Bene's come back with a truckload of questions on the Ponzi scheme involving the stars of the Canadian Pentecostal TV show 100 Huntley Street and is taxing this finance "professor's" (at Sullivan U, everyone's an "instructor" save the pharmacy school profs who are required to have such rank per pharmacy school accreditation rules, thus I'm merely an absent-minded instructor) knowledge.
Here's a first installment of answers. I feel like what Driver's lawyers must feel like when given discovery papers in this case. It's finals week at Sullivan, so bear with me.
It is my understanding the CFTC filing makes this a civil court case. Correct?
Yes, the CFTC can file civil cases themselves, fining firms and individuals and taking away trading rights. However, per their Wikipedia, "Alleged criminal violations of the Commodity Exchange Act or violations
of other Federal laws which involve commodity futures trading may be
referred to the Justice Department for prosecution."
That applies to the SEC as well. For instance, Rudy Giuliani started to show up on national radar for a big insider-trading bust of junk-bond innovator Michael Milken in the late 80s. Giuliani was the US DA for New York at the time; while the SEC sued Milken's investment bank employer Drexel Burnham Lambert, Rudy went for the criminal bust of Milken and others.
Often times, civil actions come first, since they only require a preponderance-of-the-evidence level of proof rather than a beyond-a-reasonable-doubt standard in criminal cases; "probably did it" hunts in a civil case but not a criminal one, as we famously saw in the OJ cases that saw him get off in the criminal murder trial but successfully sued for wrongful death in civil court.
I think so, if the CFTC is willing to do so. They might settle for a lesser fine if Driver acknowledges what he did and gets out of the commodities business; the fine might get whittled down, but his days as a futures trader are most likely behind him.
However, such a settlement can be tricky, since it often gets done with legalese that can't be used against the plaintiff in a criminal trial. You'll often see such settlement get legalese like "Mr. Jones acknowledges no wrongdoing, but will pay an $X fine and is barred from working in the securities industry for the next ten years." It serves most of the CFTC (or SEC for stock and bond cases) goal of getting the shysters out of business, but makes the DAs have to prove their criminal cases without help from the civil settlement.
Why did the paper trail stop?
Here's where the many lawyers in the Peanut Gallery come in. As far as I know, you generally don't see much public paperwork beyond the indictment until a verdict. As I remember my business law (it's been two decades since I had my classes and only got a C and a B in them in an otherwise 3.5-3.8 GPA B-school career; the C in my undergrad class cost me Summa Cum Laude, settling for Magna CL), most of the work at this point is behind the scenes.
A key feature is called "discovery", where the prosecutors present their evidence to the judge and to the defense, so that they know what they are defending against. In addition, the plaintiff is likely to have been requested to deliver a lot of paperwork related to the case, and depositions of key players in the case may be taken.
Is there a separate criminal case?
Here's the SEC filing; I got that via Google rather than EDGAR. It basically translates to "Party's over, shut 'er down, but don't shred or get rid of any documents." What the likely result will be is that Driver will at minimum be looking for employment outside of the financial industry, for between the SEC and the CFTC, he will be ineligible for any work in the industry if what is alleged is true. Axcess will be shut down and any remaining assets will be distributed to investors.
It will be then up to the federal DAs whether to press criminal charges against Driver. In such a high-profile case, they probably will, but it may take a few weeks or months for the Justice department to get enough evidence to get a formal indictment against Driver. In addition, the civil cases will go forward, formally putting Driver and Axcess out of business for good.
They probably stayed north of the border, but they are probably laying low. A lot depends on how much trouble they are in. If they are part of the scam, they are likely busy preparing a case to defend themselves or mulling over whether to plead guilty to lesser charges in order to get this behind them and be able to rehabilitate themselves to their fans by Thanksgiving rather than Christmas ;-). Excuse the sarcasm, but I had to get that one in.
However, it might just be that they got taken in innocently (as I've mentioned before, the greedy seeking of a quick buck isn't innocent, but not criminal on either side of the 49th) and are just laying low until they dust settles, taking a de-facto summer vacation while they avoid answering all the "tacky" questions you and other reporters would ask.
As far as Canadian legal proceedings, I'm far from a Canadian legal scholar, but if securities laws were broken, both provincial and federal legal systems might be brought to bear if fraud was perpetrated by or to Canadian citizens in Canada.
His home might be an interesting case. Some states make a home off-limits from bankruptcy cases, so rich deadbeats often load up on a nice mansion that bankruptcy can't take if their state protects their house. As far as other assets, they are largely fair game, but I think creditors are not discriminated on based on nationality. Note that the Canadian government is one of the parties that got a piece of GM 2.0, which wouldn't be the case if we stiffed the fur'ners in bankruptcy proceedings.
If the Canadian courts go along, yes. The US court can place a lien on the property in Canadian court, but Canadian creditors who aren't part of the US bankruptcy filing might have liens on as well, who gets first dibs on the Canadian assets might be up to Canadian tort law.
As a finance guy, his ass is grass and the CFTC and the SEC are the lawnmowers. He's done as a finance guy; Milken, even two decades after his bust, works as a cancer charity fundraiser and not in finance.
As for the first, most likely. It will be somewhere in the 2020s before he'd likely even be considered for any securities licences, assuming that everything alleged is true; a lifetime ban is likely.
It will also bring out the steamrollers for a trial, yes. However, that often takes a few months unless it is on a high-profile rocket docket.
Yes, and "if they want to." Since the main scheme is in the US, they would be wise to let the US courts know that they are a creditor. Whether they file in the US or Canada depends on (1) where the money is and (2) where their chances of getting money back is best.
I don't think investors can file criminal suits; that's a job for the various governments, since criminal cases are crimes against the state.
The legal fees alone would eat up a lot. Is just over 100 investors and 13 million dollars average?
I don't know what an average financial scam is; Madoff made off with billions, but that's the motherlode of Ponzi schemes to date. For instance, the Dan Strader Lakeland scam involved $2.3m. The more connections people have and the smarter the scam, the bigger the take can be.
He seemed to have lost quite a bit of money on his real futures trading. Making money in that market as a speculator is rare, since it takea well-above-average knowledge of the markets to trade profitably in the long term; it is a zero-sum-game with commissions to eat into any profits, so you have to be smarter than the average bear (who is smarter and savvier than Joe Sixpack) and enough so to cover your commissions. The old joke is "How do you make a small fortune in the futures market? Start with a large one; it will get small in a hurry."
Yes and yes. Usually, the list of victims is private, but some people may come forward. A laundry list of celebrities were taken in the Madoff scam, including Steven Spielberg, Larry King, Kevin Bacon and baseball legend Sandy Koufax and a number of major Jewish charities
For finals week it is amazing you got this post off. I did throw a truckload of questions at you.
These are clear answers and leave no doubt why you are a professor and I'm not.:^)
As investors surface cross-border, with 15 in the US and the rest in Canada, this information will help shed light for Canucks who are as unsure as I am about how this goes down.
My heart goes out to the community who has been harmed.
Bless your heart, this was decent and kind of you.
I'll stop peppering you with questions and leave you get back to work Dr. Byon.
You have my deepest respect and gratitude for your generousity with your expertise.
Posted by: Bene D | June 08, 2009 at 12:34 PM