Castor Pollux Securities will pay up to $25.5 million for the securities-trading operation run by Madoff's brother and two sons. In another case that looks similar to a Ponzi scheme, U.S. District Judge Philip Gutierrez froze the assets of financier Danny Pang, who the SEC alleges defrauded investors of hundreds of millions of dollars.
The trading operation run by Madoff's brother and two sons is separate from the investment advisory operation that is central to the Bernie Madoff case. Trustee Irving Picard says he will use the proceeds from this sale to pay victims of Madoff's scam. The winning bid will be presented to the bankruptcy court for approval on April 30. The $25.5 million is just a small fraction of the billions of dollars Madoff says he stole from thousands of investors. Madoff pleaded guilty and will be sentenced in June.
In a separate case that's just beginning to unfold, the SEC alleges that financier Danny Pang defrauded investors of hundreds of millions of dollars and asked the court to freeze his assets. Pang was chairman and CEO of PEMGroup. He stepped aside temporarily after an article appeared in the Wall Street Journal about his investment practices in early April.
The SEC alleges the fraud began in 2003 when he raised hundreds of millions of dollars from investors, mostly in Taiwan. He told investors they would get profits from using the investments to buy life-insurance policies at a discount. But, the SEC says these life insurance policies did not generate enough profits to cover the cost of the premiums or pay the promised returns. PEMGroup instead paid investors from new money that was supposed to be invested in time-shares according to a story in the Journal today.
The SEC claims, PEMGroup forged a $108 million insurance policy to support its claim that one investment was entirely covered by insurance. In reality the alleged policy was worth $31 million and PEMGroup altered the paperwork to increase the amount of the policy according to the SEC.
"Pang's alleged use of phony credentials and false insurance coverage to guarantee his investments underscore how critical it is for investors to exercise due diligence," Rosalind Tyson, director of the SEC's Los Angeles office, told the Journal.
As an investor, if someone promises you returns that greatly exceed the rates of return other investment groups are promising you, look very closely at how those returns are generated. If you can't figure out how the money is being made, walk away.
Lita Epstein has written more than 25 books, including Trading for Dummies and Reading Financial Reports for Dummies.