By Jorge Casuso

August 19, 2024 -- An investigation launched by Santa Monica police when two local residents were defrauded in 2022 led to a federal probe that has uncovered a $2 million Ponzi scheme.

Federal officials on July 17 arrested Michelle Bisnoff, also known as “Michelle Angeline Silverstein” and “Shelly Silverstein,” 57, in Boca Raton, Florida, according to the U.S. Attorney's office.

Bisnoff was charged in a criminal complaint with one count of securities fraud and one count of wire fraud that carry a statutory maximum sentence of 40 years.

Th investigation began when two Santa Monica victims informed police they had collectively lost approximately $50,000 in fraudulent investments, SMPD officials said.

The crime report "revealed a Ponzi scheme affecting residents in Santa Monica and Brentwood, with financial losses exceeding $1 million," officials said.

"As SMPD detectives closed in," Bisnoff "evaded law enforcement (by) moving from Brentwood to Santa Barbara, and eventually to Florida," officials said.

A joint effort by Santa Monica's Criminal Investigations Division and LAPD, with the assistance of the FBI led to Bisnoff's arrest.

According to the affidavit in support of the criminal complaint, Bisnoff, who is the founder and CEO of ESOS, fraudulently solicited investments in the company from 2017 through the end of 2023.

She did this by "falsely representing ESOS's business activities and profitability, and the returns that the investors would receive on their investments," according to the affidavit filed by the U.S. Attorney's Office, Central District of California.

"Bisnoff allegedly told prospective investors that ESOS owned patents for 'smart rings,' a wearable device encoded with financial information, which could be used to make contactless payments.

"Bisnoff allegedly said ESOS earned transaction fees each time a ring was used, generating profits for ESOS," according to prosecutors.

She also allegedly told prospective investors that ESOS was "already manufacturing and selling these smart rings, and that ESOS would soon be bought by Apple or another suitor."

This would result "in a buy back of the investors’ shares at prices significantly above the share price she was offering."

Neither Bisnoff nor ESOS owned the patents, according to the affidavit.

"The majority of investor funds raised were used to allegedly make Ponzi payments to earlier investors and to benefit Bisnoff personally," the U.S. Attorneys office said in a July 17 press release.

"The prospective acquirors of ESOS had no knowledge of ESOS and/or no plan to provide capital for it; and ESOS had virtually no business operations, let alone profits."

According to the U.S. Attorney's Office, the U.S. Securities and Exchange Commission sued Bisnoff and ESOS for allegedly fraudulently raising $1.95 million from ESOS investors.

Last September, a U.S. District Judge "imposed a judgment finding Bisnoff and ESOS jointly and severally liable for disgorgement of $566,483, representing net profits from the fraud."

The judge also found Bisnoff liable for $46,836 in prejudgment interest and a civil penalty of $223,229, with the total amount due of $836,548 to be paid to the SEC within 30 days.

According to the affidavit, to date neither Bisnoff nor ESOS has paid any of the amounts due.

The Santa Monica Police Department is reminding residents "to be cautious about investment opportunities that seem too good to be true.

"Don't allow yourself to be pressured into making a decision, and be wary of unsolicited communication," SMPD officials wrote on X. "Trust your gut, and don't share personal information" with anyone you don't know.

This includes Social Security, bank account or credit card numbers.

"Always work with a trustworthy investment advisor and report any suspicious financial activities to SMPD immediately," officials advised.

Bisnoff has been released on bond and ordered to appear in United States District Court.

The U.S. Attorney's Office noted that "all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law."