Colorado Business Litigation Lawyer Blog

Gary Noble, 31, of Denver, Colorado, was indicted by a federal grand jury in a 63-count wire fraud scheme, whereby Noble, through various companies he controlled, had his relatives purchase homes with loans obtained from commercial lenders through the use of false and fraudulent documents.

Noble had his relatives buy the homes through Noble Mortgage Company. Another of his companies, Noble Title Agency, issued title insurance commitments purporting to show that the purchasers were purchasing the properties free and clear of any prior loan encumbrances. Any such prior loans were to be paid off from the loan proceeds obtained from the mortgage lenders. Noble Title agency acted as settlement agent for the lenders. Instead of paying-off the prior mortgages from the loan proceeds, portions of the loan proceeds were appropriated by Noble to his own use and benefit. In many cases, the properties were resold shortly after their purchase to Noble’s and his family’s associates.

Noble was arrested in California on June 3, 2010, and is free on bond, pending a court date in Denver Federal Court on June 18. A conviction on each count of the indictment could result in as much as a 20-year prison term and/or a fine of $250,000. The court can also order that restitution (repaying the allegedly ill-gotten money) be made by Noble.

Judge Stephen Victor Wilson, U.S. District Judge in the Central District of California, on April 20, 2010, dismissed a complaint filed by persons who claim they were defrauded by Bernard Madoff’s pyramid scheme.

The investors’ complaint alleges that the Securities and Exchange Commission (SEC) woefully failed to discover Madoff’s scheme long before Madoff confessed that he was running a pyramid scheme and had defrauded investors of amounts totaling billions of dollars.

Readers will recall that I previously wrote about the SECs inaction, incompetence and inexperience in its failure to discover Madoff’s illegal investment scheme. To refresh your recollection on the details of those articles click here and here.

Judge Wilson, in effect, says that the SECs manner of investigation, even assuming “sheer incompetence,” was permissible and protected, given that its actions and failure to act were protected by the “discretionary exception” to the Federal Tort Claims Act. In other words, if the statutes creating and controlling the SEC require discretionary (may act) as opposed to mandatory (must act) powers, those acts or failure to act do not expose the SEC to any liability.

It is expected that the decision will be appealed by the plaintiffs to the U.S. Court of Appeals for the Ninth District.

I will follow this case in the event of an appeal.

Continue reading "California Federal Court Dismisses Investors’ Lawsuit Against SEC for Madoff Losses" »

In an April 28, 2010 Senate subcommittee hearing, Senator Carl Levin (D-Mich.) grilled Daniel Sparks, former head of Goldman Sachs mortgage department, about an email that Sparks received from Thomas Montag, Goldman’s former head of sales and trading. In the June 22, 2007 email, Montag made reference to a series of mortgage-backed investments Goldman was selling to its customers as one “shi**y deal.” Sen. Levin noted that even after the date of the email Goldman continued to sell the same investments to customers. Quite naturally, Goldman officials didn’t tell those customers that it was a shi**y deal.

Sparks continued to deny that the email said precisely what it meant. Instead, he claimed that the email had to be put into context. Sen. Levin observed that the context was “mighty clear,” and asked Sparks if he was at all bothered by the fact that Goldman continued to sell the investments after June 22 with knowledge that it was a bad (fooled you!) deal for the customer.

If corporate greed makes you wince, in the immediate future you should refrain from watching TV and reading newspapers.

Continue reading "Sen. Levin Knows a Shi**y Deal When He Sees One" »

We all know by now what a Ponzi scheme is. Some sharp hedge fund manager or other investment guru sells fund shares, usually to close friends and relatives, and friends and acquaintances of each, promising a higher rate of return than could reasonably be earned in a legitimate investment. Typically, the fund doesn’t generate earnings with which to pay the promised interest to the investors. Instead, money paid in by later investors is used to pay interest to early investors. It doesn’t take much imagination to deduce that this house of cards, so to speak, eventually will collapse. When it does, typically nobody gets paid back.

The Security and Exchange Commission (SEC) is the body with authority to investigate these monetary funds. The SEC can impose huge fines on these bogus companies and freeze and seize their assets. Unfortunately, recent history has shown that the performance of the SEC leaves much to be desired. Click here to read about the breathtakingly inept and careless oversight that the SEC exercised in the Bernard Madoff debacle. To make matters even worse, it recently has been discovered that high level SEC staffers were busy watching porn on their government computers instead of doing the job for which they were hired. One lawyer watched as many as 8 hours of porn during the day.

Now comes an April 28, 2010 Denver Post article that reports that yet another $122 million Ponzi scheme has been discovered operating in Colorado. Sean Miller, a Greenwood Village-based hedge fund manager, said he was the only person involved in the wrongdoing. Although phony financial statements claimed $120 million in assets, there was actually only $15 million in a Morgan Stanley account.

As in all con games, experts say the so-called victims are oftentimes not victims at all. Lured by the promises of unusually high rates of return, these “victims” rarely ask questions about why the investment is consistently making investors so much money.

Will this never end?

Here we go again. Another Wall Street giant has been accused of defrauding its investors. Goldman Sachs & Co., a global investment banking and management firm, allegedly failed to disclose conflicts of interest in mortgage investments it sold during the failing housing market. Fabrice Tourre, a Goldman Sachs vice president, has also been charged by the SEC for his involvement. The Securities and Exchange Commission announced the charges last Friday.

According to Marcy Gordon with the Associated Press, Paulson & Co. is the Goldman Sachs client being investigated. The AP identifies Paulson as “one of the world’s largest hedge funds” and reports them as having paid Goldman approximately $15 million in 2007 for structuring the deals. Losses by investors reportedly exceed $1 billion.

The SEC allegations suggest Goldman failed to disclose to investors that Paulson & Co.
played a part in selecting mortgages and were in a position to profit from the waning mortgage values. Investors were told an independent, objective third party selected the securities.

The Goldman Sachs website reported the following statement today: “The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.”

We will follow the saga and continue to report on it.

Continue reading "Goldman Sachs Faces Civil Fraud Charges" »

As promised, I am following-up on my previous article, "Corruption on Colorado’s North Metro Drug Task Force?"

The Denver Post reported on April 1, 2010 that Dan Tang, prominent owner of a Thornton Chinese restaurant, was sentenced in U.S. District Court to an 18-month prison sentence for his part in financing a marijuana growing operation.

Tang’s attorneys had recommended probation. The U.S. Attorney’s Office had recommended a sentence ranging from 11 to 30 months, which is well below the guideline of 70 to 87 months in prison for this type of offense. According to an Assistant U.S. Attorney, this sentencing concession was made because she believes Tang had a “diminished role’ in the marijuana-growing organization.

Responding to the defense request for probation, the judge said, "I just don't understand why he shouldn't go to jail. . . . If it means discomfort for him, so be it. If it means the [restaurant] business has to perform in different ways, that is a consequence of his criminal conduct."

It should be noted that the growing operation probably could not have operated without Tang’s financial contribution. If this is the “diminished role” the Assistant U.S. Attorney was referring to, it is difficult to imagine what a major role would be.

In July 2009, a Colorado jury found a man guilty of 52 criminal counts, including violations of the Colorado Organized Crime Control Act, for stealing $11 million from the Colorado Department of Revenue.

The man’s girlfriend, a supervisor at the department, took the money through various schemes, including creating false businesses and fake tax returns. The woman said she took the funds at her boyfriend’s urging because she loved him and wanted him to leave his wife.

The man said that he believed the woman was withdrawing the funds from her trust account, a claim that the jury found incredible. The man lost all of the money in 18 months on business ventures, land deals, jewelry, cars and trips. His girlfriend spent none of the money on herself.

The man’s sentence of 58 years in jail was imposed on September 24. His girlfriend pleaded guilty and was sentenced to 24 years in prison. She must also pay $10.8 million in restitution to the state.

The moral of this story is that one should never take that which the tax man has first taken away.

U.S. District Judge Edward J. Lodge, recently issued a preliminary injunction barring Penny Lea Jones of Idaho Falls, Idaho, from preparing federal income tax returns for others, while the lawsuit is pending. The court found that Jones promotes a tax defier scheme that claims large fraudulent tax refunds for customers.

The court found that Jones repeatedly prepared federal income tax returns claiming bogus refunds based on a tax fraud scheme known as the "redemption" scheme. The court held that Jones prepared and filed 333 income tax returns for customers in 2008 and 2009 claiming more than $93 million in fraudulent refunds. The court said that the redemption scheme is based on a frivolous theory that the federal government maintains secret accounts for its citizens, and that taxpayers can gain access to funds in those accounts by issuing IRS 1099-OID forms to their creditors.

The case against Jones is one of seven lawsuits the Justice Department filed across the nation in October 2009 that seek to shut down tax preparers who allegedly promote the redemption scheme. The defendants in those cases allegedly prepared tax returns fraudulently requesting a total of $562.4 million in refunds. Under the scheme, participants file a series of false IRS forms, including tax returns, amended returns, and Forms 1099 (including Form 1099-OID) or Forms W-2, to request fraudulent tax refunds based on phony claims of large income tax withholding.

The Internal Revenue Service (IRS) catches the vast majority of fraudulent redemption-scheme tax refund claims without issuing any refund. Taxpayers who submit the claims face substantial civil monetary penalties, and possible criminal prosecution.

In the past decade, the Justice Department’s Tax Division has obtained more than 435 injunctions against dishonest tax-return preparers and tax-fraud promoters.