A second defendant has been added to an indictment in the U.S. District Court for the Northern District of Illinois stemming from a Ponzi scheme that fraudulently obtained $105 million in investments from about 400 victims, leading to $34 million in losses.

The newly added defendant, Alfred Gerebizza, and his co-defendant Daniel Spitzer allegedly misappropriated money raised from investors for funds they said they operated from the U.S. Virgin Islands. The defendants allegedly made Ponzi-type payments of about $71 million to certain investors, as well as used money for their own benefit, according to the indictment.

Gerebizza, 56, formerly of Crystal Lake near Chicago, pleaded not guilty on Oct. 26 at his arraignment on fraud and federal income tax charges. The charges were brought in a superseding indictment unsealed in mid-October after Gerebizza surrendered to authorities in Atlanta. As of Nov. 1, he remained in custody after being transferred to Chicago face prosecution.

Gerebizza & Spitzer Charged

The defendants have a status hearing scheduled for Dec. 6, 2011 before U.S. District Judge James Zagel. Spitzer, 51, of Barrington near Chicago, previously pleaded not guilty and was released on bond.

The superseding indictment seeks forfeiture against both defendants of roughly $34 million. Gerebizza was charged with 10 counts of mail fraud and six counts of filing false individual and corporate income tax returns. Spitzer is facing 10 counts of mail fraud.

Each count of mail fraud carries a penalty of up to 20 years in prison and a $250,000 fine. The district court can impose a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater, and restitution is mandatory.

The tax counts against Gerebizza carry a maximum penalty of three years in prison and a $250,000 fine. Defendants convicted of tax offenses must also pay the costs of prosecution and they are civilly liable to the government for all back taxes. They may also get slapped with a civil fraud penalty of 75 percent of the tax underpayment plus interest.

According to the indictment, Gerebizza styled himself as the sales agent and trader for a group of investment funds collectively known as the “Kenzie Funds,” purportedly operated by Kenzie Financial Management in the U.S. Virgin Islands. Spitzer was the principal officer and sole shareholder of Kenzie Financial, as well as the principal of other corporate entities.

The Defendants Claims

The two defendants sold memberships and limited partnership interests in the various Kenzie Funds to the public. Through sales agents and marketing materials, Spitzer and Gerebizza told investors and prospective investors that their monies would be used primarily for foreign currency trading.

They also claimed that that the Kenzie Funds had never lost money, and that they had historically posted good returns. The defendants continually raised funds by soliciting new investors in the Kenzie Funds. The defendants used the new investments to make payments to earlier investors. This practice was intentionally concealed from both new and earlier investors, the indictment says.

Between 2004 and July 2010, the defendants allegedly raised $105 million from investors and misappropriated a significant portion of the funds, causing $34 million in losses, the indictment says.

The defendants claimed that the Kenzie Funds had rates of returns ranging from 4.52 percent to 13.54 percent over the previous five years, according to the indictment. However, bank accounts for the Kenzie Funds showed that, over the five year period, the total net return on the $105 million contributed by investors was less than 1 percent.

As of the end of June 2009, the defendants claimed that that the Kenzie Funds were worth about $250 million, when the funds had only about $4 million in their bank accounts, the indictment says.

Regarding the six counts against Gerebizza for filing false federal income tax returns between 2005 and 2007, the indictment says they include his individual tax returns and returns for an S corporation maintained by Gerebizza called ARG Management Inc.

New Charges Filed Against Gerebizza

The new charges against Gerebizza were announced on Nov. 1 by Patrick J Fitzgerald, U.S. Attorney for the Northern District of Illinois; Alvin Patton, special agent-in-charge of the IRS Criminal Investigation Division in Chicago; Tom Brady, inspector-in-charge of the U.S. Postal Inspection Service in Chicago; and Robert D Grant, special agent-in-charge of the Chicago office of the FBI. They acknowledged the assistance of the Chicago regional office of the Securities and Exchange Commission.

The government is being represented by Assistant U.S. Attorneys Madeleine Murphy and Jason Yonan. The announcement noted that an indictment contains only charges and is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

Guiliano Law Group

The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost to unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.

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