ISTANBUL (Hurriyet)—A group of executives in the United States, including Turks, have been accused of involvement in a Ponzi scheme to defraud retirees by a U.S. court order sent to the Securities and Exchange Commission on March 9.
According to the order, Francois E. Durmaz, also known as Mahmut E. Durmaz and Robert C. Pribilski raised more than $20 million from retirees, through a company named USA Retirement Management Services, or USARMS, and funneled part of the money to Turkey. The money, collected on promises that it will be invested in Turkish Eurobonds, was also diverted to “a stamp collection, Web pornography and cryogenically frozen umbilical cords,” according to the SEC.
The court order also alleged Turkish real estate company Marlalı Gayrimenkul Yatırımları is also involved in the scheme.
Hurriyet said the company, based in the Umraniye district of Istanbul according to Turkish Commercial Registry, could not be reached because its phone number was unlisted.
In its complaint to the U.S. District Court in the Central District of California, the SEC said between 2005 and 2010, over 120 investors purchased nearly $20 million of USARMS’ promissory notes. The money was collected through “real estate seminars” conducted by Durmaz and others, who promised annual returns of 8 to 11 percent to investors.
“Defendants are operating a Ponzi scheme,” the complaint said. “In the five years … USARMS has generated no income from Turkish Eurobonds. Rather, defendants make purported interest and principal payments to investors using new investors’ funds.”
The document claimed that in addition to transferring investors’ money to a Pribilski and Durmaz-controlled Marlalı Property Investment Company LLC, the defendants have transferred nearly $7.2 million to Sibel İnce, Mehmet Karakuş, Marlalı Gayrimenkul Yatırımları and a company named Gülen Enterprises, Inc.
“As of Dec. 31, 2009, of the $20 million USARMS promissory notes purchased by investors, only approximately $900,000 remains in financial accounts controlled by defendants,” the document said.
According to a table accompanying the complaint, the defendants disbursed more than $1.2 million to “relatives and/or Turkey.” The money disbursed for “personal use” stood at nearly $5 million. The document claimed that part of this amount was used for “Durmaz’s stamp collection, vacations, access to Web-based pornography and the cryogenic preservation of umbilical cord stem cells.”
Durmaz, 39, resides in Los Angeles, California and Streamwood, Illinois, according to the SEC complaint, while Sibel İnce, a 37-year-old relief defendant, resides in Laguna Beach, California and is listed as Durmaz’s spouse.
A call by Bloomberg to USARMS’s Los Angeles office was forwarded to a woman who identified herself as Mary and declined to comment. An Internet phone directory had no listings for Durmaz in Los Angeles and Streamwood or for Pribilski in Lisle, Illinois.
Istanbul Company Involved
The SEC could not figure out that Marlali Gayrimenkul, based in Istanbul, is a company and named it as a person, adding that its “age is unknown” and it “resides in Istanbul.” The firm received wire transfers of nearly $6 million from USARMS and Marlalı Property, according to the document. Mehmet Karakuş, another relief defendant residing in Istanbul, received wire transfers of nearly $925,000 from Marlalı Property, according to SEC. Gülen Enterprises, a California corporation, received $970,000, the SEC said.
Marlali Gayrimenkul made it to real estate pages of Turkish press in February two years ago, when it announced the cancellation of a $50 million property project in the southern city of Adana due to the mortgage crisis in the U.S.
The SEC requested a temporary restraint order, an asset freeze, an order to appoint a receiver over all entities controlled by Durmaz or Pribilski, prohibition of the destruction of documents and prohibition of the defendants from traveling outside the U.S.
Ponzi schemes typically rely on money from new participants to pay profits to earlier investors. Since the frauds rely on new clients, rather than investment returns, they tend to collapse when funding dries up.