The final chapter in a long-running Ponzi scheme federal prosecutors allege was run by Joel Gillis and Edward Wishner through their company, Nationwide Automated Systems Inc. of Calabasas, might be written when the men return to court next month.
The two were arrested last week and charged with running a 15-year scheme that defrauded investors of $123 million. As reported in the Oct. 27 issue of the Business Journal, the alleged ploy involved enticing investors to purchase automated teller machines for about $12,000 each, promising 50 cents on each transaction and 20 percent annual returns. The government claims that only a handful of the thousands of ATMs the company said were sold actually existed, and that NASI used money from new investors to funnel money back to earlier ones.
The Justice Department filed criminal charges against Gillis, 74, and Wishner, 76, alleging conspiracy, wire fraud and two counts of mail fraud. Each charge carries a potential 20-year federal prison sentence. The men were arraigned Dec. 17 and entered pleas of not guilty before being released on $500,000 bonds, according to Ranee Katzenstein, an assistant U.S. attorney. The next hearing on the criminal matter has not yet been scheduled, but Katzenstein said she expects it will come in January.
Gillis and Wishner, both Woodland Hills residents, admitted to allegations brought by the Securities and Exchange Commission in a court filing earlier this month that NASI was operating a fraud. A scheduling conference in the civil case stemming from those charges is slated for Feb. 2.
Should Gillis and Wishner plead guilty to the criminal charges, their sentences could be significantly reduced.
“Many, if not most, of criminal defendants who are alleged to have run Ponzi schemes plead guilty, hoping to get better results than they would get in a jury trial,” said Kathy Bazoian Phelps, a partner in the Century City office of law firm Diamond McCarthy who has represented both creditors and defendants in Ponzi scheme cases.
“Mr. Wishner has been cooperating extensively with authorities in an effort to reduce investor losses to the greatest extent possible,” said Reuven Cohen, partner at downtown L.A. law firm Dordi Williams Cohen, who is representing Wishner.
Cohen declined to comment further on the case.
SEC officials declined to comment.
William Hoffman, a court-appointed receiver, is in the early stages of his own investigation. His goal is to preserve and recover the company’s assets, which, ideally, would be returned to investors.
The number of people affected by the alleged fraud is unclear, but Hoffman sent letters to about 2,450 past and current investors, according to a report filed in court last month. He does not, however, hold out much hope that investors would be made whole.
NASI’s bank account was left with about $461,000 after the SEC froze the company’s assets in September, and in his report Hoffman wrote, “It is unlikely these funds would be sufficient to provide a meaningful recovery to investors.”
Alan Broidy, a bankruptcy and commercial law attorney in Century City, is representing about a dozen NASI creditors making claims against the company.
Right now, it’s a waiting game for Broidy and his clients. The pending SEC litigation, the criminal proceedings and Hoffman’s investigation must conclude before the court can determine how much money will be returned to investors.
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- Two Execs Plead Guilty to $100 Million Ponzi Scheme
- Feds Charge Pair in $100 million Ponzi Scheme
- SEC Pulls Plug On ATM Firm
- SEC Charges Chais With Fraud
- Film Director, Producer Charged in Ponzi Scheme
- Fraud Case Takes Serious Turn for National Lampoon's Ex-CEO
- Fraud Charges Filed Against Former Woodbridge Executives
- News of the Week