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 6, 2017 – Ponzi schemer pleads guilty to 54 million dollar scam

If you needed further proof that the scam pioneered by Charles Ponzi whose birthday was just three days ago still lives, the guilty plea of Troy Wragg in federal court on various fraud charges including securities fraud and conspiracy is proof that Ponzi schemes are still a scam of choice for many modern day scammers.

Wragg founded Mantria Corp, which he touted as being the next Microsoft, promising investors to make them rich through the company’s innovative energy saving technology coupled with green real estate development.  Investors were lured to invest in Mantria through “Speed of Wealth” seminars promising profits of as much as 484%.

Unfortunately, the company was a failure and when it began to have financial problems, Wragg turned it into a Ponzi scheme by which he paid early investors with the money from later investors, all the while keeping sizable amounts of the money for himself.

TIPS

Among the many red flags that this was a Ponzi scheme is the promise of huge profits with little or no risk.  As always, if it looks to good to be true, it generally is not true.  In addition, no one should ever invest in anything that they do not fully understand.  If investors had done their research on the complicated environmental technology that Wragg told them he had, they would have found many problems.  As for the real estate part of Mantria, if investors had looked into the real estate owned by Mantria, they would have found that the land did not have access to potable water and was littered with unexploded artillery shells from its previous use as a military firing range.

Never invest in anything until you have thoroughly researched the people offering the investment and the investment itself.

 

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.

February 25, 2017 – Steve Weisman’s latest column for USA Today

March 3rd is the birthday of Charles Ponzi and although he died many years ago, the scheme with which bears his name still is being used to scam many people today.  Here is a link to my recent column for USA Today in which I give you some tips about how to recognize and avoid a Ponzi scheme.

http://www.usatoday.com/story/money/columnist/2017/02/25/steve-weisman-how-spot-modern-day-charles-ponzi/97145558/

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 – January 14, 2016 – Documentary movie scam

Montana state judge Mike Menahan has frozen the assets of Matthew McClintock and also issued a permanent injunction freezing the assets of McClintock, who also uses the name Michael Willis following charges of securities fraud brought by the Montana State Auditor.  The charges relate to McClintock’s soliciting of investors for a documentary about cowboys that would be narrated by Clint Eastwood and broadcast on PBS and Fox.  In the course of his soliciting investors, McClintock told them that the movie would have a prominent University of Montana history professor advising the film and a portion of the movie’s profits would be given to the Western Montana Breast Cancer Fund.  Unfortunately, neither Clint Eastwood nor the history professor were involved with the project, PBS and Fox had never heard of the movie and the Western Montana Breast Cancer Fund does not exist.  According to Montana security officials, the money collected from swindled investors went primarily to McClintock’s own use with some going for interest payments to other investors which is a telltale sign of a Ponzi scheme.  McClintock has also been charged criminally in regard to the movie project and is presently already on probation in Montana following a 2010 conviction for a money-raising scam.   He had been previously convicted of securities fraud in Oklahoma.

TIPS

Investing in anything carries risk.  Investing in the making of a movie is incredibly risky even when the movie project is legitimate.  No one should ever consider investing in anything that they do not understand.  This is a rule that would have saved Bernie Madoff’s victims millions of dollars because as Madoff himself later admitted, if people had carefully looked into what he said he was doing, they would have recognized it could not have been done.  In addition to investigating the particular investment, you should also investigate the company and, most importantly in this case, the person selling the investment to you.  Had McClintock’s investors checked him out, they would have found that he had already been convicted of securities fraud.

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 – 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 – December 10, 2014 – SEC charges investment advisor with fraud

The SEC has brought fraud charges against Levi Lindemann, an investment adviser, accusing him of stealing almost a million dollars from elderly investment clients.  According to the SEC, between the years of 2009 and 2013, Lindemann collected money from investors only to use the money for his own personal use.  By paying off older investors with the funds supplied by newer investors, he made it appear that he was making substantial profits for his clients.  This is the mark of a typical Ponzi scheme, pioneered by Charles Ponzi at the start of the twentieth century.  Lindemann provided clients with phony account statements and forged documents to make it appear that his clients had indeed invested in legitimate investments.

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.  Anyone carefully evaluating Lindemann’s scheme would have found that it was phony.  In addition, a red flag in both the Bernie Madoff scam and the Ponzi scam allegedly operated by Lindemann 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 separate broker-dealer from your individual adviser.  This way the actual funds and investments are monitored by a third party.

Scam of the day – August 31, 2014 – Ponzi Investment scammer convicted

It is interesting to note that when it comes to investment scams, sophisticated investors are often the victims.  This was true in the Ponzi investment scam of Bernie Madoff and it was true of the investment scam of recently convicted David Rose.  Rose specialized in scamming doctors and dentists who he lured into investing in, what they thought, were companies doing research and development in the medical field.  Rose was, as many scam artists are, a slick operator.  He met with clients and provided them with private placement memorandums that described in detail how the money was to be invested.  Unfortunately, of the two million dollars he took from investors, none of it was actually invested in anything.  Instead, Rose used the money to buy luxury boats and cars, jewelry as well as for other personal uses.

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 in both the Madoff scam and the Rose scam 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 separate broker-dealer from your individual adviser.  This way the actual funds and investments are monitored by a third party.