Recently the Department of Justice obtained a grand jury indictment against Hal H. Brown Jr. on charges related to his alleged operation of a Ponzi scheme. Although, Charles 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,  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 scam, but eager investors, blinded by their greed. flocked to him to invest.

Brown’s alleged version of a Ponzi scheme involved investments he sold through his company, Oodles, Inc between 2012 and September of 2019.  Brown is accused of falsely representing that Oodles owned hundreds of millions of dollars of family entertainment movies and shows that Brown said he would be selling to well known media companies.  The truth is that Brown did not own any movies or shows.  As often is the case with Ponzi schemes, Brown promised huge profits to investors.  Again, as typical in a Ponzi scheme, Brown would make payments to earlier investors with money obtained from later investors to make his scam appear legitimate.  He also is accused of falsifying documents and records he showed his victims to lure them into giving him their money.

TIPS

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’s securities regulators.   You can find your state’s agency by going to the website of the North American Securities Administrators Association.  https://www.nasaa.org/

You should also check with the Financial Industry Regulatory Authority (FINRA) for information about the particular investment adviser.  https://brokercheck.finra.org/   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.  Investing in the entertainment business is particularly risky unless you are familiar with the business. Additionally, having the same person provide investment advise and control the investment such as was the case with Brown is a common thread among Ponzi schemers because it enables them to falsify documents to make the investment look profitable. Generally, for additional security it is desirable to have a separate broker-dealer act as custodian for investments chosen by an investment adviser. 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).

Of course, you always should be skeptical of investment advisers that promise large investment returns. In this case, Brown’s promised return on investments was unreasonably high. If it sounds too good to be true, it usually is.

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