Marketing Fraud: Why Multi-Level Marketing Pyramids and Financial Ponzis are Ignored By Law Enforcement

Standard

pyramidDear Colleagues, Consumers and Pyramid Scheme Alert Supporters,

A new essay recently posted on the False Profits Blog addresses a question many of you  have raised.

Why are multi-level marketing pyramids and financial ponzis able to ensnare so many people today? What is the power behind this Main Street epidemic?

This question goes beyond the lack of law enforcement, the failure of the FTC and SEC, or the difficulty of grasping “exponential expansion.” Continue reading

Red Flags Apparent in Alleged Ponzi Scheme

Standard


Recent news of the alleged $50 billion Ponzi scheme perpetrated by investment advisor Bernard L. Madoff has done nothing to ease the fears of investors who have been annihilated by the stock market over the last couple of months.How does an investment opportunity go from being a legitimate investment vehicle to a pyramid scheme? In this case, it is alleged that Madoff invested the money of clients, but lost it and didn’t want to admit it. Instead of alerting investors to the losses, he used the money of new investors to pay “returns” to the original investors.

This is a classic Ponzi scheme, in which money is collected and spent or lost, and new marks must be recruited to “invest” new cash into the scheme. The pyramid grows, and requires continuously larger “investments” of new money in order to pay existing participants their phony returns. So long as the operator can continue to recruit marks and keep new money flowing in, the pyramid stays afloat.

How does a scheme like this grow to an estimated $50 billion in losses? It’s hard to imagine, but it is alleged that this operation was conducted in secret. Employees say the investment advisory business was run on a secured floor that was separate from the offices of the company’s core business of market making. Continue reading

Authorities Charge Head of MX Factors With Fraud

Standard

Another fraud busted by Barry Minkow, this one a pyramid scheme called MX Factors. The head of MX Factors was charged with federal crimes initially uncovered by Minkow and his Fraud Discovery Institute. Current target of an informal SEC investigation, Usana Health Sciences, hopes that Minkow has no credibility. It looks like they’re dead wrong.

read more

Tri Energy an Affinity Fraud and Ponzi Scheme

Standard

From The BizOp News blog by Michael Webster, Tri Energy: Massive Affinity Fraud And Ponzi Scheme.

A U.S. District Judge in California ruled against Tri Energy Inc., H&J Energy Company Inc., and several others last week. The defendants are permanently enjoined from committing violations of Securities and Exchange Commissions rules. Specifically, they may not solicit investments of the type at issue in the case. Defendants were also ordered to pay disgorgement and civil penalties. Continue reading

Scam Busting: The Development of Charles Ponzi’s Pyramid Scheme

Standard

Ponzi demonstrated to himself that he could achieve astronomical profits with the postal reply coupons, a far better return on investment than interest paid by the banks or profits created in the stock market.

His investment pitch included the mention of the International Reply Coupons, as he was depending upon the legitimacy of the U.S. Postal Service to bolster his image. However, Ponzi was careful not to give away too many details of his plan, lest potential investors would become skeptical or steal his idea and start companies of their own. Continue reading

Scam Busting: The Father of the Pyramid Scheme

Standard

Charles Ponzi could be described as a clever businessman, or a ruthless cheater, depending upon how you look at him. I view him primarily as a charismatic leader who was able to convince people to give him large sums of money, even when they did not understand his investment scheme.

After an unremarkable professional life and a stint in prison, Mr. Ponzi devised a scheme utilizing .postal reply coupons. in the early 1900s. These coupons were included with letters to family, and the family could redeem the coupon at the post office for postage on a return letter. Mr. Ponzi.s scheme seemed simple: trade international postal reply coupons to turn a profit. Continue reading

Operator of Ponzi Scheme Sentenced to 30 Years

Standard

James Lewis Jr., the operator of one of the largest Ponzi schemes in U.S. history was sentenced to 30 years in prison last week. That was the maximum sentence that could be imposed. He was also ordered to pay $156 million in restitution.

The sentence comes after a guilty plea to one count of money laundering and one count of mail fraud. 12 charges were dropped in exchange for the guilty pleas on these two counts.

The Ponzi scheme lasted for almost 20 years, and took in $311 million. Lewis represented to investors that he was earnings returns of 18% to 40% by investing in leased medical equipment, financing medical insurance, making commercial loans, and buying and selling troubled businesses.

In reality, Lewis was using money from new investors to pay of old investors, the classic Ponzi scheme. Some investors received money back from the scam, leaving a loss of $156 million for the later investors.