Baltimore, MD, June 6, 2019 – Federal authorities were able to stop an ongoing Ponzi scheme that collected $394 million from unknowing investors, and stood to collect hundreds of millions more, thanks to a whistleblower who alerted the US Securities and Exchange Commission about it.
This is the first time the existence of an SEC whistleblower has been confirmed publicly. News stories have simply referred to a “tip” the FBI received.
The whistleblower, who is represented by Phillips & Cohen LLP, played a crucial role in stopping the five-year-old Ponzi scheme. The government says the Ponzi scheme – which started in 2013 and ended when the organizers were arrested last September – was one of the biggest in Maryland’s history.
“This was a very well-run scheme that could have gone on much longer and was set to cause even more people to lose millions if it had not been for our client,” said Peter Chatfield, a whistleblower attorney and partner at Phillips & Cohen. “The Ponzi scheme stole the savings of individual investors and even fooled sophisticated family office and hedge fund investors with an extensive web of lies, dummy corporations and falsified documentation.”
Today in federal district court in Baltimore, Jay B. Ledford, a Texas accountant who was an organizer of the Ponzi scheme, pleaded guilty to conspiracy to commit wire fraud, aggravated identity theft and a money-laundering transaction in excess of $10,000. His sentencing hearing is scheduled for Oct. 29.
His partner in the Ponzi scheme, Kevin Merrill of Towson, Maryland, pleaded guilty on May 16 in federal district court in Baltimore to conspiracy and wire fraud, admitting he had defrauded more than 230 investors around the world.
Cameron R. Jezierski, who joined Merrill and Ledford in 2017 to help create false documentation, previously pleaded guilty to his role. Merrill’s wife, Amanda Merrill, is charged with conspiracy to obstruct justice for her alleged attempt to conceal and remove assets the government is seeking to return to the victims.
“The organizers of the Ponzi scheme cleverly concealed that they were using new investors’ money to pay ‘profits’ to older investors,” said Phillips & Cohen’s client. “I am very thankful that the SEC and the Justice Department took quick and decisive action to stop the scheme after I provided the SEC with information about it.”
Phillips & Cohen helped its client – who chooses to remain anonymous – present and document the whistleblower claim filed with the SEC that first alerted the federal government to the scheme. The firm also helped facilitate its client’s subsequent communications with the FBI that helped federal authorities build criminal cases against those involved in perpetrating the Ponzi scheme.
Merrill and Ledford offered investors the opportunity to join them in buying consumer debt portfolios and sharing in promised profits generated by either collecting the payments that people made on their debts or selling portfolios for a profit to other third-party debt buyers, a practice known as “flipping.”
To support that fiction, they created false portfolio overviews, false sales agreements and false collections reports, and falsified bank-wire-transfer records, account statements and tax returns. They also engaged in identity theft and created a web of at least 30 corporate entities and 55 bank accounts to move their money and deceive investors.
The investors – which included small business owners, doctors, lawyers, retirees, accountants, and professional athletes – lost nearly $150 million, according to the government. At the time of their arrest, the perpetrators were near the completion of raising an additional $260 million for their scheme.
“Because of our client’s decision to go to the SEC, the authorities had the rare opportunity to stop an ongoing Ponzi scheme and recover assets that will be used to at least partly compensate those who have suffered terrible losses,” Chatfield said.
Using investors’ money, Merrill purchased multiple homes in Maryland and Florida and spent over $10.2 million on a fleet of over 25 luxury cars, including Rolls-Royces, Ferraris and Lamborghinis. He also spent $800,000 on a Louis Vuitton wardrobe and bought artwork, jewelry, a boat and a share in a private jet, and transferred over $1 million to casinos to finance his gambling.
Ledford used his proceeds from the fraud to purchase and renovate a home in Las Vegas, Nevada, to refinance a home in Texas, to gamble at casinos, purchase luxury automobiles, jewelry and on other lavish expenditures.
Congress created the SEC whistleblower program as part of the Dodd-Frank Act in 2010 partially as a result of the Bernie Madoff Ponzi scheme that cost investors billions. The SEC was heavily criticized for failing to follow up on information provided to the agency about the scheme before it collapsed.
The SEC whistleblower program offers whistleblowers confidentiality, protection against job retaliation and rewards if more than $1 million is collected through enforcement actions based on the whistleblower’s information. Rewards are determined after all enforcement actions have been resolved. The SEC has a pending civil complaint in this matter.
Phillips & Cohen has helped three clients obtain SEC whistleblower awards so far, including one of the largest awards the SEC has made, more than $32 million.