Scam of the day – March 23, 2017 – Ponzi schemer sentenced

Ponzi scheming investment advisor Patrick Churchville has been sentenced to seven years in prison for operating a Ponzi scheme that cheated more than a hundred of his clients out of 21 million dollars. Between 2008 and 2011 Churchville invested his clients’ money in JER Receivables under participation agreements through which they would lend money to JER to buy healthcare receivables promising profits of 30% in 16 months.  When the investment failed, Churchville continued the scam by siphoning money for himself such as in his purchase of 2.5 million dollar waterfront home and used new investors money to pay older investors, which is the defining element of a Ponzi scheme.

TIPS

It bears repeating.  If it looks too good to be true, it usually is.  Anyone being promised a return of 30% in 16 months should be skeptical.  Also, never invest with anyone unless there is an independent custodian who holds the investment in order to avoid having the same person both manage and hold the investment which is a recipe for disaster since it makes it easy for the scammer to hide his or her crimes.  Churchville, like famed Ponzi schemer Bernie Madoff, both made the investments and acted as the custodian of the investment enabling him to falsify records and keep his victims unaware of the scam being perpetrated.

Scam of the day – March 3, 2017 – Happy birthday Charles Ponzi

Had he not died in 1949, today would have been Charles Ponzi’s 135th birthday.  Scam artists around the world should probably honor the man who perfected the scheme that bears his name that has been used by many scam artists, the only criminals we refer to as artists to steal billions of dollars from unwitting victims who made the mistake of investing their money with him.  Although, Ponzi was not the first to use the technique of paying off early investors with the investments of later investors in an effort to make a total sham look as if it is a profitable business, that dishonor should go to William Miller who first used this scheme in 1899, it was Ponzi in 1920 who perfected the scam to steal millions of dollars from unwary investors in his scheme by which he told them that he was able to take advantage of fluctuating currency values to purchase international postal reply coupons at a discount and then sell them at face value in the United States.  Ponzi promised, and delivered to early investors, a 50% profit on investments within 45 days and a 100% profit within 90 days.  Of course, the entire scheme was a total sham, but eager investors blinded by their greed flocked to him to invest.  Eventually, as ultimately always happens in a Ponzi scheme, the scam was exposed and Ponzi went to prison.  However, the list of criminals still using this prototype of a scam continues to this day including such famous Ponzi scheme criminals as Allen Stanford, Tom Petters, Norman Hsu, Lou Pearlman and, of course, the biggest of them all, Bernie Madoff who swindled people out of more than 50 billion dollars using this time honored scheme.

TIPS

So how do you protect yourself from falling prey to a Ponzi schemer?  There are a number of things you can do including always investigate the credentials of any investment adviser you are considering using.  You can check on individual investment advisers with the SEC, your own state’s securities regulators and the Financial Industry Regulatory Authority (FINRA).  However, that would not have protected you from being swindled by the likes of Allen Stanford or Bernie Madoff.

Another important thing is to never use an investment adviser who is also the custodian of your funds. This is a recipe for disaster.  The role of an investment adviser or manager should be solely that of advising and making trades.  The custodian of the actual investments should be a separate broker-dealer regulated by the Financial Industry Regulatory Authority (FINRA) and backed by the Securities Investor Protection Corp. (SIPC).  Never invest in anything that you don’t totally understand and be particularly wary of investments that promise huge returns or no risk of ever losing money even when market conditions are poor.

Scam of the day – November 1, 2016 – Proposed settlement to provide 277 million dollars to Madoff victims

In the eight years since Ponzi scammer Bernie Madoff was exposed as having swindled unsuspecting investors out of approximately 17 billion dollars, Irving Picard, the court appointed trustee charged with recapturing funds from people who profited from Madoff’s scheme in order to return money to cheated investors has managed to get back more than 11 billion dollars, much of which has already been returned to the victims of the scam.  Now a proposed settlement has been made with the estate of the late Stanley Chais, a money manager who improperly steered investors into Madoff’s funds while lying to them about his involvement in the scam.  Under the terms of the proposed settlement, his estate  as well as Chais’ widow will be paying 277 million dollars to Picard and a separate restitution fund for victims established by the California Attorney General.  In a 2009 lawsuit, Picard claimed that Chais made a billion dollars in profit from Madoff’s scheme as well as earning hundreds of millions of dollars more in fees from clients he directed to Madoff knowing that it was a scam.  The proposed settlement will be presented to the judge overseeing the matter on November 22nd for approval.

TIPS

In 2014  Bernie Madoff gave an interview in which he said that his victims were responsible for their losses.   He said that his investors were “sophisticated people” who should have known better.  “People asked me all the time, how did I do it.  And I refused to tell them, and they still invested.  Things have to make sense to you.  You should ask good questions.”  And although it is outrageous for Madoff to blame his victims for their plight, he is correct in his analysis. No one should ever invest in anything that they do not totally understand.  In Madoff’s situation, with 20/20 hindsight we can see that his investment strategy was impossible to achieve.  It is easy to say now, but investors should not have relied on him.  They should have tried to understand the strategy and if they could not understand it, which no one would have been able to do, they should not have invested.  In addition to Madoff’s advice, I would also warn you against ever investing with an investment adviser such as Madoff who both makes the investment decisions and also holds the investments.  These activities should be divided between an investment adviser who makes trades and a separate broker-dealer who actually holds the investments.  Had this elemental rule been followed by Madoff direct investors, they would have immediately known that there were no investments to be held.

Scam of the day – July 13, 2016 – Evil spirit scam

Police in New York are warning people about a resurgence of a scam I first warned you about in the Scam of the day for May 21, 2012.   This particular scam targets Chinese Americans and begins when the scammer who is also of Chinese heritage approaches elderly Chinese women on the streets and tell them that they are plagued by evil spirits and that the only way to get rid of the evil spirits is through a purification ceremony.  They victims are told that they have to bring their cash and jewelry to the ceremony to purify their belongings and protect them from the evil spirits.  The victims’ cash and jewelry is then put in a bag and when the victims are not looking the money and jewelry is taken out of the bag by the scammer.  After the ceremony, the victims are told to take the bag home, but not to open the bag for a few days or the purification will not work.  By the time the victims learn they have been swindled, the scammers are long gone.  This particular scam has been preying upon the Asian communities in cities such as Boston, Seattle, Chicago and San Francisco in addition to New York.  In San Francisco alone, police estimate that the scammers managed to steal more than 2 million dollars worth of cash and valuables from about sixty victims reporting the crime.  This type of scam is also being reported in Haitian and Latino communities as fellow Haitians and Latinos prey upon people within their communities with similar scams.

TIPS

We tend to trust people who are like us; people who have the same cultural heritage, race, religion or social group.  Unfortunately, “people like us” can be swindlers who take advantage of our trust.  This type of fraud is called affinity fraud.  This was what happened to many of the Jewish victims of Bernie Madoff who preyed upon many victims using their shared religion as an inducement.  Be extra careful when an investment or other offer is made to you by someone who shares an affinity with you.  Check them out as you would anyone else before doing any business with them.

Scam of the day – July 10, 2016 – Wall Street executive pleads guilty to Ponzi scheme

Wall Street executive Andrew Caspersen pleaded guilty earlier this week to charges that he scammed investors out of millions through a scam in which he lured investors with representations that he would earn 15% or more on their investments by lending money to private equity funds through secured loans that he claimed were “practically risk free.” Instead he used the millions he collected from investors to fund his personal option buying, pay out earlier investors with the money gained by later investors, the hallmark of a Ponzi scheme, and support his self proclaimed “pathological gambling problem.  Ultimately, his losses totaled more than a hundred million dollars.

TIPS

The rules for protecting yourself from investment scams are always the same.  Before investing in anything, you should make sure you understand the investment and carefully investigate both the investment and the person advising you to make the investment.  In addition, a red flag present in both the Bernie Madoff scam and the Ponzi scam allegedly operated by Caspersen is when the person advising you to make the investment is also the custodian of the account.  They should never be the same person.  Always have a broker-dealer separate from your individual adviser.  This way the actual funds and investments are monitored by a third party.

Scam of the day – July 2, 2016 – Brexit scams

The economy in general and the stock market in particular react to fear and greed.  The recent Brexit (British Exit) vote of Britain to leave the European Union (EU) has led to a great deal of fear as reflected in the initial tremendous drops in the stock markets around the world.  It also is leading people to be vulnerable due to both fear and greed to the entreaties of scammers offering investments purporting to take advantage of the situation created by Britain leaving the EU.  Fear and greed are scammers best friends because they make people into easier targets.  Scammers are always ready to take advantage of every major event that happens and turn it into an opportunity to scam people and the Brexit vote is no exception.  Scammers are already contacting people with investment “opportunities” to take advantage of their concern about Britain leaving the EU.

TIPS

Before you consider any investment in response to an email, text message or phone call, you should first ask yourself, why is this stranger contacting me to invest in this fool-proof investment that is guaranteed to deliver a huge profit?  You should also never underestimate the power of a fool.  Nothing is fool proof and no investment can guarantee a huge profit.    Before investing with anyone, you should investigate the person offering to sell you the investment with the Securities and Exchange Commission’s Central Registration Depository.  This will tell you if the broker is licensed and if there have been disciplinary procedures against him or her.  You can also check with your own state’s securities regulation office for similar information.  Many investment advisers will not be required to register with the SEC, but are required to register with your individual state securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.   You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular  investment adviser.  It is also important to remember that you should never  invest in something that you do not completely understand.  This was a mistake that many of Bernie Madoff’s victims made.  You also may want to check out the SEC’s investor education website at www.investor.gov.  Scammers can be very convincing and it may sound like there is a great opportunity for someone to make some money, but you must be careful that the person making money is not the scam artist taking yours.

Too many people invest without doing their homework and end up losing money to scams.  Homework wasn’t fun when you were in school and it isn’t fun now, but it is important to do before investing in anything.

Scam of the day – October 29, 2015 – Bernie Madoff update

When Bernie Madoff’s Ponzi scheme unraveled in December of 2008 it was estimated that his investors which included charities as well as individual investors lost about 20 billion dollars.  Irving Picard, the trustee appointed by the Bankruptcy Court to try to recover funds to be used to reimburse Madoff’s victims has had great success in getting close to 11 billion dollars in funds for the benefit of Madoff’s victims.  To date, Picard has already returned more than 7 billion dollars  of this recovered money to investors swindled by Madoff.  Recently Picard filed a motion to be heard on November 18th for permission to immediately distribute an additional 1.18 billion dollars to the  victims of Madoff’s crimes.  Under the proposed payout requested by Picard the average payment will be $855,000 with the largest payment being $1,082 and the largest approximately 168 million dollars.

Picard has filed more than a thousand lawsuits against people and companies who he alleged profited unfairly from Madoff’s scam and recovered funds from others involved in the complicated scheme under various legal theories.  Among those paying money in response to these lawsuits were Madoff’s bank, JPMorgan Chase which paid 543 million dollars and Fairfield Greenwich Group, a mutual fund company which agreed to pay 50 million dollars.

TIPS

Last year Madoff gave an interview in which he said that his victims were responsible for their losses.   He said that his investors were “sophisticated people” who should have known better.  “People asked me all the time, how did I do it.  And I refused to tell them, and they still invested.  Things have to make sense to you.  You should ask good questions.”  And about this he is correct. No one should ever invest in anything that they do not totally understand.  In Madoff’s situation, with 20/20 hindsight we can see that his investment strategy was impossible to conduct.  It is easy to say now, but investors should not have relied on him.  They should have tried to understand the strategy and if they could not understand it, which no one would have been able to do, they should not have invested.  In addition to Madoff’s advice, I would also warn you against ever investing with an investment adviser such as Madoff who both makes the investment decisions and also holds the investments.  These activities should be divided between an investment adviser who makes trades and a separate broker-dealer who actually holds the investments.  Had this elemental rule been followed by Madoff investors, they would have immediately known that there were no investments to be held.

Scam of the day – June 29, 2015 – New settlement provides funds for victims of Bernie Madoff

Irving Picard, the trustee appointed by the Securities Investor Protection Corporation (SIPC) to protect the interests of the victims of the Bernie Madoff Ponzi scheme has announced a settlement with Plaza Investments International by which Plaza will pay 140 million dollars to be applied to the losses suffered by Madoff’s victims.  Plaza is one of a number of feeder funds that invested millions of dollars of their clients’ funds with Madoff without properly investigating what Madoff did with the money.  It is also alleged that Plaza, as did other feeder funds failed to recognize indications that what Madoff was doing was a scam.  Madoff, who is now serving a 150 year prison sentence was found guilty of stealing approximately 20 billion dollars from individual investors, celebrities and other investment managers who, such as Plaza invested their clients’ funds with him.  Madoff’s scheme was a classic Ponzi scheme by which he never invested anything, but just used the money received from new investors to pay off earlier investors.  This latest settlement brings the total amount recovered on behalf of Madoff’s victims to 10.874 billion dollars.

TIPS

Bernie Madoff has actually indicated that it was his victims own fault that they lost the money they invested with him.  He went on to explain that if they had done their proper research, they would have realized that it was impossible to do what he said he was doing with the money.  Although to hear these words coming from a man who financially ruined so many people is offensive, there is a bit of truth to what he says and a lesson to all of us.  You should never invest in anything that you do not completely understand.  Only put your money into investments that you are familiar with and never let your investment adviser also be the custodian of your funds.  Madoff did both functions which made it easier for him to cheat his victims as there was no one to oversee or regulate his actions.

Scam of the day – March 3, 2015 – Happy Birthday Charles Ponzi

Had he not died in 1949, today would have been Charles Ponzi’s 133rd birthday.  Scam artists around the world should probably honor the man who perfected the scheme that bears his name that has been used by many scam artists, the only criminals we refer to as artists to steal billions of dollars from unwitting victims who made the mistake of investing their money with him.  Although, Ponzi was not the first to use the technique of paying off early investors with the investments of later investors in an effort to make a total sham look as if it is a profitable business, that dishonor should go to William Miller who first used this scheme in 1899, it was Ponzi in 1920 who perfected the scam to steal millions of dollars from unwary investors in his scheme by which he told them that he was able to take advantage of fluctuating currency values to purchase international postal reply coupons at a discount and then sell them at face value in the United States.  Ponzi promised, and delivered to early investors, a 50% profit on investments within 45 days and a 100% profit within 90 days.  Of course, the entire scheme was a total sham, but eager investors blinded by their greed flocked to him to invest.  Eventually, as ultimately always happens in a Ponzi scheme, the scam was exposed and Ponzi went to prison.  However, the list of criminals still using this prototype of a scam continues to this day including such famous Ponzi scheme criminals as Allen Stanford, Tom Petters, Norman Hsu, Lou Pearlman and, of course, the biggest of them all, Bernie Madoff who swindled people out of more than 50 billion dollars using this time honored scheme.

TIPS

So how do you protect yourself from falling prey to a Ponzi schemer?  There are a number of things you can do including always investigate the credentials of any investment adviser you are considering using.  However, that would not have protected you from being swindled by the likes of Allen Stanford or Bernie Madoff.  Another important thing is to never use an investment adviser who is also the custodian of your funds. This is a recipe for disaster.  The role of an investment adviser or manager should be solely that of advising and making trades.  The custodian of the actual investments should be a separate broker-dealer regulated by the Financial Industry Regulatory Authority (FINRA) and backed by the Securities Investor Protection Corp. (SIPC).  Never invest in anything that you don’t totally understand and be particularly wary of investments that promise huge returns or no risk of ever losing money even when market conditions are poor.

Scam of the day – February 25, 2015 – IRS releases its list of “Dirty Dozen” tax scams for 2015

Recently the IRS issued its annual list of “Dirty Dozen” tax scams although many of these scams are not scams that cheat taxpayers, but rather scams the scammers attempt to perpetrate on the IRS in order to get large fraudulent refunds.  These frauds against the IRS include excessive claims for fuel credits, abusive tax shelters and offshore tax avoidance schemes.  Here at Scamicide, however, we focus on those scams that target innocent citizens rather than the IRS.  The three primary consumer tax scams on the IRS’ list are phone scams, phishing scams and inflated refund scams.

This has been a particularly big year for aggressive phone scams where people receive phone calls from people purporting to be IRS employees demanding immediate payments of purported overdo taxes by wired funds or prepaid money cards.  People receiving these calls are threatened with fines, arrest, deportation and loss of drivers’ licenses among other penalties unless there is immediate compliance with the caller’s demand.  This is a total scam.  The IRS will not initiate such communications with any taxpayer by phone.

The second scam involves phony emails or text messages that again, appear to come from the IRS demanding information or payments under various guises.  Again, the IRS will not communicate with taxpayers in this fashion, so you can be confident when you receive such a communication that it is a scam.

Finally, unscrupulous scammers posing as tax preparers may promise huge refunds and ask unwary taxpayers to sign blank returns that the scammer fills in with fraudulent information.  Often these phony tax preparers make initial contact through a social group, religious group or some other group of which you may be a member taking advantage of the high level of trust for people who share such affiliations.  This type of fraud is called affinity fraud.

TIPS

The IRS will not initiate contact with anyone by telephone and even if your Caller ID indicates that the call is from the IRS, Caller ID can be fooled through a technique called “spoofing” to make it appear that the call has originated from the IRS when it has not.  In addition, the IRS will never demand that you wire in a payment or pay immediately by a prepaid money card.  Just hang up if you receive such a call.

Just as the IRS will not initiate contact with you by phone, it will also not initiate contact with you by email or text message.  Never provide personal information in response to an email until you have confirmed that the email or text message is legitimate.  In this case, you don’t even have to bother to verify the email or text message because the IRS will not communicate with you in this manner.  Also, don’t ever click on links or download attachments in emails or text messages unless you have confirmed that they are legitimate because often these links or attachments end up downloading malware on your computer or other device that steals your personal information and uses it to make you a victim of identity theft.

Finally, always check out the reputation and honesty of anyone you may use to prepare your taxes.  Never sign a blank form and remember my motto, “trust me, you can’t trust anyone.”  Merely because you may share a religious or social affiliation with someone does not make them trustworthy.  Just ask the people that trusted Bernie Madoff.