One-time USA Springs investment source indicted on federal fraud charges

Swiss firm faces criminal, civil charges in investment schemes


Published:

A federal grand jury in Nevada last week indicted six officials associated with Malom Group AG on criminal charges involving an international conspiracy to bilk a dozen investors – including an investor in the bankrupt New Hampshire-based USA Springs water bottling company – out of at least $5.6 million.

And on Monday, the Securities and Exchange Commission followed up with more detailed civil charges against the Swiss-based Malom — which, the SEC says, is an acronym for “Make A Lot Of Money” – the six officials and two related companies. The SEC charges that they defrauded at least 30 investors out of $11 million.

Both filings accused Malom of forging numerous documents proving it had far more money than it actually had –- sometimes in nonexistent bank accounts -- and promising that it could raise far more money than it possibly could, if the investors would only front them the cash.

Instead of using the cash, both filings charge, Malom distributed it among the defendants for personal enrichment.

The defendants are: Martin Schlaepfer and Hans-Jurg Lips, Malom’s CEO and chairman, respectively, executive vice president James C. Warras; compliance officer Joseph Micelli; Malom’s agent, Anthony B. Brandel, through his Las Vegas, Nevada company M.Y. Consultants Inc.; and Sean P. Finn of Colorado and Nevada, through his company, M. Dwyer LLC.

In New Hampshire, Malom used such documents to induce William Gianopoulos and Cynthia Gianopoulos (identified in the indictment as WG and CG) to front $1.2 million in order to obtain a $60 million loan from Malom in order to get USA Springs out of bankruptcy. It was the single biggest haul listed in the indictment

William Gianopoulos, a Lawrence, Mass., contractor earlier told NHBR that he had invested roughly a million dollars in USA Springs, which struggled to get a permit to withdraw 300,000 gallons a day at a site bordering Barrington and Nottingham against the opposition of some local residents.

USA Springs went bankrupt in 2008, trying to find financial banking to complete the half-finished bottling plant, and in the summer of 2011, Malom seemed to come to the rescue. Malom first promised that it would raise the money by selling European bonds, guaranteeing either a 50 percent return in 120 days or a complete refund in addition to a 4 percent penalty.

According to the SEC charges, Malom used this method to defraud investors of about $3.5 million, but specifically names USA Springs as an example.

“However, the investors’ funds were immediately distributed among the defendants or to others, were not spent on any investment-related purpose, and were never refunded. Moreover, Malom did not have any funds with which to refund …,” says the SEC complaint

First Malom blamed the European debt crisis for not refunding the money. Then it said it had Brazilian bonds despite that government’s warning that such bonds were fraudulent.

Both Lips and Warras assured USA Springs, its attorneys and the bankruptcy court in Manchester that a Brazilian law firm -- Campos e Campos Advogados – certified that these particular bonds were legitimate.

However, they “failed to disclose that the firm once listed Schlaepfer and Warras as employees and that the firm had an agreement with Malom to share any proceeds arising out of transactions.”

Furthermore, the SEC charges, Warras directed Micelli to draft and backdate a joint venture contract showing how Malom acquired the notes, writing that Micelli should “make sure it was full of ‘BOILER PLATE BULL SHIT’ with ‘as many pages of B.S. as possible’ so that it could be used as a ‘file stuffer’ in negotiations with a bank.

Warras also allegedly stated that Malom had offers to sell the notes for $200 million – purchased through Campos for no more than $833,000 – “reflecting an astonishing 24,000 percent.”

But the bonds were in fact, “worthless,” says the SEC.

Micelli also lied to the bankruptcy court, stating that Malom had $16.6 million in assets “when he knew it did not,” the SEC charges.

Micelli, according to the SEC complaint, forged several documents, including one forged by laying the text and signature stamps over a blank image of a Deutsche Bank letterhead and using various “cut and paste techniques.”

Shortly after the Malom fiasco, the USA bankruptcy court in New Hampshire changed USA Springs status from Chapter 11 reorganization to Chapter 7 liquidation, and it recently hired a real estate agent to sell the property for $189 million.

Meanwhile, the bankruptcy trustee has gone after a number of USA Springs officials, including founder Francesco Rotondo and the Gianopouloses, alleging fraudulent transfers of some $2.6 million of $8.4 million in mortgage proceeds received knowing that USA Springs was insolvent and could not make the mortgage payments.

Rotondo denied these charges, but two of the alleged insiders have already settled with the trustee, including Francesco’s brother Marco – who, while also denying the allegations, agreed to pay $5,500 of a $50,000 claim to avoid litigation, according to a Nov. 20 filing.

Rotondo, however, has long said he thinks the real fraud involved Malom, and the fault lies with the professionals he depended on, particularly attorney Alan Braunstein and Eric Danner of CRG Partners, now a unit of the consulting firm Deloitte, for not properly vetting Malom. Braunstein has repeatedly said that it was Rotondo who pushed working with Malom, not him.

Rotondo also has faulted New Hampshire authorities for not moving against Malom, saying that a partner contacted the local FBI about the company in August 2012, but that local officials didn’t follow up.


 

NHBR Poll