Movie producer convicted in Ponzi scheme

SANTA ANA – A Laguna Niguel man was convicted of orchestrating a multimillion-dollar Ponzi scheme to finance B-movies that starred celebrities like mixed martial arts fighter Quinton “Rampage” Jackson and rapper Flavor Fav.

Mahmoud Karkehabadi, 56, was found guilty by an Orange County jury of 51 felony counts of securities fraud and grand theft, plus sentencing enhancements for aggravated white-collar crime and excessive taking.

He now faces a 30-year term in prison at his March 25 sentencing by Superior Court Judge Richard Toohey, Deputy Attorney General Patricia Fusco said.

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Also Read: Biggest Ponzi Scheme

But the same jury of six men and six women found co-defendant Timothy Cho, 56, not guilty of 30 felony counts. Cho was president of Newport Coast Entertainment, which raised money to finance Karkehabadi’s movies.

He walked out Toohey’s courtroom smiling. “I’m so relieved,” Cho said. “This has been hanging over my head for two and a half years. It was very scary.”

Karkehabadi, also known as Mike Karkeh, was the owner of Alliance Group Entertainment in Burbank, which made several B-list action and horror films since 2005, including “Confessions of a Pit Fighter” and “Hotel California.” The movies were not financially successful but are still on the market.

Prosecutors in the California Attorney General’s Office contended that Karkehabadi solicited hundreds of people to invest in the movies with misleading promises of quick and high returns on millions of dollars worth of loans, and then paid early investors with funds from newer investors.

Karkehabadi also failed to disclose to potential investors that he had been ordered by the state to pay a $5 million civil judgment for defrauding more than 500,000 people in 2003 in a phony credit card case, a 2010 news release from the Attorney General’s Office said.

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The Population Ponzi Scheme

The crux of the argument for increased immigration by Mr. Bush and Clint Bolick (his co-author of a forthcoming book on “Immigration Wars”) is that the economy and social-welfare system will collapse without increased immigration. They write:

Also Read: Biggest Ponzi Scheme

The birthrate in this country has fallen below the level necessary to sustain the population at the very time that millions of Americans are leaving the workforce and expecting retirement benefits. The nation needs energetic young workers to spur the economy and support an ever-increasing social-welfare burden.”

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When you read about a falling birthrate and a dearth of workers, the words PONZI SCHEME should start flashing in your mind. The average annual number of births between 2000 and 2009 was more than four million. The population grew by about 2.8 million a year over the same period. The U.S. is currently issuing more than a million new green cards a year and admitting about as many long-term temporary foreign workers. But that is not enough to satisfy employers.

It’s true that as baby boomers retire the country is experiencing a transition in which the ratio of retirees to workers has increased in proportion to the number of those working. But pumping more foreign workers into the economy will only perpetuate the problem as those foreign workers age and retire. Like a Ponzi scheme, this can’t work indefinitely because sustaining a population requires resource inputs – food, water, non-renewable resources – and, therefore, has a limit.

When a Ponzi scheme collapses, those who have invested in it suffer. If the endless population expansion advocates have their way, the collapse will come when non-renewable resources – think petroleum and other energy resources are depleted and aquifers are pumped dry – and, at that point the loss will not be an economic investment, but something far worse.

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Alleged Ponzi Scheme Perpetrators Speak Out Against Use of Words “Ponzi Scheme”

Posted by Kathy Bazoian Phelps

What is it with alleged Ponzi scheme perpetrators these days? They seem to have a heightened sensitivity to the use of the words “Ponzi scheme.” In 2012, two cases were decided against two governmental agencies – the SEC and the IRS–in connection with their use of the words “Ponzi scheme.”

Also Read: Biggest Ponzi Scheme

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In a case brought by the SEC against Small Business Capital Corp. and its principal, Mark Feathers, Feathers filed a Motion for Restraining Order (“TRO“), Preliminary Injunction, Sanctions, and Special Damages against the SEC, arguing that the SEC used “fighting words” in certain publications related to the case. SEC v. Small Business Capital Corp., 2012 U.S. Dist. LEXIS 178392 (N.D. Cal 2012). Feathers based his motion on the argument that the SEC’s use of the works “Ponzi-like” and “swindler” are “fighting words” which violated that his First Amendment rights. The court, in denying Feathers’ motion, noted:

The problem with Plaintiff’s request in the context of this action, however, is that claims under the First Amendment are not at issue in this case. Indeed, the classic issue presented by “fighting words” is whether such speech is constitutionally protected; in other words, whether the challenged speech is “likely to produce a clear and present danger of a serious substantive evil that rises far above public inconvenience, annoyance, or unrest.”City of Houston v. Hill

, 482 U.S. 451, 462 (1987). Any party’s right to free speech is not implicated by the claims brought by Plaintiff, which involves only violations of securities law. Absent such a free speech issue, the court is unable to analyze whether Defendant could prevail on the merits of a First Amendment claim.The court found that “fighting words” lose First Amendment protection only if they constitute “words that by their very utterance inflict injury or tend to incite an immediate breach of the peace.” Id. at *5 (citing Hill, 482 U.S. at 461-62). After denying Feathers’ request for a TRO and preliminary injunction, the court cautioned:

With that said, however, the court expects all parties to this case to act in a dignified and appropriate manner. The language utilized in press releases, pleadings or other documents should be carefully chosen so as not to denigrate others or unnecessarily jeopardize the viability of the investment assets, especially when this case remains at the initial stages of litigation.Id. at *6.
In a separate case brought against the IRS, Plaintiffs Emerging Money Corporation, Emerging Administrative Services, LLC and Emerging Actuarial Designs, LLC alleged that the IRS had wrongfully disclosed information when it asserted to certain taxpayers that the transactions that the “Plaintiffs had promoted to them were ‘sham transactions’ and part of a ‘Ponzi scheme.’” Emerging Money Corp. v. United States, 873 F. Supp. 2d 451 (D. Conn. June 4, 2012).

The Plaintiffs’ “claim was based on 26 U.S.C. § 7431, which permits plaintiffs to recover damages when an officer of the United States knowingly or negligently discloses returns or return information in violation of Section 6103. Plaintiffs seek, inter alia, $1,000 for each unauthorized disclosure of their return information.” Id. at *6. The IRS filed a motion for summary judgment, arguing that it was permitted to make those statements under the Internal Revenue Code.

The facts in the case were that the IRS had investigated the Plaintiffs’ “Stock to Cash” program in which a client would transfer shares of stock to a lender and the lender would make an upfront cash payment called a “loan.” The IRS concluded that the program was a Ponzi scheme and delivered letters to the clients who had participated in the program which included the following information: “(1) identification of Plaintiffs as possible ‘lenders’ or administrators of the Stock to Cash program (the ‘identification of Plaintiffs’); (2) the statement that the IRS was conducting an investigation of the Stock to Cash program (the ‘investigation assertion’); (3) the IRS‘s position that the Stock to Cash transactions were ‘sham transactions’ (the ‘sham-transaction assertion’) and (4) the assertion that those transactions were ‘built into a Ponzi scheme’ (the ‘Ponzi-scheme assertion’).” Id. at *4-5.

The IRS contended that it was entitled to disclose the information under the “Own Information” exception under 26 U.S.C. § 6103(e)(7). The court reviewed relevant case law and concluded that most of the information disclosed was the recipients’ own information because it “consisted of facts that directly impacted the Recipients’ tax liabilities.” However, the court noted, “But the Ponzi-scheme assertion did not directly impact the Recipients’ tax liabilities. Their ‘loans’ would have been considered sales of stock whether or not the program was a Ponzi scheme. The fact that the transactions were ‘shams’ was enough to establish to the Recipients that they were invalid, without a contextual reference to a larger Ponzi scheme.” Id. at *13.

The court reviewed several other exceptions, such as the “Administrative Proceeding” Exception, the “Investigative Purposes” exception, and the “Erroneous Information” issue, and ultimately concluded that the IRS did not violate Section 6103 when it sent out the letters regarding most of the information contained in the letters. However, the court found that the “exceptions did not cover the IRS’s assertion that the Stock to Cash program was a Ponzi scheme.” Id. at *23. The court instructed the Plaintiffs to file a statement and explanation of the damages they were seeking if they wanted to proceed to trial. The Plaintiffs filed a supplemental statement asking for $69,000 in statutory damages, or in the alternative, actual and punitive damages, plus attorneys’ fees and costs. The Plaintiffs’ statement is attached here.

Two alleged Ponzi scheme perpetrators, two governmental agencies, two courts, and two decisions – all involving the use of the words “Ponzi scheme.” If nothing else, these cases are a reminder that we are in this country innocent until proven guilty, so we should tread carefully when using those two little words.