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Peruvian immigrant Jose I. Fernandez has been aboard a financial roller coaster since hitting the New York lottery for $15 million two years ago. Two con men took him for a ride. A ruling last week by Miami U.S. District Judge Donald L. Graham on Fernandez’s civil lawsuit — plus the recent return of fabled Boca Raton scam artist Dr. Noe to newspaper front pages — mark a resurgence of federal attention to the elaborate “prime bank” fraud that targets both individuals and institutions. Prime bank swindles involve the sale of nonexistent financial instruments such as notes, debentures or letters of credit to the gullible. Investors are often assured their principal is guaranteed. Borrowers are told things must be kept hush-hush because they’re being offered a deal only the wealthy usually get. Ultimately, the scammed money vanishes into offshore accounts. The Federal Reserve first spotted the prime bank scam in 1993. Since then, the shorn have included the likes of Clovis, Texas ($3.5 million), the Chicago Housing Authority ($14 million in pension funds) and the National Council of Churches of Christ ($8 million). The FBI issued a public fraud alert a month ago about prime bank scams that offer investor-victims extremely high yields over a short period of time. The U.S. Securities and Exchange Commission put out a similar “warning” to investors on Jan. 30. “Lured by the promise of astronomical profits and the chance to be part of an exclusive, international investing program, investors are once again falling prey to bogus ‘prime bank’ scams,” says the SEC warning. “The fraud artists who promote these schemes often use the word ‘prime’ — or a synonymous phrase, such as ‘top fifty world banks’ — to cloak their programs with an air of legitimacy.” In Fernandez’s case, Judge Graham found that the lottery winner had been swindled by the owners of a Trinidad-based investment company who promised huge returns. Last week, the judge awarded Fernandez $10.3 million in compensatory and punitive damages and pre-judgment interest. Fernandez, an unemployed laborer when he won $15 million in April 2000, opted to get his money up front and sold the winning ticket to a Georgia settlement company in exchange for $3.2 million in cash. Fernandez, who has residences in New York and South Florida, soon gave a special power of attorney to financial adviser Raul Orta of Hialeah Gardens who was to invest his funds. Orta contacted two men, Jack Russell and Don Knoll, owners of Trinidad-based Standard Investment Credit Corp., with whom he’d had investment dealings. The lottery money was to be invested in a “managed trading account” that promised to yield profits of up to 125 percent and kick off a large interest payment every month, the judge’s order says. Both Fernandez and Orta were deceived, says Fernandez’s attorney, Coral Gables, Fla., solo practitioner Robert N. Pelier. “They told them everything — that the money would be invested in a bank that was owned by the Queen of England,” says Pelier. Russell, who lives in Los Angeles, and Knoll, of Bend, Ore., refused repeated demands to return the money. They offered to settle the fraud lawsuit before trial for $25,000, the order says. After the bench trial began in January, both men appeared and defended themselves. A few days into the trial, they gave the court $757,000 as partial payment of Fernandez’s funds. Promises of additional payments got the trial postponed briefly, but ultimately were not kept. Graham’s 16-page order issued last week notes “the record is replete with false statements of material fact” by Russell and Knoll. The two men, the order says, admitted taking Fernandez’s lottery winnings and using the funds “for various personal uses, such as legal fees and other investments. It is also clear that Russell and Knoll took plaintiff’s funds without ever intending to return or properly invest those funds.” If that weren’t enough, Graham found that Fernandez was entitled to treble damages and tossed in what amounts to an invitation to federal agents to investigate: “The court finds that Russell and Knoll took plaintiff’s money with the felonious intent to commit a theft.” So, Russell and Knoll owe Fernandez $10.3 million — less the $757,000 they coughed up mid-trial. Now, all Fernandez and his new lawyer, Miami’s Mark D. Swanson, have to do is collect. Russell and Knoll did not return phone calls seeking comment. Fernandez’s experience coupled with the FBI and SEC warnings, may portend a rise in the pursuit of similar fraud cases. The enterprising Dr. Noe — actually the former Clifford Dixon Noe, who legally changed his name to Clif Goldstein upon his release from prison in 1991 — and his Boca Raton-based brother, Paul Howe Noe, allegedly used the con to bilk 20 investors out of $1.1 million. Goldstein, whose rap sheet includes multiple convictions for fraud and forgery dating to the 1970s, and his brother were among six persons slapped with a securities fraud lawsuit by the SEC in February. The suit accuses them of using the Internet and a network of “so-called consultants” to run a prime bank fraud that raised at least $1.1 million from more than 20 investors. Part of that alleged swindle also led to criminal fraud-related charges against Goldstein and Noe in Columbia, S.C.

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