Eric E. Resteiner and Prime Bank Fraud
In another prime bank scheme,
Eric E. Resteiner's fraud scheme came apart.
The Securities and Exchange Commission announced today that the federal court for the District of Massachusetts sentenced Eric E. Resteiner for criminal charges based on his operation of a fraudulent investment scheme through which he raised more than $30 million. Resteiner was a defendant in a previously filed SEC fraud action based on the same conduct. The sentence, handed down on May 16, 2007, ordered Resteiner to serve 87 months of incarceration, followed by two years of supervised release, and to pay restitution in the amount of $33.9 million. Resteiner renounced his U.S. citizenship in 1995, and will be deported from the United States following his term of imprisonment.The criminal indictment alleged that Resteiner created and executed a scheme by which he defrauded approximately 50 investors, many of whom were members of the Church of Christ Scientist (Christian Science Church), out of more than $30 million through a purported high-yield, international bank trading program. As part of this scheme, Resteiner, assisted by others, made false representations to prospective investors, including that he was one of only a few people in the world permitted to conduct "off-balance sheet" trading, that his trading program would pay annual returns of no less than 50 percent, and that investors' principal would never be at risk. The indictment further alleged that Resteiner knew that he was not a trader and had no way to generate the promised investment returns, that investors' principal was not safe, and was in fact being used to pay purported "interest" payments to investors to lure more investors into the scheme, and to support his lavish lifestyle. The indictment alleged Resteiner maintained homes in the Bahamas and in Switzerland, a yacht, an airplane, a helicopter, two Rolls Royce motor cars, two Hummer vehicles, a Porsche Carerra sports car, and other assorted vehicles.
On April 16, 2001, the Commission filed a complaint in the Massachusetts federal district court against Resteiner and others charging them each with participating in the same investment scheme alleged in the indictment. On August 19, 2002, the Massachusetts federal district court entered default judgments against Resteiner and another defendant, Voldemar A. VonStrasdas, in the Commission's action. The Court ordered Resteiner and VonStrasdas jointly and severally to pay disgorgement plus prejudgment interest of $25,930,895.26. In addition, the Court ordered Resteiner and VonStrasdas each to pay civil penalties of $4.4 million, and permanently enjoined each of them from violating the antifraud and other provisions of the federal securities laws. The court also entered judgments by consent against two other individuals involved in Resteiner's fraudulent investment scheme, Charles G. Dyer and Miles M. Harbur, and against two entities controlled by Dyer, Resource F, LLC and Bunker Hill Aviation, LLC.
These prime bank schemes puzzle me. They are clearly irrational -but this is not what puzzles me.
I am unclear about the attraction to a secret trading program -what emotional need is being met by participating in a secret trading program?
What is odd about the prime bank fraud is that generally when we don't understand something, we leave it alone.
But reading any of the documents in a prime bank fraud will leave your head spinning -none of it makes any sense.
Somehow the gibberish masking as complexity serves as a compliance technique, but I haven't quite figured it out.
There are a couple of possibilities. First, we expect financial transactions to be complex and therefore don't believe that we should understand them. But if this is so, why wouldn't we invest in all sorts of complex derivatives?
Second, perhaps the documents are designed to be impenetrable to foreclose questioning. Maybe, I am not that convinced.
The right answer, I think, must involve the usual suspect: the guarantee. Somehow the guarantee of never risking capital works with the complexity of the prime bank documents to engage the mark.
It would be interesting to hear what needs that the 50 investors, many of whom were members of the Church of Christ Scientist (Christian Science Church) thought were being met by this investment.
Comments
Most hedge funds operate with a high degree of secrecy. At best investors can pull their money after three months, if they aren't happy, but it's the wealthiest investors who are putting their money into hedge funds, so there has to be some attraction to unknown strategies.
The amazing part to me is that this is his second scheme and he gets less than 8 years in jail. He'll be out in 4 years with good behavior. Considering the amount of money involved, this just seems inappropriate. Had he used a gun in his fraud he'd be facing 20 to life, but since it's a while collar crime he'll get off with only a little bit of jail time and will likely have a nice bank account waiting for him when he gets out. I don't necessarily think that we need to throw the book at everyone, but when someone who steals $50 million gets less jail time, than people who rob liquor stores, I think something could be wrong with the system. Unless the SEC proves that they really want to stop this, four years in jail won't stop people from trying to swindle people out of millions.
Posted by: Davis Freeberg | July 2, 2007 5:31 PM
Hedge funds with secret sauce trading strategies have to impossible for the ordinary person to evaluate.
How does the ordinary person calculate or take into effect the survivorship bias? Hedge fund A has secret sauce recipe A, but the strategy is terribly risky and Hedge Funds B-Z all blew up in the last year trying it. Only A survives with its "magnificent" return.
I have no idea how anyone can rationally chose these things given the level of transparency.
Posted by: michael webster
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July 3, 2007 1:36 AM
As a quatloos volunteer for several years, I have seen the prime bank scheme float from The Jim Norman Project through the NESARA nonsense and all the way back to the original Omega Fund. There always seems to come a point where the scammer makes the Svengali-like statement; " Now I'll proceed to make millions while my principal remains untouched." There is even a boilerplate document laying out how the 5m-100m investor should proceed all under the solid implication that, so long as the money is on account in the investors' bank, everything is jake. In effect this would mean I can send a certified missive from my bank saying yes, I have X dollars, and the fraudster should be able to increase that amount 5 fold in a couple of weeks. In reality, however, no investor has the required 100m so the fraud has to build an account with yours and other peoples funds. He then delays the big payoff with any number of excuses each one more far fetched than the last until, finally he disappears. The surprise is, some investors simply say "hey I took a flyer for 2k and lost, big deal" Others, the old folks and church groups who have lost it all? Well they just sink out of sight and the scammer regroups. It is a terrible crime, yet the stigma that the investor was somehow stupid or too greedy seems to slow down if not suspend law enforcements interest. Why some helpless soul has not put a bullet into one of these serial scammers is a mystery to me. If not already familiar, I would suggest searching "Jim Norman" on Quatloos or google and see the sort of high handed stance he takes. If you have the money to pay your way, feed and shelter your family and afford an occasional dish of ice cream, you have enough. Keep it safe.
Tomas Texino
Medical Reporter
Panama
Posted by: Texino | August 10, 2007 10:10 PM
Tomas;
Thanks for your comments. I jump in and out of Quatloos.
You are exactly right: the victim of these criminal acts is made to feel as if it was somehow their fault. Much like the rape victims of eons ago, they get no respect from the regulators, police and the legal system.
But I still don't understand to how, for example, Jim Norman can weave his web of deceit.
Posted by: michael webster
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August 10, 2007 10:46 PM