6th Circuit Affirms $112 Million Judgment

DETROIT (CN) - The 6th Circuit upheld a $112 million judgment against a Ponzi operator whose most unfortunate victim, former Red Wings hockey player Sergei Fedorov, lost $40 million to the scam.

Joseph Paul Zada used his company Zada Enterprises to sell bogus investments in Saudi Arabian oil to dozens of victims, promising them "returns of up to 40 percent in as little as two months," Judge Raymond Kethledge wrote for the unanimous three-judge panel in its May 21 opinion.

The victims included a horse trainer, a plastic surgeon and several firefighters.

"The SEC's undisputed evidence reveals the following," the brief opinion states. "Zada presented himself to friends and acquaintances as an extremely wealthy man. He owned mansions in Michigan and Florida, hosted extravagant parties, and traveled with bodyguards. Zada offered potential investors an opportunity to share in his apparent wealth: through his connections with royalty in Saudi Arabia, he would combine their money with his to make large purchases of oil that would be stored on offshore tankers. Zada's partners in the Middle East would keep the oil on tankers when prices were low, and sell it when prices were high."

He raised $60 million from investors in Michigan and Florida. But "(l)ittle of what Zada told the investors was true. Zada's connections with Saudi royalty existed only in his imagination," the opinion states.

Zada went the extra mile to defraud people: "On one occasion Zada invited investors to a party, where he paid actors to pose as a Saudi prince and princess," Kethledge wrote.

But Zada never bought any oil: He spent $4 million on credit card purchases alone. And when he paid investors anything, it was money he got from other victims.

The U.S. District Court granted the SEC summary judgment, and ordered Zada to disgorge $56 million plus interest, and to pay the same amount as a civil penalty. The 6th affirmed.

On appeal, Zada claimed that the money he raised was promissory notes, not "securities," and that the damages were awarded as punishment for invoking his Fifth Amendment privilege against self-incrimination.

The 6th Circuit didn't buy it. Judge Kethledge pointed out that the district court "explained that a large penalty was necessary because of 'Zada's lack of acceptance of responsibility, in addition to the egregiousness of the offenses and the large amounts of money that he stole.'"

Zada is still facing criminal charges in Florida, where he was indicted in 2013.

Sixth Circuit Judge Danny Julian Boggs and U.S. District Judge Jeffrey Helmick, sitting by designation, concurred.

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