allen Stanford Claims "Not a Ponzi Scheme"

'Clients lost no money' said Sir Allen Stanford.

Sir Allen Stanford, accused of an $8b fraud by U.S. regulators, has insisted no money was lost by customers dealing with his financial services companies. In an emotional interview with ABC, the Texan financier wept as he spoke about how much he loved his employees.

He later threatened to punch anyone who repeated allegations that Sir Allen was involved in the laundering of Mexican drug money.

He has already denied any wrongdoing in the case. But the U.S. financial regulator, the Securities and Exchange Commission (SEC), has said Sir Allen is guilty of fraud of “shocking magnitude”, and criminal charges are expected to follow.

By court order, the Texan billionaire is denied access to his own money, and he said the seizure of his assets had left him with little money and few changes of clothing. Even though in the past he has reportedly owned both a castle and an island he insists his lifestyle was always frugal.
Throughout the interview Sir Allen ran rapidly across a wide spectrum of emotion from the mawkish to combative, says the BBC's Kevin Connolly in Washington.

He insisted any attempt to compare his investment companies with those of the disgraced Wall Street financier Bernard Madoff was unfair. He added that customers who have tried to recover their money from his banks have been able to do so.

In one of his more dramatic moments, he said he would “die and go to hell” if his investment plans were proved to be financial pyramid schemes, or Ponzis. “If it was a Ponzi scheme, why are they finding billions and billions of dollars all over the place?” he asked.

Sir Allen came to prominence last year when he sponsored a high-profile Twenty20 cricket tournament, which culminated in a match between England and an all-stars West Indies team that gave each winning player $1m.

His property in the Caribbean state of Antigua and Barbuda, where many of his business interests are based, has already been seized by the islands' government.

Courtesy of The BBC

Think you might be a victim of a Ponzi Scheme?

FBI Comments on Investment Property Fraud

John S. Pistole. Deputy Director Federal Bureau of Investigation
Statement Before the House Committee on the Judiciary
April 1, 2009.

Good morning Mr. Chairman, Ranking Member, and Members of the Committee. I want to thank you for the opportunity to testify before you today about the Federal Bureau of Investigation’s (FBI) efforts to combat mortgage fraud and other financial frauds. Much the same as the Savings and Loan (S&L) Crisis of the 1980s crippled our economy, so too has the current financial crisis. Many of the lessons learned and best practices from our work during the past decade, such as the Enron investigation, will clearly help us navigate the expansive crime problem currently taxing law enforcement and regulatory authorities.

In the late 1980s and early 1990s, the United States experienced a similar financial crisis with the collapse of the savings and loans. The Department of Justice (DOJ), and more specifically the FBI, were provided a number of tools through the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and Crime Control Act of 1990 (CCA) to combat the aforementioned crisis. As stated in Senate Bill 331 dated January 27, 2009, “in the wake of the Savings and Loan crisis of the 1980s, a series of strike forces based in 27 cities was staffed with 1000 FBI agents and forensic experts and dozens of federal prosecutors. That effort yielded more than 600 convictions and $130,000,000 in ordered restitution.”

However, today’s financial crisis dwarves the S&L crisis as financial institutions have reduced their assets by more than $1.2 trillion related to the current global financial crisis compared to the estimated $160 million lost during the S&L crisis. Mortgage and related corporate fraud were not the sole sources of the current financial crisis; however, it would be irresponsible to neglect mortgage fraud’s impact on the U.S. housing and financial markets.

As the FBI’s Assistant Director for the Criminal Division testified in 2004 before the House Financial Services Sub-Committee: “If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market. Investors may lose faith and require higher returns from mortgage backed securities. This may result in higher interest rates and fees paid by borrowers and limit the amount of investment funds available for mortgage loans.”

He also noted that the FBI supported new approaches to address mortgage fraud and its effects on the U.S. financial system, to include:

• a mechanism to require the mortgage industry to report fraudulent activity,
• and the creation of “ Safe Harbor” provisions to protect the mortgage industry under a mandatory reporting mechanism.

What has occurred has been far worse than predicted. Mortgage fraud and related financial industry corporate fraud have shaken the world’s confidence in the U.S. financial system. The fraud schemes have adapted with the changing economy and now individuals are preyed upon even as they are about to lose their homes. But what is mortgage fraud?

Although there is no specific statute that defines mortgage fraud, each mortgage fraud scheme contains some type of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.

The FBI delineates mortgage fraud in two distinct areas:

1) Fraud for Profit; and

2) Fraud for Housing.

Fraud for Profit uses a scheme to remove equity, falsely inflate the value of the property or issue loans relating to fictitious property(ies). Many of the Fraud for Profit schemes rely on “industry insiders”, who override lender controls. The FBI defines industry insiders as appraisers, accountants, attorneys, real estate brokers, mortgage underwriters and processors, settlement/title company employees, mortgage brokers, loan originators, and other mortgage professionals engaged in the mortgage industry.

Fraud for Housing represents illegal actions perpetrated by a borrower, typically with the assistance of real estate professionals. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding the borrower’s income or employment history to qualify for a loan.

The FBI compiles data on mortgage fraud through Suspicious Activity Reports (SARs) filed by financial institutions and through the Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) reports. The FBI also receives complaints from the industry at large.

While a significant portion of the mortgage industry is void of any mandatory fraud reporting and there is presently no central repository to collect all mortgage fraud complaints, SARs from financial institutions have indicated a significant increase in mortgage fraud reporting. For example, during Fiscal Year (FY) 2008, mortgage fraud SARs increased more than 36 percent to 63,173. The total dollar loss attributed to mortgage fraud is unknown. However, 7 percent of SARs filed during FY 2008 indicated a specific dollar loss, which totaled more than $1.5 billion. Only 7 percent of SARs report dollar loss because of the time lag between identifying a suspicious loan and liquidating the property through foreclosure and then calculating the loss amount. As of February 28, 2009, there were 28,873 mortgage fraud SARs filed in fiscal year 2009.

Fraud Trends

The current financial crisis has produced one unexpected consequence: it has exposed prevalent fraud schemes that have been thriving in the global financial system. These fraud schemes are not new but they are coming to light as a result of market deterioration. For example, current market conditions have helped reveal numerous mortgage fraud, Ponzi schemes and investment frauds, such as the Bernard Madoff scam. These schemes highlight the need for law enforcement and regulatory agencies to be ever vigilant of White Collar Crime both in boom and bust years.
The FBI has experienced and continues to experience an exponential rise in mortgage fraud investigations. The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 2,000. In addition, the FBI has 566 open corporate fraud investigations, including matters directly related to the current financial crisis. These corporate and financial institution failure investigations involve financial statement manipulation, accounting fraud and insider trading. The increasing mortgage, corporate fraud, and financial institution failure case inventory is straining the FBI’s limited White Collar Crime resources.

Although there are many mortgage fraud schemes, the FBI is focusing its efforts on those perpetrated by industry insiders who are part of organized enterprises engaged in Mortgage Fraud for Profit. Industry insiders are of priority concern as they are, in many instances, the facilitators that permit the fraud to occur. The FBI utilizes SAR data to help identify fraud schemes perpetrated by insiders. However, SAR data does not capture suspicious activity identified by the entire mortgage industry. Requiring the entire industry to report suspicious activity would give us a more complete data set to exploit. The FBI is engaged with the mortgage industry in identifying fraud trends and educating the public. Some of the current rising mortgage fraud trends include: equity skimming, property flipping, mortgage identity related theft, and foreclosure rescue scams.

Equity skimming is a tried and true method of committing mortgage fraud and criminals continue to devise new schemes. Today’s common equity skimming schemes involve the use of corporate shell companies, corporate identity theft and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors.

Property flipping is nothing new; however, once again law enforcement is faced with an educated criminal element that is using identity theft, straw borrowers and shell companies, along with industry insiders to conceal their methods and override lender controls.

Identity theft in its many forms is a growing problem and is manifested in many ways, including mortgage documents. The mortgage industry has indicated that personal, corporate, and professional identity theft in the mortgage industry is on the rise. Computer technology advances and the use of online sources have also assisted the criminal in committing mortgage fraud. However, the FBI is working with its law enforcement and industry partners to identify trends and develop techniques to thwart illegal activities in this arena.

Foreclosure rescue scams are particularly egregious in that fraudsters take advantage and illegally profit from other individuals’ misfortunes. As foreclosures continue to rise across the country, so too have the number of foreclosure rescue scams that target unsuspecting victims. These scams include victims losing their home equity or paying thousands of dollars in fees, and then receiving little or no services, and ultimately losing their home to foreclosure. The FBI is again working with our law enforcement and regulatory partners along with industry partners to target, disrupt and dismantle the individuals and/or companies engaging in these fraud schemes.

Proactive Approach to Financial Frauds

The FBI has implemented new and innovative methods to detect and combat mortgage fraud. One of these proactive approaches was the development of a property flipping analytical computer application, first developed by the Washington Field Office, to effectively identify property flipping in the Baltimore and Washington areas. The original concept has evolved into a national FBI initiative which employs statistical correlations and other advanced computer technology to search for companies and persons with patterns of property flipping. As potential targets are analyzed and flagged, the information is provided to the respective FBI field office for further investigation. Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. The artificially valued properties are then sold at a higher price to an associate of the “flipper” at a substantially inflated price. Often flipped properties go into foreclosure and are ultimately repurchased for a fraction of their original value.

Other methods employed by the FBI include sophisticated investigative techniques, such as undercover operations and wiretaps. These investigative measures not only result in the collection of valuable evidence, they also provide an opportunity to apprehend criminals in the commission of their crimes, thus reducing loss to individuals and financial institutions. By pursuing these proactive methods in conjunction with historical investigations, the FBI is able to realize operational efficiencies in large scale investigations.

In December 2008, the FBI dedicated resources to create the National Mortgage Fraud Team at FBI headquarters in Washington, D.C. The Team has the specific responsibility for all management of the mortgage fraud program at both the origination and corporate level. This Team will be assisting the field offices in addressing the mortgage fraud problem at all levels. The current financial crisis, however, has required the FBI to move resources from other white collar crime and criminal programs in order to appropriately address the crime problem. Since January 2007, the FBI has increased its agent and analyst manpower working mortgage fraud investigations. The Team provides tools to identify the most egregious mortgage fraud perpetrators, prioritize pending investigations, and provide information to evaluate where additional manpower is needed.

Partnerships

One of the best tools the FBI has in its arsenal for combating mortgage fraud is its long-standing partnerships with other federal, state and local law enforcement. This is not a new tool employed by the FBI. Collaboration, communication, and information-sharing have long been a proven solution to the nation’s most difficult crimes. In response to a growing gang problem, for example, the FBI stood up Safe Streets Task Forces across the country. In response to crimes in Indian Country, the FBI developed the Safe Trails Task Force Program. In response to this new threat, the FBI stood up Mortgage Fraud Task Forces across the country.

Presently, there are 18 mortgage fraud task forces and 47 working groups in the country. With representatives of federal, state, and local law enforcement, these task forces are strategically placed in areas identified as high threat areas for mortgage fraud. Partners are varied but typically include representatives of HUD-OIG, the U.S. Postal Inspection Service, the Internal Revenue Service, FinCEN, the Federal Deposit Insurance Corporation, as well as State and local law enforcement officers across the country.

While the FBI has increased the number of agents around the country who investigate mortgage fraud cases from 120 Special Agents in FY 2007 to currently over 250 Special Agents as of February 28, 2009, this multi-agency model serves as a force-multiplier, providing an array of resources to adequately identify the source of the fraud, as well as finding the most effective way to prosecute each case, particularly in active markets where fraud is widespread. We are pleased to report that the model is working.

Last June, for example, we worked closely with our partners on “Operation Malicious Mortgage” – a massive multiagency takedown of mortgage fraud schemes involving more than 400 defendants nationwide. That operation focused primarily on three types of mortgage fraud: lending fraud, foreclosure rescue schemes, and mortgage-related bankruptcy schemes. Among the 400-plus subjects of “Operation Malicious Mortgage”, there have been 164 convictions and 81 sentencings so far for crimes that have accounted for more than $1 billion in estimated losses. Forty-six of our 56 field offices around the country took part in the operation, which has resulted in the forfeiture and/or seizure of more than $60 million in assets.

In addition to the effort placed in standing up mortgage fraud task forces, the FBI is one of the DOJ participants in the national Mortgage Fraud Working Group (MFWG), which DOJ chairs. The MFWG represents the collaborative effort of multiple Federal agencies and facilitates the information sharing process across the aforementioned agencies, as well as private organizations. Together, we are building on existing FBI intelligence databases to identify large industry insiders and criminal enterprises conducting systemic mortgage fraud.

The FBI is also a member of the President’s Corporate Fraud Task Force which is comprised of investigators from the Securities and Exchange Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, the Commodity Futures Trading Commission, and the FinCEN. The purpose of the Corporate Fraud Task Force is to maximize intelligence sharing between membership agencies and to ensure the violations related to corporate fraud are appropriately addressed. The FBI also participates in the Securities and Commodities Fraud Working Group, a national interagency coordinating body established by DOJ to provide a forum for exchanging information and discussing violation trends, law enforcement issues and techniques. In addition, since April 2007, FBI headquarters personnel have met with representatives from the Securities and Exchange Commission once a month to coordinate the respective Corporate Fraud inventories focused on the current financial crisis and to share intelligence.

Industry Liaison

In addition to its partners in law enforcement and regulatory areas, the FBI also continues to foster relationships with representatives of the mortgage industry to promote mortgage fraud awareness. The FBI has spoken at and participated in various mortgage industry conferences and seminars, including those sponsored by the Mortgage Bankers Association (MBA).
To raise awareness of this issue and provide easy accessibility to investigative personnel, the FBI has provided contact information for all FBI Mortgage Fraud Supervisors to relevant groups including the MBA, Mortgage Asset Research Institute, Fannie Mae, Freddie Mac and others. Additionally, the FBI is collaborating with industry to develop a more efficient mortgage fraud reporting mechanism for those not mandated to report such activity. The FBI supports providing a “safe harbor” for lending institutions, appraisers, brokers and other mortgage professionals similar to the provisions afforded to financial institutions providing SAR information. The “ Safe Harbor” provision would provide necessary protections to the mortgage industry under a mandatory reporting mechanism. This will also better enable the FBI to provide reliable mortgage fraud information based on a more representative population in the mortgage industry.

Lenders are painfully aware that fraud is affecting their bottom line. Through routine interaction with FBI personnel, industry representatives are aware of our commitment to address this crime problem. The FBI frequently participates in industry sponsored fraud deterrence seminars, conferences and meetings which include topics such as quality control and industry best practices to detect, deter, and prevent mortgage fraud. These meetings play a significant role in training and educating industry professionals. Companies share current and common fraud trends, loan underwriting weaknesses and best practices for fraud avoidance. These meetings also increase the interaction between industry and FBI personnel.

Additionally, the FBI continues to train its personnel and conduct joint training with HUD-OIG and industry on mortgage fraud. As a training model, the FBI seeks industry experts to assist in its internal training programs. For example, industry has assisted training FBI personnel on mortgage industry practices, documentation, laws and regulations. Industry partners have offered to assist the FBI in developing advanced mortgage fraud investigative training material and fraud detection tools.

Conclusion

Mr. Chairman, the FBI remains committed to its responsibility to aggressively investigate significant financial crimes which include mortgage fraud. We will continue to work with the Office of Management and Budget, and the Congress to ensure that adequate resources are available to address these threats. To maximize our current resources, we are relying on intelligence collection and analysis to identify emerging trends to target the greatest threats. We also will continue to rely heavily on the strong relationships we have with both our law enforcement and regulatory agency partners.The FBI looks forward to working with you and other members of this committee on solving this serious threat to our nation’s economy. Thank you for allowing me the opportunity to testify before you today. I look forward to taking your questions.

Courtesy of the FBI

Practical Property Portfolio - Fraud Hearing

Gateshead firm's bosses conned investors in property scam
By Matt McKenzie (Sundaysun.co.uk)

Five company directors funded a lavish lifestyle by ripping off investors during a multimillion-pound property scam, a court heard today. John Potts, Peter Gosling, Natalie Laverick, Eric Armstrong and Peter Graham conned investors out of an estimated £80m.

The five did not just feather their own nests they also ensured the loyalty of staff at Gateshead-based Practical Property Portfolio with plush offices, large salaries and generous bonuses.
Nicholas Dean QC, prosecuting, told Newcastle Crown Court: "The prosecution are not suggesting that these defendants set up the investment scheme as a fraud from the start. The scheme became a fraud for one main reason - the defendants, and particularly Potts, were both greedy and careless."

"Their greed meant that the scheme became a fraud and could only be continued as a fraud."
"Greed, driven by Potts, meant that income became the focus of PPP’s business at the expense of prudent acquisition, refurbishment and management of property."
"The extravagant use of investors’ funds extended to most aspects of administration of PPP particularly in the form of excessive wages, bonuses and commissions paid to staff."
"The defendants bought loyalty and hard work from employees and also achieved a willingness amongst some employees to turn a "blind eye" to the shortcomings of the scheme."
"Above all the defendants rewarded themselves very generously."

The defendants had faced a four-month trial at Newcastle Crown Court charged with conspiracy to defraud between January 2001 and March 2003 when PPP was closed down.
However, last month Potts, 60, of Silksworth Hall Drive, Sunderland; Gosling, 57, of Rothbury Gardens, Lobley Hill; and Laverick, 28, also of Silksworth Hall Drive, admitted the conspiracy charge.

Graham, 62, of Topcliffe, Sunderland, admitted three counts of fraudulent trading and Armstrong, 55, of Moorside North, Fenham, Newcastle, two fraudulent trading counts.
Today they returned to Newcastle Crown Court for the start of a three-day sentencing hearing.
The court was told that during the period of the conspiracy, investors were persuaded by false and misleading information to invest in the company which bought houses and flats - many in run-down areas - for refurbishment.

But scores of investors were to discover properties - across the North East, Yorkshire and Lancashire - had not been renovated or tenanted and were sometimes derelict or even burnt-out shells.
"The vast majority of investors never saw the property they were allocated and relied upon the literature and what they were shown by salesmen - it is clear we say that the salesmen only showed potential investors properties that would create a favourable impression," said Mr Dean.
Mr Dean said that Potts "oozed warmth and confidence'' in order to seal a deal with a potential investor.

One investor, Margaret Patrick, had bought a property in Gower Street, Sunderland, for £25,000. She was later to discover when visiting it with her husband Philip, that it was burnt out following a gas explosion and the rest of the houses on the road had also been bought by PPP.
"Mr and Mrs Patrick visited 20 Gower Road on September 29, 2002 - they found a burnt out derelict shell of a house in a street of burnt out derelict shells," said the prosecutor.

The video the Patricks made of their visit to the abandoned street - showing graffiti of "The Gazza Strip" (sic) sprayed on a wall - was played to the court today. Another investor, chartered accountant Brian Fox, who lost around £500,000 in the scam, even took senior managers from the now-collapsed HBOS Group to a meeting with PPP to consider investments.
"He attended (a meeting) with a representative of the Bank of Scotland, who were considering investing with Mr Fox - a glimpse too of how banks became involved in the acquisition of "toxic" assets," said Mr Dean.

Many investors learnt of the scam only when the Department of Trade intervened, because they lived outside the North East or even abroad and had never seen the properties concerned.
The company attracted around 1,750 investors, many of whom lost significant sums - including Mr Fox who was conned out of £500,000 and others who lost their life savings.
At the time the company was wound up, investor claims totalled £16m. However, PPP had claimed that its portfolio of 3,211 properties was worth £80m - meaning each property was worth around £25,000, which equalled the cost of a single investment.
PPP and its spin-off firms used adverts in national newspapers, brochures and a slick sales pitch to persuade investors to part with their money.

The court heard that PPP had been set up in the late 1990s and its offices were based at the Team Valley Trading Estate in Gateshead. Alan Trevitt, who was an early investor in setting up the company before leaving prior to the fraud starting, told investigators of how Potts operated.
He describes Potts as "having total control over the running of the company and he made all the decisions," said Mr Dean.

"Gosling did everything he was told including acting as Potts’ chauffeur when Potts wanted to impress clients." "Trevitt thought Gosling was a pleasant but weak individual who did exactly as he was told by John Potts." The former Department of Trade and Industry closed down PPP and its associated companies after a High Court petition. The prosecutions were brought by the Serious Fraud Office, who carried out a four-year investigation in conjunction with Northumbria Police’s economic crime unit.

The hearing was adjourned until tomorrow.

Madofff's arm to be sold.

Arm of Madoff's firm set to be sold to Castor Pollux

NEW YORK (Reuters) - The market-making arm of jailed swindler Bernard Madoff's firm is set to be sold to Castor Pollux, a Boston financial company, for $500,000 plus future payments of up to $15 million, according to a statement by a court-appointed trustee.

Madoff, 70, pleaded guilty on March 12 to running the biggest investment fraud in Wall Street's history, which prosecutors have said involved as much as $65 billion. His Bernard L. Madoff Investment Securities LLC had a market-making business and an investment advisory business. The fraud took place in the investment arm but the entire operation is still under investigation.
Now, unless a better bid emerges in an auction that is being overseen by a bankruptcy judge, the market-making business will be sold to Castor Pollux, the designated "stalking horse" in the bidding process.

Under the current bid, Castor Pollux would buy the infrastructure and intellectual property of the business. The sale would exclude cash and securities related to the business. Castor Pollux would pay $500,000 right away, then make payments of up to $15 million based on certain criteria through 2012, according to the statement by the court-appointed trustee. The court-appointed trustee Irving Picard, a New York lawyer, noted the difficulty of selling the division.
"We have faced many challenges in this process," he said in a statement. "The initial proceeds reflect that the business has not been operational since December 12 and that significant capital is required to restart operations."

Picard is working with the Securities Investor Protection Corp (SIPC) to recover as much of Madoff's assets as possible to sell or collect money to give to his defrauded customers.
The trustee said this week that so far he has located just more than $1 billion. SIPC was established by Congress in 1970 to maintain a reserve for investors of failed brokerages.

Courtesy of Reuters