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. Continue reading
There is no shortage of allegations of investment fraud since the stock market tanked in 2008. Are there more investment scams occurring, or have market conditions just led to the discovery of more of these schemes? I’ll guess the latter, although no one really knows for sure.
The beauty of fraud is that so much of it goes undetected. Those involved in financial fraud actively conceal their schemes and their involvement, so it’s impossible for fraud investigators to know exactly how much fraud is happening. For example, perpetrators go so far as to pay others to participate in the scheme and cover up phony financials and non-existent promissory notes. This kind of concealment leads to more investors putting money in a scheme, and ultimately creates ever larger financial losses.
In the end, however, it doesn’t necessarily matter if we can put our finger on exactly how many of these investment schemes are out there. What really matters is being able to identify the hallmarks of such schemes so that investors can avoid them like the plague. Continue reading
Jimmy Sodhi / Jimmy Singh
Investors are nearly $2.4 million poorer and Janamjot Singh Sodhi has earned himself an almost 5 year stay at Club Fed, thanks to a Ponzi scheme carried out through a company called Elite Financial Inc. The fraudster also used the names Jimmy Singh or Jimmy Sodhi.
The scheme ran from 2005 through September 2011, Like any typical Ponzi scheme, Sodhi solicited investors with the promise of high rates of return, and used new investor money to pay “returns” to old investors. At the same time, Sodhi siphoned off money for himself.
Here’s where it gets interesting… Sodhi previously had a license to sell investments, but it was revoked in 2005. In 2006, he was permanently debarred by the New York Stock Exchange. And in 2009, Jimmy Sodhi was ordered to cease and desist all investment advisor activity in California. Continue reading
Jenna Martino, CNBC Associate Producer
Shawn Merriman was head of an investment firm and lay bishop in the Mormon church who persuaded friends, family, and church members to invest with him. It turned out to be a big scam, taking in more than $21 million. Among victims: his own mother.
What Merriman did is considered affinity fraud — where a perpetrator tries to swindle a specific group out of money. While Merriman was already a long-standing member of the Church of Latter-day Saints, other fraudsters have been known to specifically infiltrate a group with the sole mission of perpetrating a scam. Continue reading
An article in a recent edition of the Bloomberg BNS Banking Report on Ponzi Schemes and bank liability referred to an article I wrote on recognizing red flags of Ponzi schemes:
Under each, a plaintiff must account for both the plaintiff’s failure to investigate the would-be fiduciary before investing with the fiduciary and the plaintiff’s failure to monitor the fiduciary’s activities subsequent to the investment. As to the first, there are often many red flags to alert an investor to a Ponzi scheme that reasonable investors should notice and that many investors choose to ignore in pursuit of high returns. Fraud detection expert Tracy Coenen has noted more than fifteen red flags signaling a Ponzi scheme that any investor could spot with a reasonably diligent (and fairly simple) investigation. These items include: Continue reading
It’s hard to believe that a Ponzi scheme as massive as the one perpetrated by Bernard Madoff got by anyone. Surely he was the most clever criminal alive, and was ingenious at hiding his fraud. There couldn’t have been any signs of the scam he was running. Or were there?
It turns out there were plenty of red flags pointing squarely at the scheme Madoff was running. It was clear years ago to Harry Markopolos, the author of “No One Would Listen: A True Financial Thriller.”Markopolos was the whistleblower who went to the Securities and Exchange Commission on several occasions with his suspicions about Bernie Madoff. But he wasn’t an investment expert who was “just jealous” of Madoff’s apparent success in generating high earnings for his clients quarter after quarter. He was a numbers wizard who had concrete proof the Madoff’s “investment strategy” couldn’t be anything like what he (or others) said it was. Continue reading
How do you know if you’re considering investing in a Ponzi scheme? The promoters will never come out and tell you they are running a pyramid scheme, so the investors have to be smart enough to recognize them on their own. The good news is it is easy to spot a Ponzi scheme.
Now I don’t mean that it’s easy to prove in a court of law that something is a Ponzi scheme. In a civil or criminal case, there are certain standards of proof that need to be met. But you’re not a court. You’re simply an investor. Whether you have $10,000 to invest or $10 million to invest, your money is probably pretty important to you.
The big buzz this week is an article in Rolling Stone regarding the SEC’s policy of destroying documents related to Matters Under Investigation (MUIs) which do not result in any agency action being taken.
At first blush, it may appear to be some sort of cover up, and that’s exactly what Rolling Stone writer Matt Taibbi wants you to think. Under further scrutiny, however, it appears that nothing improper is being done. All smoke, and no fire. Continue reading
The Salt Lake Tribune
By Steven Oberbeck
Nicole Lopez’s desire to earn additional money for her family so she could be a stay-at-home mom led her to give multilevel marketing a try.
Yet like so many Utahns who get involved with such companies, her dream came to naught.
Although a few make millions and some comfortably less, for Lopez there was no freedom from work at the end of her MLM rainbow. There was no extra time with her son or additional cash to help out with the household bills. What she wound up with instead was debt and the realization that she had gotten involved in a business model she now believes relies upon deception for its survival. Continue reading
More than two years ago, I mentioned here a news story about a Ponzi scheme called Tri Energy Inc. The Securities and Exchange Commission first took action against the company in 2005:
The Securities and Exchange Commission yesterday obtained a temporary restraining order, an asset freeze, and other emergency relief, in a civil action filed against several individuals and entities alleged to be perpetrating an ongoing affinity fraud and Ponzi scheme. According to the Complaint, defendants have defrauded hundreds of investors of over $12 million by promising returns of 100% or more within 60 days. The Complaint alleges that defendants have been telling investors that these extraordinary profits were to be generated in part by helping an unnamed Saudi Arabian prince move gold from Israel through Luxembourg to the United Arab Emirates. In reality, according to the Complaint, although some money has been paid out to investors, these funds appear to have come from new investor money, and substantial amounts of investor funds have been transferred to bank accounts controlled by the proposed defendants and relief defendants. Continue reading