Unraveling a Ponzi Scheme: Forensic Accountant Needed
It has become commonplace to hear news stories of Ponzi schemes being uncovered. Investment scams and Ponzi schemes are all too common. Investors are lured in with promises of high returns. People in or nearing retirement find these investments enticing, especially as their retirement funds in the stock market have taken many hits in the last few years.
As I wrote in my book Expert Fraud Investigation: A Step-by-Step Guide, investors are becoming victims of these scams despite the proliferation of information available about phony investment schemes and the dire warnings given regularly by news reporters. Perpetrators of investment schemes dream up stories explaining their unusually high rates of return on money, and get high net worth people to invest with them. Often these people are investing their entire savings with scammers.
These high investment returns typically amount to guarantees in excess of 10% per year. Often they are to the point of ridiculous, offering a 30% or 40% annual return. As a fraud investigator, it is clear to me that these offerings are bogus, because any investment that legitimately generated such returns would not be much of a secret to the rest of the world. But consumers, who are often eager to protect and grow their nest eggs, are all-too-willing to believe that this investment is the answer to their money problems.
These investment schemes are not usually terribly elaborate, but the stories about them are. In typical investment schemes, there is absolutely nothing legitimate about what they are offering. There is often astory about a wonderful investment vehicle, often with ground-breaking technology, a secret recipe, access to a niche market, or some other unusual-sounding detail. This cryptic detail allows the investment vehicle to create such high returns for investors, or so the story goes. The unique characteristic that will supposedly earn the investors so much money is either nonexistent or does not have the significance that those selling the investment want you to believe. The people making the offering simply want to steal the investors’ money and hope that they will buy into the scheme before they discover the hook is all a lie.
Recently my colleague Brian Mahany wrote about a Ponzi scheme run by Jerry Aubrey and busted by the SEC. Over 200 investors had contributed more than $11 million to this scam called Progressive Energy Partners. Aubrey said the funds were being invested in oil and gas, but the money was really being used to pay off early investors (the is really the hallmark of a Ponzi scheme: new money is solicited to pay off older investors who want to cash out) and to support his posh lifestyle.
There were signs that Progressive Energy Partners was nothing more than a Ponzi scheme:
- Aubrey promised returns of more than 50% per year
- Aubrey already had a criminal record involving investment scams when he was hawking Progressive Energy Partners
- Those selling this “investment” did not have securities licenses (and this is easy to find out with a simple, free database search)
- The company said it had audited financials, but it really did not. Investors should have asked to see the audited financial statements and should have confirmed with the CPA firm that the audit was authentic.
When Ponzi schemes like this are detected, a forensic accountant can help find where the money went. While fraudsters like Jerry Aubrey will often spend much of the money on living a lifestyle, they may have some of the money invested in assets like real estate, or in secret bank accounts overseas. A forensic examination by a fraud investigator like Tracy Coenen is aimed at tracking down any assets that may be recovered for the benefit of those scammed.
A detailed tracing of the funds through known bank and brokerage accounts can turn up details that may point to hidden assets. This process can be a massive undertaking as Ponzi scammers may often use many bank and brokerage accounts, and do a high volume of smaller transactions in order to conceal the source and use of funds. A forensic accountant with the technological tools and requisite fraud investigation experience can unravel this tangled web of financial dealings.
Tracy Coenen, CPA, CFF has investigated hundreds of cases of fraud, included cases involving investment fraud, Ponzi schemes, hidden assets, and other financial crimes. She has provided testimony in both state and federal courts, and is available to work on cases worldwide. Attorneys representing victims of fraud can contact Tracy for a confidential consultation by calling her at 312.498.3661 or emailing her at tracy@sequenceinc.com.
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Tags: fraud recovery, investment scam, investment scheme, jerry aubrey, ponzi scheme, progressive energy partners, pyramid scheme
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