October 29, 2020
How a Coral Gables lawyer and an ex-Miami cop became cogs in massive alleged Ponzi scheme
 
 
By Shirsho Dasgupta
 

John Gerant has played several roles in his life — Miami police officer, pilot, Realtor, drug trafficker and informant for the Drug Enforcement Administration. His latest act: alleged facilitator in a multimillion-dollar global Ponzi scheme.

Leaked documents from the U.S. Treasury Department show that Gerant and his son, Sean, actively recruited people to invest in OneCoin, an allegedly fraudulent cryptocurrency firm tied to a Bulgarian, Ruja Ignatova, who has been branded with the intriguing nickname “Queen of Cryptocurrency.”

Recent federal indictments and testimony given in a Manhattan federal court describe Ignatova’s investment scheme as worth $4 billion, $400 million of which was allegedly laundered by two South Florida men, Gilbert Armenta and Coral Gables attorney Mark S. Scott, with the help of shell companies they set up in the state. Court testimony described Armenta as the “queen’s” lover-turned-FBI informant.

Among the leaked documents was also a February 2017 report to the Treasury from the Bank of New York Mellon about “suspicious transactions” worth roughly $360 million involving OneCoin-related shell companies and private investment firms set up by Scott in the British Virgin Islands. These same firms are at the heart of federal bank fraud and money-laundering charges brought against Scott and Armenta.

Ignatova herself faces charges of wire and securities fraud and money laundering but has absconded. She and her company are also being investigated by law enforcement in multiple countries.

The Miami Herald, el Nuevo Herald and their parent, McClatchy, obtained Suspicious Activity Reports, or SARs, that detail OneCoin’s activities. The reports are part of a cache of secret banking documents leaked to the online news outlet BuzzFeed News. It shared them with the Washington, D.C.-based International Consortium of Investigative Journalists, which assembled a team of partners for a 16-month global collaborative investigation.

The secret bank documents often draw a straight line between the failure of banks and other financial institutions to keep money laundering in check and the unrelenting pace of criminal activity on a global scale.

The project is based on 2,100 unique documents, reported on by 110 news outlets from 88 countries. It identifies more than $2 trillion in transactions flagged by banks as suspicious and includes reports sent to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), charged with sniffing out money laundering, terror financing and other financial crimes. The stories based on those documents were published this past week around the globe under the common banner The FinCEN Files.

BuzzFeed News will not comment on the identity of its source.

The production of a SAR is not in and of itself evidence of a crime.

Four years ago, the Panama Papers, a massive leak of documents from the law firm Mossack Fonseca, revealed how the rich and devious evade taxes and launder profits through opaque offshore shell companies. The FinCEN Files show how banks remain vital conduits in moving illicit money out of reach. And South Florida is continuing to play an important role.

A SAR from December 2015 shows that Wells Fargo branches in and around Pompano Beach had flagged suspicious OneCoin-related transactions involving Belletide LLC, a Florida incorporated firm in Deerfield Beach.

Belletide is owned by John Gerant, the former Miami cop, and his son, Sean, state incorporation records and SARs show.

"OneCoin is not a scam", said Sean Gerant, adding that “thousands of people are using the OneCoin app."

The app is not available online, and OneCoin websites are blocked in the United States.

“Their intent is not to scam and rip people off,” Gerant said of the company.

“Their intent is to give people power back, financial power and growth, that we haven’t had because the rich are getting richer and the poor are getting poorer.”

John Gerant declined to comment. The Gerants have not been charged with any OneCoin-related crime.

While the Justice Department has charged the founders and top leadership of OneCoin, which it described as a “fraudulent cryptocurrency scheme” based “on lies and deceit,” the firm itself is based in Bulgaria and has not been charged.

The department declined to comment on OneCoin’s activities, citing ongoing investigations and court proceedings.

OneCoin did not respond to requests for comment.

MONEY, REIMAGINED

Cryptocurrency is a form of digital money that is decentralized and not tied to any central bank. Common currency like the U.S. dollar is issued by a central bank but its value versus Japan’s yen or Mexico’s peso is determined by underlying economic indicators. The value of cryptocurrency, however, is based on available supply and its demand. It is secured by a technology called “blockchain,” which is essentially a ledger of all transactions, enforced by disparate servers that make it nearly impossible to counterfeit or manipulate the value.

In recent years some cryptocurrencies have provided scammers with a platform to trick people into investing, and federal authorities have been closely watching the nascent digital currency market with an eye toward protecting U.S. consumers. Many digital coin offerings are being shut down by regulators as unregistered securities.

Bad actors count on the lack of transparency around cryptocurrency and the opaque world of shell companies to commit crimes, said Dennis Lormel, a former section chief of the FBI’s Financial Crimes Unit who specialized in investigating money laundering, terror funding and fraud.

Lormel’s advice to consumers is simple: “If it sounds too good to be true, it probably is too good to be true.”

CONTROVERSIAL PAST

Long before his association with OneCoin, John Gerant knew controversy.

As a Miami police officer, he testified against four white Metro-Dade cops in the trial over the killing of Black insurance executive and retired Marine Arthur McDuffie. The four were accused of beating him to death with their department-issued flashlights after a short motorcycle chase. Their acquittal sparked the Liberty City riots in 1980, which left 18 dead and swaths of the city torched.

John Gerant left the force and turned to drug smuggling.

When police arrested him with 22 pounds of cocaine in his car in 1983, he returned home to his wife in Boca Raton. Facing charges in Baltimore for smuggling in 1,700 pounds of Colombian cocaine, he cut a deal, testified against the other conspirators and agreed to become an informant. In return, he escaped prosecution.

The ex-Miami cop bought a plane and flew undercover missions to Colombia and the Caribbean islands for the FBI and the Drug Enforcement Administration, helping them nab dozens of smugglers. He was also allowed to keep around $1.5 million from his drug sales and bought luxury cars and incorporated several firms in Florida.

But in 1991, federal agents charged him with lying and continuing to traffic drugs. He was put behind bars and, according to Federal Bureau of Prisons records, released in July 2011.

Today he lives in a house in a senior-living community in Broward County. According to real-estate website Zillow, it is worth roughly $167,000.

Only one of his neighbors — an older woman — answered her door. She said she knew him, not as a former police officer but as a pilot.

The leaked bank report from Wells Fargo states that the account held by Belletide LLC, the Gerants’ firm, received roughly $56,000 in suspicious transactions from June to September 2015. The account also wired out $73,500 to One Network Services, a OneCoin-related Bulgarian entity, from August to September that year. In return, it received $3,100 marked as “commission” in November 2015.

Interviewed by the Herald and McClatchy, his son described finding OneCoin through ads he saw on social media and YouTube. He said he made investments himself and “didn’t lose any money.”

“The value went up,” he said, but declined to provide numbers. “I haven’t done much with it because I’m waiting for them to open up more territories.”

Gerant said he was signed up by someone who went by the name “Rick Crypto,” a friend of someone named “Sal” who oversaw all Florida signatories and who signed up around 30,000 Americans.

Court records in the Mark Scott case suggest that man was probably Sal Leto, currently a Tennessee resident. Leto is also named as a U.S. representative of OneCoin in a class-action lawsuit against the company.

“I know he (Sal) made millions and millions of dollars … and he had direct contact with Ruja,” Gerant said, adding that he himself became a recruiter and “signed up probably 20 people.”

According to the SAR, roughly $20,000 received by the Gerants’ firm’s account during the period it was transacting with OneCoin-related firms in 2015 came from an account tied to Tropical Treeworks, a Miami nursery owned by Bartholomew Coia. Coia is also a cannabis farmer in Colorado.

Coia said that he came to OneCoin through the Gerants — Sean was his brother’s friend — and that he invested $10,000 more after the initial $20,000.

“Millions, multiple millions,” said Coia, when asked how much he was promised as returns. “I didn’t get anything. It was a f---ing scam.”

But the Gerants were only a small cog in a much bigger, well-oiled overseas machine.

QUEEN OF DIAMONDS

The daughter of Bulgarian emigres to Germany, Ruja Ignatova burst into the cryptocurrency scene in August 2014 after co-founding OneCoin with Sebastian Greenwood, a serial entrepreneur with a string of failed businesses in digital payment systems.

Ignatova promised her investors millions of dollars in returns. She announced a financial revolution that would democratize money and bring unimaginable wealth to the poor and the marginalized.

Court records show that OneCoin has around 3.5 million investors and pulls in billions of dollars in revenue. OneCoin organizes promotional events all over the world and pulls in thousands of investors.

Those records also show that from 2015 to 2017 Ignatova bought mansions in Dubai and Frankfurt, a penthouse in London and a yacht in Bulgaria. She also has multimillion-dollar properties in the Bulgarian capital, Sofia, where OneCoin is based.

Marketers for OneCoin get a cut of the investments they bring in. They also often turn some of the investors into marketers who recruit more people, which can be the telltale sign of a Ponzi scheme, i.e., a structure that relies on new investors to pay off past ones.

While the investors-turned-marketers receive commissions on the people they recruit, the initial marketers get a bigger commission on all the people in the levels below them — a classic pyramid where those at the bottom see small returns while those at the top rake in millions.

Unlike with BitCoin or other more mainstream cryptocurrencies, investors have reportedly been unable to cash in on their OneCoin investments. There is no global exchange system and investors also cannot buy anything solely with OneCoin.

In 2017, the company launched Dealshaker, an e-commerce website that accepted OneCoin. But even Dealshaker accepted only part of the payment in OneCoins. The rest had to be paid in regular currency, generating more revenue for the firm.

An investigation by the British Broadcasting Corp. found that OneCoin also falsely stated that it had a blockchain — the decentralized technology that regulates the value of a cryptocurrency — when it had none, and was secretly manipulating the value of the currency.

In the trial of Mark Scott, the Florida attorney charged with laundering money for Ignatova, a 76-year-old Tennessean, William Horn, testified that he had attended a big OneCoin conference in Nashville organized by a “couple of young fellows from South Florida by the name of Maurice Katz” and Sal Leto in 2015.

Leto and Katz did not respond to requests for comment.

Horn told the court that attendees were not allowed to carry their phones or record any form of audio or video. They were told that this was because the U.S. Securities and Exchange Commission had not authorized OneCoin because the agency viewed it as “selling unsecured securities.”

The fraud charges against Ignatova say that OneCoin had used “manipulative and deceptive devices” in the sale of securities, which violates SEC rules.

Horn sent roughly $20,000 to a bank account of a German firm, IMS Gmbh, in 2016. Horn told his own bank that the money was “for educational purposes, educational documents and training.”

But by this time banks across the world had already become suspicious of OneCoin and were shutting down its accounts.

“We were told that the wire would probably not take place if the true nature of the money being spent was said to the bank,” Horn told the court.

According to leaked SARs and court records, a shell company called IMS was one of several set up by top leadership in OneCoin to receive funds from investors and launder that money without banks or law enforcement getting wind.

Prosecutors alleged that private equity investment funds set up by Scott, the Coral Gables attorney, in 2016 in the British Virgin Islands, received around $400 million from these shell companies, including IMS.

“He cleaned the fraud money that he knew was dirty by setting up phony investment funds and lying to banks and other financial institutions to make it look like the OneCoin fraud proceeds were actually profits from legitimate businesses that had nothing to do with OneCoin,” Assistant U.S. Attorney Julieta V. Lozano told the jury in opening arguments.

These firms all had the word “Fenero” in their names and federal prosecutors referred to them as the “Fenero Funds.” Two of them, Fenero Equity Investments LP and Fenero Financial Switzerland LP, are flagged in the SAR from the Bank of New York Mellon for transactions worth $360 million.

All of the “Fenero Funds” were administered by another BVI offshore firm that was owned and controlled by a Florida entity, MSS International Consultants LLC. MSS International Consultants was owned by Scott, Florida state records show.

Lozano alleged that Scott made numerous transfers out of the bank accounts held by the firms in investments that were actually “dummy transactions used as cover for moving OneCoin fraud money back to Ruja."

Assistant U.S. Attorney Nicholas Folly alleged that “Ruja paid Mark Scott $50 million” for his services. Lozano told the court that Scott used the money “to purchase several multi million-dollar homes in Cape Cod, a 57-foot luxury yacht, and several luxury cars, including at least three different Porsches.”

A jury found Scott guilty of bank fraud and money laundering in November 2019. Following postponements due to COVID-19, he is scheduled to be sentenced in December.

“Mr. Scott maintains his innocence, and has filed post-trial motions challenging his conviction that are currently pending before a federal judge in Manhattan,” said Arlo Devlin-Brown, Scott’s attorney.

Some of the OneCoin-connected money received by Scott’s “Fenero Funds” also came from a private investment company, Fates Group, and a limited liability company called Zala Group, both based out of Fort Lauderdale and incorporated by one of Scott’s clients, Gilbert Armenta.

According to witness testimony by Ignatova’s brother, Konstantin Ignatov — who had pleaded guilty to wire fraud, bank fraud and money laundering and was a cooperating witness — Armenta was one of his sister’s “business partners and main money launderers.”

OneCoin was reportedly banking with JSC Capital Bank in the former Soviet republic of Georgia at least for some time in 2015. According to a report by consulting firm KPMG, the National Bank of Georgia revoked its license in 2016 after an audit found that it “had ignored requirements for prevention of legalizing illegal revenues.”

The report also notes that the bank was fully owned and controlled by Armenta through a firm, ESOL B.V. LLC. It is unclear when and where that company was incorporated.

One of the SARs notes 13 OneCoin-related payments in 2016 totaling roughly $50,000 from an Australian individual to a U.S.-based entity called One EUX, LLC. Florida corporation records show that One EUX is another Fort Lauderdale firm, incorporated in 2015 by Armenta.

Ignatova’s brother, Konstantin, testified in Mark Scott’s trial that his sister had been having an affair with Armenta. He said that she had her associates plant a recording device in Armenta’s apartment.

In September 2017, she found out through the bug that Armenta had been apprehended by the FBI and was an informant.

Prosecutors said that by that time, Scott “had transferred almost all of the money in the so-called investment funds back to Ruja and other OneCoin-related entities.”

A few weeks later, Ruja Ignatova disappeared.

Her last known footprint was a flight from Sofia, the Bulgarian capital, to Athens, Greece. Konstantin testified in court that a bodyguard who had accompanied her to the Athens airport told him that she met and continued traveling with people who spoke Russian.

Armenta’s attorneys did not respond to requests for comment. He is scheduled to be sentenced for wire fraud, money laundering and extortion in October. Konstantin Ignatov’s sentencing is scheduled for November.

OneCoin’s co-founder, Sebastian Greenwood, was arrested in Thailand and extradited to the United States in 2018. He faces charges of extortion and wire and securities fraud.

Meanwhile, OneCoin still hums along and continues to attract investors. Where the incoming millions go is unknown, as are the whereabouts of Ruja Ignatova, the Queen of Cryptocurrency, now possibly dethroned.