All That Glitters . . . The Merendon Mining Ponzi Scheme Bites the Dust By:
Bill E. Branscum
On June 10, 2010, the Securities and Exchange Commission filed an injunctive action in U.S. District Court for the Western District of Washington, charging six individuals and four companies with securities fraud. The complaint alleges that Milowe Allen Brost, Gary Allen Sorenson, Larry Lee Adair, Ward K. Capstick, Bradley Dean Regier, Martin M. Werner, Syndicated Gold Depository, Merendon Mining Corp. Ltd., Merendon Mining (Nevada) Inc., and the Institute for Financial Learning Group of Companies, Inc. perpetrated a $300 million Ponzi scheme on investors in a purportedly successful gold mining operation.
The SEC alleges that Brost and Sorenson of Calgary were the primary architects and beneficiaries of the scheme that persuaded more than 3,000 investors across the U.S. and Canada to invest their savings, retirement funds and even home equity. Brost and his sales team presented themselves as an independent financial education firm that had discovered profitable investment opportunities with companies involved in gold mining. They held seminars where they promised investors they could earn 18 to 36 percent annual returns by investing with these companies, and they claimed the investments were fully collateralized by gold.
Unbeknownst to investors, they were actually investing in shell companies owned or controlled by Brost or Sorenson. Investor funds were often transferred multiple times through numerous bank accounts held as far away as Asia, Europe and South America, and then ultimately used to make "interest payments" to investors, fund the few unprofitable companies that actually had operations, and personally enrich Brost, Sorenson and others involved in the scheme.
According to the SEC's complaint, Brost and his sales team — called Structurists — sold investors shares in a series of shell companies and then put their money through a "structuring" process that culminated with the transfer of funds from Syndicated Gold Depository (SGD) to Merendon Mining Corp. Ltd. — which was purportedly a successful gold mining and refining company that would pay investors out of its profits. Sorenson, who controlled Merendon Mining Corp. Ltd., claimed to be a successful businessman receiving loans from SGD through arms-length transactions. Sorenson hosted tours by potential investors at his Honduran refinery and demonstrated the pouring of gold bars while making false claims about the profitability of his company. Brost and Sorenson concealed their ownership and control of SGD by using personal aliases, corporate entities and trust agreements with nominee shareholders.
The SEC alleges that investor money whirled through accounts located in the U.S. and Canada as well as the Bahamas, Belize, Bermuda, Ecuador, Honduras, Malaysia, Panama, Peru, Portugal, and Venezuela. Brost and Sorenson diverted investor funds to their personal benefit, using millions of dollars to purchase and renovate extravagant homes, ranches, and recreational vehicles. Sorenson also purchased and outfitted a luxury fishing resort in South America.
Sorenson's wife and daughter are named as relief defendants in the case in order to recover investor assets now in their possession. Sorenson used investor funds to pay off the mortgage of daughter Laura Sorenson and invest in a film production company for her benefit, and he purchased a home and other items for wife Thelma Sorenson.
The SEC's complaint claims that based on this conduct, all of the defendants violated Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Complaint also claims that all of the defendants except for Merendon Mining Corp. Ltd, violated Sections 5(a) and 5(c) of the Securities Act. The Complaint further alleges that Brost, Capstick and the Institute for Financial Learning Group of Companies, Inc. violated Section 15(a) of the Exchange Act. The Commission's complaint seeks permanent injunctions, an order to provide an accounting, disgorgement of ill-gotten gains, third tier penalties and officer and director bars against the individuals.
Those investigators who have Clients involved in this Ponzi scheme should consider the tax implications and make sure they do the work necessary to see that their Clients are able to properly avail themselves of the appropriate theft loss deduction.
Bill E. Branscum, Investigator