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The Securities and Exchange Commission yesterday announced charges against Edward Espinal, of Wayne, N.J., and his company, Cash Flow Partners LLC, in connection with an alleged $5 million Ponzi scheme that defrauded at least 90 investors, many of whom were members of the Hispanic community, according to a SEC press release. The SEC’s complaint alleges that from at least July 2016, Espinal and Cash Flow Partners deceived investors into believing that they were investing in a pooled fund that would purchase and renovate houses, and then flip the houses for profit. Espinal and Cash Flow Partners allegedly guaranteed investors rates of return between 1.25 percent and 4 percent per month. The complaint alleges that, in reality, Cash Flow Partners’ purported real estate “fund” owned only two residential properties, neither of which were ever sold.  Instead, Espinal allegedly used money from new investors to pay monthly “returns” to other investors, to bankroll his personal living expenses, and to sustain his separate fraudulent bank loan scheme.

An Arizona businessman who once held a minority stake in the National Football League’s Minnesota Vikings is likely to admit next month that he took part in running an illegal shadow bank for cryptocurrency traders, according to a court filing, Bloomberg News reported. A federal judge in New York agreed to hold a hearing Jan. 10 to let Reginald Fowler change his plea — an indication that he probably intends to plead guilty to at least some of the charges he faces. Fowler pleaded not guilty in May to charges he and an Israeli woman, Ravid Yosef, ran an unlicensed money-transmitting operation tied to virtual currency trading. Yosef remains at large. According to prosecutors, Fowler and Yosef lied to banks to open accounts and processed hundreds of millions of dollars through the U.S. financial system on behalf of cryptocurrency exchanges. That way they skirted money-laundering safeguards that licensed institutions have to follow, prosecutors said.

The federal government should establish a national financial fraud registry to make it easier for prosecutors and investors to identify repeat offenders, according to a top law enforcement official, the Washington Post reported. “It is about public safety and deterrence. Financial institutions hold a place of trust, they are so interwoven in people’s lives,” said Christy Goldsmith Romero, special inspector general with the Troubled Asset Relief Program, which investigates crime at companies that received taxpayer bailouts during the global financial crisis. But “there is no easy access to information when trying to determine where to investigate.” The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), launched its own database for financial crimes today. The searchable database includes details of nearly 400 criminal convictions, guilty pleas and fines secured by SIGTARP over the past decade.

Bernard Ebbers, the former WorldCom Inc. chief executive officer, was ordered freed from prison, almost eight years before he was due to be released, Bloomberg News reported. A federal judge in Manhattan yesterday granted compassionate release to Ebbers, who has served more than 13 years of a 25-year sentence for orchestrating an $11 billion accounting fraud that bankrupted the company. U.S. District Judge Valerie E. Caproni said Ebbers’s health is failing and that letting him out early doesn’t minimize the impact of his punishment. Ebbers was sentenced in 2005 for overseeing the fraud, which hid costs and shifted reserves to boost the company’s profits. After the scheme came to light, investors lost $180 billion in what was the largest bankruptcy in U.S. history in July 2002. The former CEO was scheduled to be released in July 2028 with credit for good behavior. It isn’t immediately clear when he will leave prison.

The U.S. Supreme Court asked for the Trump administration’s views on a $3 billion appeal from foreign financial institutions that took stolen money from Bernard Madoff’s Ponzi scheme, WSJ Pro Bankruptcy reported. The justices yesterday asked the U.S. solicitor general to weigh in on whether the trustee cleaning up after Madoff’s Ponzi scheme can pursue tainted cash that was sent to offshore investment funds, then passed on to European banks and other foreign recipients. Irving Picard, the trustee cleaning up after the Ponzi scheme, has long maintained that under U.S. bankruptcy law, he can recoup stolen money that passed between foreign institutions before the $20 billion fraud was discovered. Banks including HSBC Holdings PLC and several Caribbean governments have fought Picard’s efforts, saying that transfers occurring entirely outside U.S. borders are beyond his grasp. Picard has recouped more than $13 billion in Ponzi scheme proceeds over the past decade, arguing that money withdrawn from Madoff’s phantom investment firm should help repay average investors who came out as net losers when the fraud collapsed in 2009. Madoff pleaded guilty to running the largest Ponzi scheme in history and is serving a 150-year prison sentence in North Carolina. Read more. 

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

The ailing former Bayou hedge fund manager Samuel Israel has lost his bid for an early end to his 22-year prison sentence for running a $450 million fraud, as a U.S. judge found it would make a “mockery” of federal sentencing laws to set him free, Reuters reported. Chief Judge Colleen McMahon of the U.S. District Court in Manhattan said she had no doubt the 60-year-old Israel, who has spent 11 years in prison, suffers from severe, progressive and incurable medical problems, and was “certainly not a well person.” But she called Israel’s fraud from 1996 to 2005 “extremely serious,” one of the largest Ponzi schemes uncovered before Bernard Madoff’s, and said he did not deserve “compassionate release” though he could get better medical care outside prison. “It would make a mockery of the sentencing statute if this financial fraudster, who ruined the lives and finances of hundreds of people while living the high life of an ostensibly successful hedge fund manager, were to have his sentence reduced,” McMahon wrote. The judge blacked out Israel’s medical problems from her 29-page decision. McMahon had in August 2014 rejected Israel’s prior request for a shorter sentence because of ill health. Bayou went bankrupt in May 2006. Israel pleaded guilty in September 2005 to defrauding Bayou investors, and was originally sentenced by McMahon to 20 years in prison. But rather than surrender as scheduled in June 2008, Israel faked his own suicide by leaving his GMC Envoy on the Bear Mountain Bridge north of New York City, with the words “suicide is painless” scrawled in dust on the hood. He surrendered the following month, and another judge tacked on two years in prison for bail-jumping.