Case type: Fraud
Criminal contempt
Attorneys: Thomas J. Nolan
James J. McLaughlin
Law Firms: Skadden, Arps, Slate, Meagher & Flom
State of Oregon Department of Justice
Venue: United States District Court, District of Nevada
Circuit Court of the State of Oregon, Marion County
Side:  Plaintiff
Trier of fact: Bench trial
Testimony Issue: Liability and damages
Testimony Date: 1987
Case Summary: Several individuals operated a “Ponzi” scheme using the facade of a bank.  The fraudulent bank took in over $70 million from 5,000 investors, mostly elderly, retired couples.  Typical of Ponzi schemes, investors were offered substantial returns from fictional investments, in this case phony commodities arbitrage trading and gold mines.  In fact, investors were paid “profits” using money collected from new participants, since there were no profits from actual investments.  The United States Securities and Exchange Commission brought suit, froze the principals’ bank accounts and placed the bank in receivership. Mr. Neches was retained as one of the accountants to the receiver.  The accountants faced significant challenges.  Investor account records were disorganized and deliberately falsified.  Many participants solicited additional investors and were involved in varying degrees of complicity with the fraud.  The scheme used sophisticated methods to launder funds, including accounts in the Cayman Islands, Liechtenstein trusts and numbered Swiss bank accounts.
Testimony summary: Mr. Neches assisted the receiver and his attorneys in tracing tens of millions of dollars diverted through 20 shell corporations and over 150 bank accounts located through the world.  He helped to unravel fund transfers, identified commingled funds among the shell entities created by the principals and assisted in establishing receivership rights to recover assets. As assets were recovered, Mr. Neches developed an equitable distribution plan to return the funds to investors.  He created a computerized accounting system to track the investments of each investor and the funds return to the investor by the receivership.  He also assisted in managing receivership assets, preparing reports for the court and maintaining the receivership’s books and records. In Securities and Exchange Commission v. Elmas Trading Corporation Mr. Neches testified on behalf of the receiver regarding the circumstances of certain payments made and amounts claimed by the receivership.  In State of Oregon v. Isom Mr. Neches testified on behalf of the State in a trial for criminal contempt of a principal in the fraud regarding the funds disbursed to the defendant.
Result: Mr. Neches’ work helped recover $31.5 million, more than half of the funds invested.  More than $21 million was returned to the investors. In Securities and Exchange Commission v. Elmas Trading Corporation the court ordered that the testified-to funds be paid to the receivership.  In State of Oregon v. Isom the defendant was found guilty of criminal contempt.