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Chinese authorities accused an online financing platform of bilking mostly small investors of more than 50 billion yuan ($7.6 billion) through a Ponzi scheme — the latest allegation of fraud against a loosely regulated part of China’s financial-products market, the Wall Street Journal reported today. The charges, reported by the government’s Xinhua News Agency today, are the first official allegations against Ezubo Ltd., whose implosion last year touched off demonstrations in Beijing and several other cities. Part of the boom in peer-to-peer platforms — which connect lenders and borrowers — Ezubo had grown quickly pitching high-yielding investments as the economy slowed. Police have arrested 21 suspects linked to Ezubo and its parent, Yucheng International Holdings Group Ltd., on charges including illegally soliciting funds from the public and fraud, the Xinhua report said, adding that prosecutors are seeking restitution for 900,000 investors. Read more. (Subscription required.) 

For further analysis of commercial fraud cases, be sure to pick up ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

A New Jersey man has been sentenced to six years in prison for running a scam that victimized distressed homeowners and private investors, NationalMortgageNews.com reported yesterday. Randy Poulson was accused of netting about $3 million in illegal profits from his fraudulent scheme, according to a Justice Department news release. Poulson, working through his businesses Equity Capital Investments, Poulson Russo LLC and South Jersey Real Estate Investors Associates, lured victims into attending his paid seminars on real estate. His scheme also included promises to pay the mortgages of homeowners who faced foreclosure, if they sold him their homes. After obtaining the deed, he would then stop making mortgage payments, causing the loans to default. Read more. 

For further analysis of commercial fraud cases, be sure to pick up ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

The Commonwealth of Virginia announced Friday that it reached a “record” settlement with 11 banks over allegations that the banks defrauded the state’s retirement system by allegedly misrepresenting the quality of residential mortgage-backed securities in the run-up to the financial crisis, HousingWire.com reported on Friday. According to the office of Virginia Attorney General Mark Herring, the $63 million settlement is the largest non-healthcare-related recovery ever obtained in a suit alleging violations of the Virginia Fraud Against Taxpayers Act. According to Herring’s office, Virginia initially sought to recover $383 million in alleged damages, including $250.66 million of realized losses.

Martin Shkreli is looking for new lawyers to help him fight securities fraud charges, Bloomberg News reported yesterday.  Attorneys for the former drug executive filed a letter in Brooklyn, New York, federal court saying their client has indicated he wants new counsel. The lawyers asked to delay a status conference set for today. The lawyers said issues arose over the holiday weekend. On Jan. 17, Shkreli allowed a reporter for New York’s Fox 5 TV station to come to his apartment for an interview in which he complained about being called a “pharma bro” in the press. He described the criminal case against him as “fictitious.”

The trustee liquidating the Bernard Madoff Ponzi scheme under the Securities Investor Protection Act won an appellate victory in Manhattan District Court upholding the bankruptcy court-approved method for calculating customers’ claims involving inter-account transfers, ABI’s Rochelle Daily Wire reported today. In his 53-page opinion on Jan. 14, U.S. District Judge Paul A. Engelmayer said that the approach proposed by Madoff trustee Irving Picard was the “only method” consistent with the Second Circuit’s so-called net equity opinion in 2011. Judge Engelmayer’s decision upheld the trustee’s methodology in objecting to more than 400 customer claims. Madoff pretended to be investing customers’ funds by purchasing securities. However, he never purchased a single share of stock. Consequently, all the profits shown on customers’ account statements were fictitious. In its 2011 net equity decision, the Second Circuit upheld the trustee and ruled that a customer’s proper claim must ignore the account statements. Instead, each allowed claim equals the customer’s cash investment less amounts withdrawn, thus ignoring fictitious profits. The 2011 decision did not address the method to employ when a customer transferred money from one Madoff account to another. Read more. 

For further analysis of fraud and forensics in a commercial bankruptcy case, including the Madoff case, be sure to pick up ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case. 

A former Switzerland-based investment manager who put money into funds tied to Bernard Madoff’s fraud and blamed losses on the collapse of MF Global Holdings Ltd. is liable for almost $500 million in fines and restitution, Bloomberg News reported yesterday. A U.S. judge in Chicago rendered the award on Jan. 11, more than three years after the U.S. Commodity Futures Trading Commission sued Nikolai Battoo and his businesses, accusing them of fraud. A former Florida resident, Battoo never contested the regulator’s lawsuit filed in September 2012, nor did he fight a parallel lawsuit filed in the same court on the same day by the U.S. Securities and Exchange Commission. Battoo ran a group of investment businesses under the common banner of BC Capital Group. Through his firms, he persuaded about 250 “pool participants” to invest at least $140 million in his Private International Wealth Management portfolios, according to U.S. District Judge Edmond Chang. “The defendants committed fraud in 2008 by failing to disclose the PIWM pools’ significant exposure to the Bernard Madoff ponzi scheme as well as trading losses suffered by other of Battoo’s hedge funds in which the PIWM pools were invested,” the CFTC said yesterday. Read more.

For further analysis of fraud and forensics in a commercial bankruptcy case, be sure to pick up ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case.

Investors who backed a biotechnology company led by executive Martin Shkreli are suing to get back the $5.4 million they had invested just hours before his arrest, Reuters reported yesterday. Shkreli took control of KaloBios Pharmaceuticals Inc in November, saving the company from closing down. He became its chief executive on Nov. 20. As part of Shkreli's rescue, the company reached a deal with three individuals and two funds to invest $5.4 million in it under an agreement that KaloBios said was completed on Dec. 16. On Dec. 17, Shkreli was arrested for allegedly engaging in a Ponzi-like scheme at his former hedge fund and Retrophin Inc, a pharmaceutical company he previously headed. KaloBios' outside counsel, Evan Greebel, was also arrested, and on Dec. 29 KaloBios filed for bankruptcy.