Ponzi Schemer's DOJ Ties Might Hurt Credibility at Trial

Updated on
  • Text messages suggest official helped government star witness
  • Evidence complicates fraud prosecution of Amanat and Tuzman

A hedge fund founder under investigation in 2012 for running a Ponzi scheme allegedly got some unsanctioned advice from a high-ranking Justice Department official: Keep the phone calls and emails to sports and weather, because the FBI might be watching.

Jamie Yavelberg, a deputy director in the Justice Department’s civil fraud division in Washington, provided the guidance to Stephen Maiden through her brother Michael Yavelberg, a jury was told by a lawyer trying to undermine Maiden’s credibility as the government’s star witness in a fraud trial. The jury was shown text messages during Maiden’s cross-examination.

"She, as I knew, said NO EMAILS or PHONE CALLS, NONE except about sports or the weather,” Michael Yavelberg wrote in a text. “Stick to that dude.”

U.S. District Judge Paul Gardephe said he was surprised that the DOJ angle had come up without warning, having been unearthed by defense lawyer Randall Jackson from the government’s own evidence. The prosecutors said they didn’t realize the significance of the texts between the two friends because they didn’t know that Michael Yavelberg’s sister was a DOJ employee. 

Maiden, who is in jail for his Ponzi scheme, appeared in court in prison garb with his feet shackled. He testified Jamie Yavelberg might have told him to stay off the phone and to be careful in what he said, but he couldn’t remember the conversation.

"And she told you that she was going to influence the FBI agents involved in this case and help them so that you could cooperate, right?" Jackson asked.

"That’s not true," Maiden said.

The texts showed Michael Yavelberg urging Maiden to follow his sister’s advice saying she "just took down a trillion dollar pharma company."

DOJ Award

Jamie Yavelberg has worked on numerous successful DOJ probes. GlaxoSmithKline Plc agreed in 2012 to plead guilty and pay $3 billion to resolve criminal and civil allegations that it illegally promoted prescription drugs and failed to report safety data. She was among those who received the Attorney General’s Award for Distinguished Service for her involvement in the case. She hasn’t responded to messages seeking comment on the texts.

Jamie Yavelberg also suggested that Maiden hire "the best securities attorney in Charlotte," whom she identified as Richard Glaser of Parker Poe, according to the text messages.

"Jamie flat out told me he is the guy," Michael Yavelberg wrote.

Glaser, who was hired by Maiden and still represents him, declined on Monday to comment on his connection to the Yavelbergs. Michael Yavelberg, who lives in New Jersey, declined to comment when reached by email. Lauren Ehrsam, a spokeswoman for the Justice Department, also declined to comment.

Fraud Charges Cloud Entrepreneur’s Story of His Success

Maiden, who attended Duke University with Michael Yavelberg, pleaded guilty to bilking investors out of $8.9 million. He’s a government witness in the fraud trial of technology entrepreneur Omar Amanat and his alleged partner in a market-manipulation scam, former KIT Digital Inc. Chief Executive Officer Kaleil Isaza Tuzman. Prosecutors say the three men conspired to inflate KIT’s shares.

Michael Yavelberg isn’t accused of any wrongdoing in the case, and the text messages aren’t related to the underlying allegations of fraud by Maiden, Amanat or Tuzman. Amanat and Tuzman claim Maiden is testifying against them in a bid for a shorter sentence.

Jackson also grilled Maiden about the collapse of his hedge fund, Charlotte, North Carolina-based Maiden Capital LLC, which managed about $15 million at its peak in 2008. Maiden blames Amanat and Tuzman for the collapse of his firm, which sunk everything into KIT and a Dubai-based investment fund, Enable Invest Ltd., that was run by Amanat’s brother.

The firm’s failure "was the greatest disaster of my life," Maiden testified Monday, adding that he’d ripped off some of his closest friends and fraternity brothers.

But Jackson introduced a draft of a book Maiden was attempting to write in 2013, after Maiden has started cooperating with the government, as evidence that Maiden didn’t need Amanat or Tuzman to sink his firm. In the manuscript, Maiden described his own trading as "impressively bad," saying he was essentially "flinging wealth onto an open fire."

"You were hemorrhaging money even before investing in KIT," Jackson said.

The case is U.S. v. Amanat, 15-cr-536, U.S. District Court, Southern District of New York (Manhattan).

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