TelexFree purported to sell an internet phone servicing allowing free calls to Brazil and Latin America, it was one of the largest pyramid schemes in history, conning 1.8 million victims worldwide. When the whole pyramid came crashing down it resulted in criminal prosecutions, class action lawsuits, and a bankruptcy case. The bankruptcy court, as is often the case where there is a massive number of victims, was deemed the most efficient way to wind down the scheme while providing equal treatment to similarly situated claimants.  In addition to the need to adjudicate a massive number of claims, the trustee has sought to recover from the “net winners” in the scheme to pay the claims of the “net losers.”  In this episode, Judge Elizabeth Gunn, Steve Darr – the chapter 11 trustee in TelexFree, and former U.S. Attorney Andrew Lelling will discuss the unique challenges and considerations in using the Bankruptcy system to unravel a multi-million-dollar Ponzi scheme.

Bad Boys of Bankruptcy: Episode 2: Explore the Unraveling of a Massive Ponzi Scheme from S. America

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HR2 CONC: Daniel Penny Updates; Ponzi Conviction; TikTok Ban Upheld; Family Feud Crime Sentenced

In this episode, Judge Gunn discusses the case of Steven and Lori Palladino with Mark DeGiacomo, who served as the Chapter 7 trustee in their case. Mr. DeGiacomo was tasked with administering the fallout resulting from the debtors’ Ponzi scheme run through an entity called Viking Financial Group, Inc. Mr. Palladino used Viking to promise “investors” a guaranteed 12% return on their investments, initially meeting with family and friends at Dunkin Donuts or at his kitchen table, and paying out their “dividends” in cash-stuffed envelopes. Mr. Palladino was ultimately convicted of numerous crimes and sentenced to more than 10 years in prison after it was revealed that he had bilked his victims out of more than $10 million. Mr. DeGiacomo winded up conducting at least two dozen Rule 2004 examinations as part of his investigation into the assets and financial affairs of the debtors and used this information to prosecute numerous avoidance actions and liquidate assets of the debtors to repay their creditors and victims.  Mr. DeGiacomo recovered numerous lavish gifts Mr. Palladino had given to his wife as well as to his 20-year-old girlfriend, including jewelry, designer handbags, shoes, and dresses which the trustee sold at auction for the benefit of creditors. He also prosecuted an adversary proceeding against Sacred Heart University to recover nearly $65,000 in tuition Mr. Palladino had paid on his adult daughter’s behalf, resulting in a decision by the U.S. Court of Appeals for the First Circuit that Mr. Palladino had not received “reasonably equivalent value” in exchange for the tuition payments, because emotional, intangible, or non-economic benefits did not satisfy the standard, and thus the university was required to return the funds to the estate for the benefit of creditors. Mr. DeGiacomo ultimately recovered approximately $2.5 million for distribution to the estate. Mr. Palladino ultimately died in state prison in 2020 before he ever began to serve his 2-year federal prison term for criminal contempt due to his failure to obey orders imposed in a civil action brought against him by the SEC related to the Ponzi scheme.

Bad Boys of Bankruptcy: S2E2: Cash-Stuffed Envelopes at Dunkin’ Donuts: The Palladino Ponzi Scheme

Ponzi schemes have persisted around the world even before the eponymous investment scheme of Charles Ponzi in the early 1920s. This case concerns a Ponzi scheme based on the purported sale of music that nobody really wanted, which was engineered by Ukrainian-American Volodimyr Pigida and his wife, Marinia Bondarenko. The scheme resulted in roughly $22 million in fraudulent proceeds. Pigida was ultimately convicted of 26 counts in a federal indictment, including conspiracy, wire fraud, mail fraud, and bankruptcy fraud, and was sentenced to 14 years in prison.  In this episode, Judge Gunn discusses the bankruptcy case filed by Trend Sound Promoter, the company the couple used to perpetrate their fraudulent scheme, with attorneys Mark Stern and Rory C. Livesey.  Issues discussed include how language barriers presented issues in the bankruptcy proceedings, how the trustee located assets to liquidate for the benefit of creditors (including victims of the scheme), and how the owners of Trend Sound Promoter were ultimately brought to justice. 

Bad Boys of Bankruptcy: S2E4: The Ponzi Scheme for Music Nobody Wanted: The Curious Case of Trend Sound Promoter

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New tracks tagged #PonziScheme