SEC triumphs in $30m sports betting Ponzi-scheme case

The US Securities and Exchange Commission (SEC) has won a lawsuit over an alleged $30m Ponzi-style sports betting scheme which ensnared more than 600 investors in over 40 states.

In a summary ruling, judges in the Nevada Federal Court ruled in favor of the SEC against primary defendants Douglas Martin and Damian Ostertag before ordering the pair to repay $480,927 and $434,725 respectively for their roles in the scheme.

However, judges rejected the SEC’s request to order the repayment of potentially tens of thousands of dollars in civil penalties because the regulator failed to establish the individual amounts of the claims.

Martin and Ostertag were instead each fined $5,000, despite the SEC asking for fines of $30,000 and $60,000 respectively over the duo’s role in serving as agents of the scheme.

The scheme collected approximately $30m in monies from more than 600 investors spread over 40 states, pooling the cash across six companies, who then used funds to make and place bets with sportsbooks.

Investors in the scheme were promised returns of between 250% and 600% if they signed an agreement with the companies, with payments kicking in once the returns hit a targeted amount.

In the example highlighted by the SEC, the investor would receive their monies if the returns exceeded 50%.

The six companies comprised of Wellington Sports Club LLC, Quantum Sports Advisory LLC, Welscorp Inc., Einstein Sports Advisory LLC, Vegas Basketball Club LLC and Vegas Football Club LLC.

It operated a network of more than 150 brokers and agents.

The broker would then become a “non-exclusive direct seller and referrer” and agreed to “promote, market, and sell” the agreements in return for a certain percentage of front-end and back-end commission.

Co-defendants John F Thomas and Thomas Becker allegedly siphoned off much of the cash for their own usage or to make Ponzi payments and undisclosed commission payments.

The SEC initially filed the lawsuit in 2019 on securities violation grounds, with the court issuing a default judgement against the defendants after they failed to answer the initial complaint.

The regulator would later file for a summary judgement against Ostertag and Martin, with Ostertag later admitting that the agreements operated by the scheme constituted securities.

However, Ostertag challenged the SEC’s assertion that so-called rollover contracts that allowed investors to potentially increase their returns were also securities, arguing that the money had already been invested.

This argument was ultimately dismissed by presiding US District Judge Andrew P Gordon.

Mounting his own last-ditch defence against the charges, Martin alleged he was not acting as a broker but rather a referral partner, an argument which was also dismissed by the judge.

In addition to ordering the repayment of investment monies, Judge Gordon has barred the pair from engaging in securities-related activities in the US and ordered the repayment of more than $20m in prejudgement interest by Martin and Ostertag’s company Executive Financial Services.