Chicago’s Madoff? – (Alleged) James Brandolino Hedge Fund Ponzi
Continuing in the great spirit of Chicago crime and fraud, a former Chicago hedge fund manager was arrested on fraud charges today. Hedge fund manager James Brandolino turned himself in for allegedly running a Ponzi scheme via which he stole more than $3.5 million from approximately 48 victims.
Brandolino was charged with mail fraud in a criminal complaint filed in U.S. District Court. The announcement was made by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Thomas P. Brady, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago.
Brandolino is 42 years old and a currently resident of Joliet, Illinois – the same place famous Blues Brother “Joliet” Jake Blues is from. He had been running the Ponzi scheme since 2003. Brandolino claimed to be running a managed futures strategy as commodity pool adviser (“CPO”).
Throughout the life of the Ponzi scheme he kept it going by providing about $1.1 million in investor redemptions. He then lost half of the money through poor trading decisions – no crime there. The problem, in part, was that Brandolino allegedly told investors that their funds, minus a commission, was being used to trade futures contracts, and always told that his trades were profitable, even though often it was not. This claim of constant (or almost constant) steady profitability is a familiar red flag reminiscent of many recently uncovered frauds and Ponzi schemes, including Madoff. Brandolino also allegedly lied about his assets under management in investors statements. In October 2010 he claimed to have $7.5 million under management.
It is also alleged that Brandolino misused most of the remaining funds for his own benefit. It is unclear exactly what he spent the money on as his only remaining assets consisting of a luxury automobile, a watch and an interest in an unfinished condominium in Greece on which he put down 80,000 Euros, or more than $107,000.
Interestingly, Brandolino has previously held various National Futures Association registrations in the commodities brokerage business, (including exchange floor trading privileges at the Chicago Board of Trade (now CME Group). Here’s the link to his NFA broker report. Brandolino was previously a principal of several commodities trading businesses, including Brandolino Investment Group, Falcon Capital Partners LLC, Lloyd Lewis Capital, Inc., Falcon Trading Group, Inc. Here’s the link to his Twitter account.
Apparently all you need to do is watch this video to become a commodities broker…
Another operational due diligence red flag was the generation of false investor statements. Between 2003 and 2007, Brandolino allegedly accepted approximately $1.5 million from roughly 20 investors and generated false statements showing steady returns even though by mid-2007 he had lost most of the money through bad trading decisions.
In mid-2007, he started a commodity pool known as Falcon Stock Index LP, without disclosing that he had previously defrauded investors. When this fund closed in July 2008, Brandolino allegedly traded equity index futures and earned actual net returns of about 15.5%, but didn’t tell any of his investors that he had stopped trading in mid-2008 and failed to return their money, according to the charges. The government is being represented by Assistant U.S. Attorney Samuel B. Cole.
Brandolino appeared this afternoon before U.S. Magistrate Judge Michael Mason and asked to remain in federal custody. He’s probably safer in custody then on the streets where defrauded investors may want to have a word with him….
British Madoff Terry Freeman Admits to Running a Ponzi Scheme
A man who has been dubbed the to be the “British Madoff” and Britain’s “mini-madoff” admitted to running a Ponzi scheme. The man, Terry Freeman is 62 years old and from Buckhurst Hill in Essex, United Kingdom. He admitted to fraudulent trading, engaging in business while bankrupt, acting as a director when bankrupt and acting in contravention of a disqualification order.
Freeman was convicted at Southwark Crown Court. Judge Geoffrey Rivlin QC (who incidentally found two people who cheated on the UK version of Who Wants to be a Millionaire? not guilty) told the court: “People were putting good money into this business and they were being conned.”
He
defrauded approximately 700 investors including golfer Colin Montgomerie’s ex-wife Eimear. The daily mail reports Eimear invested a small amount with Freeman’s company, GFX Capital. One couple invested £1.4m, were told that it had risen to £2.7m, only to later find just £14,000 in their trading account. The City of London police, who uncovered the fraud, said that the couple were now living in rented accommodation “in a state of despair”.
Freeman so-called investment strategy was centered around foreign exchange investments – but it was all a Ponzi scheme. He was paying off earlier investors with new
cash coming through the door. Like Madoff, Freeman lived an extravagant lifestyle owning vacation homes in Cyprus and France, an executive box at Tottenham Hotspur FC which he bought for £44,000 and used to impress prospective investors, a £120,000 diamond ring for his new bride and expensive City offices.
Freeman’s downfall came about due to the collapse of the global economy and Lehman Brothers. When investors began to demand their money Freeman became scared for his life and went to the Metropolitan police in February 2009, complaining that investors were threatening him and admitting he had lost £20m. He was arrested days later. Police said he was trying to draw in new investors even as the operation crumbled around him.
If investors had performed their operational due diligence, they may have learned that Freeman had a checkered past. He was disqualified from being a director as a result of an earlier conviction. In 1997 he was jailed for four and a half years after being found guilty of eight offences relating to bankruptcy and being a disqualified director. In an attempt to start fresh, he changed his name from Terrence Sparks on leaving jail in 2000. Using a Saxo Bank trading platform, he attracted investors to GFX with the offer of high returns on short-term trades.
The United Kingdom’s Financial Services Authority is effectively claiming that detecting the Ponzi scheme was not their responsibility since Freeman’s Ponzi scheme was unregulated. The unregulated nature of this entity prevents investors from seeking compensation from the FSA.
Here is a video in which one of Freeman’s victims Peter Besson who put £600,000 into Freeman’s fund speaks out:
It seems in this case a simple background investigation and a bit of operational due diligence may have detected many of the red flags which could have raised investor concerns before they unfortunately lost millions.
The Madoff Jeffry Picower Settlement and Annette Bongiorno’s Temporary Freedom
It seems as if wronged Madoff investors had a brief moment to recover thanks to the efforts of Madoff trustee Irving Picard in his continued pursuit of reclaiming (i.e. – clawing back) capital from those who reaped profits from the Madoff scandal. One of the biggest benefactors from Madoff appears to have been the late Jeffry Picower (see previous posts about Picower here).
Mr. Picard recently announced a deal struck with the Picower estate to repay $7.2 billion. Only approximately $5 billion will go to Madoff victims with the remainder being paid to the government. Not every investor was happy with this deal and several of them have banded together and filed a lawsuit objecting to the settlement. This settlement will not leave Picower’s widow destitute. Most of this money had been intended for a philanthropic foundation, not for Picower’s heirs. According to the Washington Post, Picower’s widow will retain $200 million and his daughter will retain $25 million, the funds for all of which reportedly derived from sources other than Madoff-related profits.
Here is a video from MSNBC regarding the settlement:
And from the Wall St. Journal:
Here is a nice summary of the Picower withdrawals from Madoff:
In other Madoff news, Madoff’s former secretary Annette Bongiorno was recently freed on bail.
Here is a video regarding the original charges brought against Bongiorno’s and another Madoff secretary Joanne Crupi (who was responsible for supervising the primary bank account used in BMIS’s investment advisory operations):
Bongiorno is accussed of assisting Madoff implement his Ponzi scheme. Clients recruited by Bongiorno and her electrician husband Rudy had their money put in accounts that were code-named RuAnn in company files, according to a former Madoff employee . It is reported that Bongiorno mined her old Queens neighborhood for investors. Not helping her case are Bongiorno’s considerable assets including a $2.6 million mansion in a gated community in Manhasset, New York, and three fancy cars, including a Mercedes that sells for nearly $100,000.
Bongiorno, 62, is facing charges of helping Madoff defraud investors of billions of dollars. Bongiorno, pleaded not guilty to conspiracy and fraud charges. U.S. District Judge Laura Taylor Swain in Manhattan cut Bongiorno’s bail from $5 million to $3 million after prosecutors seized most of her bank accounts and defense lawyers agreed to disclose others. The judge required eight people to guarantee the bail. This bail reduction allowed Bongiorno with enough flexibility to make bail, but she will remain under house arrest in her Manhasset mansion…
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