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Bank Pays Out for Foreign Currency Ponzi Scheme Investment Fraud

08/07 - (London) - Lloyds TSB is to pay out $12.5m (£6.25m) for its alleged part in a $100m-plus foreign currency scam in the United States.

Though not admitting liability, the British bank has agreed a settlement to compensate victims of the fraud in a US class action suit in the name of Ralph Gonzales, a private investor. Man Financial, the futures and derivatives trader spun out of Man group in July and now called MF Global, has agreed to pay $4.1m in the same case - again without admitting guilt.

The class action alleged that Lloyds TSB, Man Financial and the Californian accountancy firm Kaplan, Swicker & Simha aided and abetted a breach of fiduciary duty and fraud and contravened sections of RICO - the Racketeer Influenced and Corrupt Organisations Act.

Mr Gonzales was one of more than 300 investors who bought into a currency scheme sold between July 1998 and February 2003 by Moshe Leichner and his son Zvi. In messages on internet bulletin boards, the two promised investors they would gain 2-4% a month by foreign currency dealing through their companies - most prominently Midland Euro Exchange. They took in an estimated $130m, including $40m from clients of one Florida investment adviser.

But the Leichners were operating a Ponzi scheme, where high returns are possible only if more and more new investors can be found to put in cash to pay out to scheme members who want to quit.

According to Debra Wong Yang, a Californian federal prosecutor, less than 20% of the money was actually invested. The rest was spent by the Leichners on themselves. They bought boats, houses and luxury cars as well as hiding away millions in secret offshore accounts.

Even though the US regulator, the National Futures Association, had barred Midland Euro from business in October 2001, and Zvi Leichner had been personally suspended in March 2000, the pair continued to enjoy banking and other financial facilities.

In 2003, the Leichners were arrested by the FBI. They pleaded guilty to wire fraud, money laundering and operating an illegal Ponzi scheme. Moshe was sentenced to 20 years, his son to 11 years.

Investors sued organisations they claimed had aided and abetted the Leichners - albeit unwittingly. After the Lloyds TSB and Man settlements, they expect to see about 30% of their money returned.

"The bank admits no liability," Lloyds TSB said. "The settlement has been reached to put an end to the distraction and expense of litigation."

(Guardian Unlimited)

It's Hard to Read a Sociopath

ED QUIOCO - © St. Petersburg Times - 06/08/03

PALM HARBOR - Even beginning investors are taught to avoid an offer that sounds too good to be true, such as one promising limited risk and monthly returns of 2 to 4 percent from exotic investments in foreign currencies.

Yet money manager T of Palm Harbor, who boasts a Harvard MBA and years of investment experience, poured $40-million of his clients' money into just such a venture. Now most of that money may be gone.

T fell for the promises of high returns made by a California company run by a father and son, Moshe and Zvi Leichner. They are in jail in Los Angeles on federal charges of using a Ponzi scheme to swindle more than $77-million from investors nationwide, including T.

It's a nightmare for clients of T's wealth management company. He has about 70 clients, but he won't say much about who they are. "CEO types," he says, some in Florida, most outside the state.

It's also a nightmare for T, who has not been accused of any wrongdoing but struggles to explain how he took such a wrong turn in judgment.

Picking his words with painful deliberation in a recent interview, T said he's always had a gift for knowing when other people were telling him the truth.

"And yet it's clear to me that despite that gift, I was not able to detect the untrustworthiness of that organization."

"They don't care where the money comes from'

T used brains and hard work to build a career that had elements of a classic American success story.

In his youth T won a scholarship to an exclusive boarding school in New Jersey. He graduated from Princeton University, worked on Wall Street and got his MBA.

In 1999, after five years in high-ranking jobs, including director of domestic institutional equity sales, he left to open his own wealth management firm.

T managed $137-million for 67 clients, according to forms he filed two years ago with the Securities and Exchange Commission as a registered investment adviser. He indicated in the filing that all his clients gave him discretion to buy and sell investments without their specific approval.

T's mistakes began when he invested $40-million of his clients' money in a North Florida company that, in turn, invested in the company run by Moshe and Zvi Leichner.

T's company plays a central role in the federal case against the Leichners, who face two counts of wire fraud. Both charges involve transactions with T, but officials say the number of victims is growing.

"Some people invested their life savings, and it's completely gone," said Stephen Kramer, special assistant U.S. attorney in the major frauds section for the central district of California. "The Leichners, they just take this money and they don't care where the money comes from."

The Leichners' attorneys declined to comment.

Since learning of the alleged scam, T has spent hundreds of thousands of dollars trying to track down the Leichners' assets. He said he notified his clients of the problem at the end of last year and regularly gives them updates on his efforts.

T and another investor, Donald Richetti, also have sued the Leichners and their company, Midland Euro Exchange. T invested his clients' money through Richetti's investment company, Standing Stones LLC of Ponte Vedra Beach. That company, in turn, invested in Midland Euro.

T met Richetti through a mutual friend in September 2001. Richetti had experience in foreign currency markets, a field that interested T.

At one time, banks and large institutions made up the bulk of the trading in the foreign currency markets. But in 2000, a new federal law opened the market to the public.

That change has attracted con artists and led to problems, said Larry Dyekman, director of communications and education for the National Futures Association in Chicago. Regulating the foreign currency exchange market used to be a small part of the association's job.

"It's the most visible (part) now," he said, adding, "All these scammers are out there taking advantage of investors."

Explaining away a suspension

Investors with Midland Euro were told their money would earn guaranteed monthly profits of 2 to 4 percent. Not only that, from 40 to 85 percent of their initial investment supposedly was guaranteed against loss, according to the FBI.

Investigators say less than 20 percent of clients' money was invested in the foreign currency market. The FBI says the Leichners spent the rest on planes, cars, houses and other personal items.

By the time T came along, Richetti had contracts with the Leichners worth millions. And Richetti spoke highly of Midland Euro.

T said he depended on Richetti to research the Leichners and Midland Euro. Richetti said that at the time he did his research, Midland Euro was "reputed to be one of the best dealer-brokers in the country."

"I did as much due diligence as I knew how to do at the time," Richetti said. "I didn't do anything wrong. didn't do anything wrong. The other investors didn't do anything wrong. We were wronged."

Now, he concedes, "I can see cracks where I should have been more or could have been more aware."

In October 2001, T's company wired $2-million to an overseas account at Lloyds Bank of London to invest in Midland Euro.

Of Richetti's four portfolios, "We elected the most conservative one with the most consistent record and the record with the least volatility," T said.

In November 2001, T met the Leichners in Sherman Oaks, Calif., where they had their offices. They told T that their company was properly registered and assured him he could get his money back five to seven days after sending in a written request.

"If you deal with us, you will be a happy man because we do things right here," Moshe Leichner told T.

But just before that, the National Futures Association had suspended the Leichners and fined them $150,000 for providing the agency with false information and failing to maintain current books and records. Notice of the suspension was posted on the association's Web site.

Richetti, who had already started dealing with Midland Euro, said the mistake was explained to him as an "administrative error." Considering Midland Euro's good reputation, he accepted that.

"You felt good about them," Richetti said. "You felt like you were in the right place. This is the last thing that I thought they would ever do."

Figuring out where the money went

For a while, things went well. Richetti made withdrawals on the accounts with no problems and received his commissions on time.

But that's how Ponzi schemes usually work, said Kramer, the federal prosecutor.

"The early investors are making some money," Kramer said. They, in turn, bring in more investors.

At first, T received weekly e-mailed account statements showing a profit of 2 to 3 percent a month, according to court documents.

The statements were bogus.

A confidential informant told the FBI how Moshe Leichner prepared those statements using a list of clients on a legal pad: "Moshe Leichner would go down the list of names and make comments such as, "We need to get more money from this guy. Let's show a 5 percent gain.' "This guy wants his money back. Let's show a 6 percent loss.' "

Court pleadings quote Moshe Leichner saying, "The object is to take the money and not show the client where it goes."

Between January and November 2002, T sent another $38-million through 23 separate wire transfers to Midland Euro's account in London. But he began to sense something was wrong. He asked repeatedly for an audit to confirm where the money went.

Instead, he got a vague and unsubstantiated letter from an accountant who, it turned out, wasn't registered as a CPA in the United States. When T sent his own auditor to Midland Euro's offices, the computer server suddenly went down. The company promised the documents he wanted would be sent overnight.

They weren't.

"It became clear that we would not be able to get what we needed, which was a full audit," T said. "So we asked for our money back."

In January, Zvi Leichner came to Tampa to meet with Richetti and T. They set up a conference call to his father, who supposedly was in Vienna. But Moshe Leichner was evasive, and later T checked with the conference call center. Instead of Vienna, the call went to Los Angeles.

Confronted with that information, the Leichners promised T and Richetti they would get their money back. They offered reassuring letters. One was on the letterhead of a company that had gone out of business. Another was from a banker who later told the FBI he never heard of the Leichners.

A magistrate court judge has ruled that the Leichners are a flight risk and has denied them bail. The government has until June 12 to turn the charges against them into a formal indictment or get a guilty plea. T said he keeps in close contact with prosecutors in California. He said the case is close to being resolved, with the Leichners helping the government find their assets to help pay off investors.

"The frightening thing is we don't know if it's 30 cents or 90 cents on the dollar," T said. "But I think it's promising."

That, however, doesn't mean the Leichners have made T's life any easier. About a month ago, a private investigator working for the Leichners' attorney dropped by T's office on U.S. 19. Holding out a business card, he told T, "I'm in town to learn more about you."

T said the gall of it made him sick. He sent the guy away.

Note: Victim's name removed upon request.

More info on Midland-Leichner from the bankruptcy trustee.© Crimes of Persuasion 2000Legal Disclaimer

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