Earlier this week, Jeff Carpoff was sentenced to the maximum sentence of thirty years in prison for operating a Ponzi scheme in which he scammed investors in his phony mobile solar generator business. Carpoff lured investors with falsified financial statements and lies about his business. Numerous investors including Warren Buffet’s Berkshire Hathaway fund lost a billion dollars in the scam. As is typical with Ponzi schemes, Carpoff paid early investors with money that was not derived from profits of his business, but with the investments of later investors. Over the years Ponzi schemes have been used by many scammers to steal billions of dollars from unwitting victims who made the mistake of investing their money with such criminals. 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, that dishonor should go to Sarah Howe who first used this scheme in the 1870s, it was Ponzi in 1920 who perfected the scam to steal millions of dollars from unwary investors in his scheme through 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 fake, 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.
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. In the case of Gallagher, he has not been a Registered Investment Adviser since 2009. 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. Additionally, investing with someone merely because you trust them because you have heard them on the radio or television is dangerous. Having the same person advise the investment and control the investment 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.
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