Two arrested for Ponzi Scheme

According to the feds, "Joon H. Kim, the Deputy United States Attorney for the Southern District of New York, and William F. Sweeney, Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that STEVEN SIMMONS and JOSEPH MELI were arrested this morning on conspiracy, securities fraud, and wire fraud charges stemming from their participation in a scheme to defraud investors and provide those fraud proceeds to earlier investors in a hedge fund (the “Hedge Fund”). MELI is also charged with wire fraud in connection with a related fraudulent scheme in which MELI solicited investments through false representations that MELI had entered into an agreement to purchase tickets to a particular Broadway show (the “Show”), which MELI could then resell for a profit.

SIMMONS and MELI are expected to be presented today in Magistrate Court before the Honorable James C. Francis IV.

Deputy U.S. Attorney Joon H. Kim said: “As alleged, while soliciting funds from investors for legitimate-sounding investments, Steven Simmons and Joseph Meli were in fact running Ponzi schemes. Meli allegedly made up out of whole cloth purported deals to buy Broadway tickets that he could later sell at a profit. But as alleged, Meli was just robbing Peter to pay Paul. Thanks to the work of the FBI, the curtain has fallen on Simmons and Meli's alleged fraud scheme.”

FBI Assistant Director-in-Charge William F. Sweeney Jr. said: “When fraudsters think they’re going to get away with scheming investors out of money, they tend to forget that at some point the money will run out. It’s the way a Ponzi scheme ends. At some point, the original investors will want to see returns on their investments, and they’re going to demand an explanation as to why there isn’t any money. The men arrested in this case even allegedly joked about the scheme, calling it a ‘shell game.’ This should serve as a warning to others playing the same games, at some point, the FBI and our law enforcement partners will discover the fraud and will make sure the criminals behind it are held accountable.”

According to the Complaint unsealed today in Manhattan federal court[1]:

Beginning in at least November 2015 through in or about January 2017, SIMMONS and MELI solicited investments by falsely representing to the investors that their funds would be used for legitimate, specified, investment purposes. SIMMONS represented that investor funds would be invested in securities by the Hedge Fund and MELI represented that investor funds would be used to purchase a large number of tickets for the Show which would then be resold by MELI for a profit. In fact, SIMMONS and MELI failed to invest the investor monies as promised, but rather used the money, in a Ponzi-like fashion, to fund the repayment of earlier investors in the Hedge Fund whose redemption requests could not be forestalled, and diverted investor monies to their own use.

Among other false and misleading statements, SIMMONS told one investor (“Victim Entity-1”) that its funds would be placed by the Hedge Fund with a highly successful group of portfolio managers, and provided performance information for these portfolio managers. In truth and in fact, SIMMONS solicited those investment funds from Victim Entity-1 for the purpose of repaying an earlier investor in the Hedge Fund that had demanded the return of its investment. Most of Victim Entity-1’s funds were, within minutes of their receipt by the Hedge Fund, wired to the earlier investor. The following day, $50,000 was wired by the Hedge Fund to an account controlled by SIMMONS. In a later consensually recorded conversation with a cooperating witness (the “CW”), SIMMONS expressed concern that Victim Entity-1 would contact the portfolio managers with whom it believed its funds were invested and learn that “there’s no . . . money.”

MELI also solicited at least three investors in a separate business run by MELI by falsely representing that he had entered into an agreement with the producer of the Show under which MELI would purchase a large number of tickets to the Show and then resell those tickets at a profit. MELI promised these investors a share in these profits. In truth and in fact, MELI had not entered into an agreement to purchase tickets to the Show but rather diverted investor money to his own personal use, including spending more than $200,000 at a luxury car dealership, and used investor monies to repay earlier investors in both his own Ponzi-like ticket resale scheme and the Hedge Fund. In later consensually recorded conversations with the CW, MELI discussed his “fraudulent ticket deal” and described playing a “shell game” with investor monies.

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SIMMONS, 48, of Wilton, Connecticut, and MELI, 42, of Manhattan, were arrested this morning. SIMMONS is charged with one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, and one count of wire fraud. MELI is charged with one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, and two counts of wire fraud. The conspiracy count carries a maximum sentence of five years in prison and a maximum fine of $250,000, or twice the gross gain or loss from the offense. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million, or twice the gross gain or loss from the offense. The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencings of the defendants will be determined by the judge.

Mr. Kim praised the work of the FBI and thanked the Securities and Exchange Commission for its assistance. He added that the investigation is continuing.

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visitwww.StopFraud.gov."

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