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Judge finds $700K in conveyances from Ponzi scheme fraudulent

judge-gavelThe first of a series of trials to return funds to investors in a real estate development Ponzi scheme yielded $697,000 last week from a Baltimore man who was accused of laundering more than $2 million through his businesses as a family friend of one of the scheme’s participants.

The receiver, Raymond Peroutka Jr., sought $14 million — the amount deposited in the scheme — from William Bonnett and his business entities for participation in the scheme. Peroutka claimed that nearly $2 million could be traced to Bonnett’s accounts.

But Baltimore County Circuit Judge Kathleen Galloghy Cox ruled Dec. 12 after a bench trial that the fraud claims, which were not asserted until more than four years after the initial complaint, were barred by the statute of limitations and were distinct enough from the initial fraudulent conveyance claims that they should not relate back. Cox also ruled that the receiver had only shown clear and convincing evidence tracing $697,000 to the accounts involved in the scheme.

“We definitely see it as a victory, definitely as a relief for the client,” said William N. Sinclair, who represented Bonnett.

Sinclair, of Silverman Thompson Slutkin & White LLC in Baltimore, said he and his client are still considering all post-trial options.

Bonnett was the first defendant to go to trial on fraud claims and more cases are expected to be litigated, according to David D. Gilliss, attorney for the receiver.

“It is telling that the defendants believe that a $700,000 judgment is a victory,” Gilliss, of Pike & Gilliss LLP in Towson, said in an emailed statement. “The Receiver, however, is singularly focused on recovery for these Ponzi victims, and the next set of cases.”

Brian McCloskey, Patrick Belzner and Kevin Sniffen were indicted and pleaded guilty to various charges in federal court related to their roles in a fraudulent scheme resulting in a loss of more than $14 million. According to court records, the group persuaded investors to loan money so they could prove liquidity to secure development projects, but funds deposited into escrow accounts maintained by Sniffen were almost immediately removed and used improperly.

In response to lawsuits filed by the defrauded investors, the court appointed Peroutka to serve as receiver to pursue claims in September 2012. He filed suit in December of that year against 52 defendants, including Bonnett and his business entities. An amended notice of claim filed in January included additional counts against the Bonnett defendants.

Attorneys for Peroutka alleged Bonnett was laundering money and was complicit in the Ponzi scheme, but Sinclair said McCloskey had grown up with Bonnett’s son and was doing him a favor by providing loans. Bonnett was not fully aware of the extent of the transactions, many of which were carried out by a business manager.

“We are totally separated from what we called the underlying fraud,” Sinclair said.

Cox did find that there were multiple “badges of fraud” present, including the fact that the substantial loans were outside of his regular business practice, weren’t documented, continued after McCloskey was known to be insolvent, were not disclosed to an accountant and were made through cashier’s checks.

The transactions “were fraught with irregularities, and these irregularities were met with an absolute lack of any record keeping by Bonnett,” Cox wrote in her opinion. Bonnett was at least willfully ignorant and could not show the payments were accepted in good faith. Cox also called Bonnett’s accounting methods “extremely lax” and noted that tax filings for many of his businesses are delinquent.

Without the loans from Bonnett, the Ponzi scheme likely would have collapsed sooner and avoided about $6 million in additional losses, according to findings presented by Peroutka, who determined Bonnett contributed materially to McCloskey’s ability to continue in business.

Raymond Peroutka Jr., Receiver v. Kevin Sniffen et al.

Court: Baltimore County Circuit

Case No.: 03C12012552

Judge: Kathleen Galloghy Cox

Proceeding: Bench trial

Outcome: Verdict for plaintiff, $697,000 judgment against William Bonnett Jr. and Ted’s Towing Services

Dates:

Incident: March 2010 to April 2011

Suit filed: Dec. 13, 2012

Verdict: Dec. 12, 2017

Plaintiff’s Attorney: David D. Gilliss and Eric G. Korphage of Pike & Gilliss LLP in Towson

Defendant’s Attorney: William N. Sinclair, Pierce C. Murphy and Richard M. Karceski of Silverman Thompson Slutkin & White LLC in Baltimore

Count: Fraudulent conveyance


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