by Pat Huddleston, Investor's Watchdog
The reality of modern day investment and insurance fraud often takes place on a high tech stage. State and federal regulators use internal company emails to prove fraudulent sales practices. Brokerage firms solicit clients directly by email. Internet “chat rooms” are used to peddle false information in “pump and dump” schemes. Many states have internet surveillance programs that watch for fraud or investigate investor complaints. Consumers nationwide continue to be victimized, however, by a decidedly “low tech” fraud commonly referred to as a “Ponzi scheme.”
Investor’s Watchdog’s founder has investigated dozens of them. They come in innumerable shapes and sizes, their variety limited only by the imagination of the promoter. Some involve hedge funds, some limited partnerships. Some are packaged as promissory notes and others as vague private placements. Some claim that the profit is generated by the interest on bridge loans. Others describe a sophisticated trading program run by the top financial institutions in the world.
All of them end the same way, with investors, often senior citizens, losing in a moment what it took them a lifetime to save. The wreckage often involves broken relationships between the investor and the friend who innocently introduced them to the scam, broken marriages, a drastically lowered standard of living, and crippling guilt over having been duped.
The phrase “Ponzi scheme” comes from the illicit activities of immigrant Carl Ponzi. In the 1920s, Ponzi convinced over 10,000 people to “invest” millions of dollars by promising profits of over 50% every 45 days. Unfortunately for those investors, Ponzi’s promises were nothing more than a ruse for lining his own pockets. Victims of the fraud received significant early payments from Ponzi calculated to give the illusion of legitimacy, to encourage additional capital contributions, and to draw in more participants. Those initial “profits,” however, came not from any underlying “investment” or business enterprise, but from “investments” made by later victims of the fraud.
The common denominator for Ponzi-type con operators is the promoter’s skill in the art of persuasion, gaining his victims’ trust by whatever means available. Whether religion, status, or ethnic affinity, con artists are remarkably adept at perceiving what motivates people to part with their savings. Ponzi himself was so successful at his scheme that he convinced a majority of the Boston Police Department to invest and, in fact, continued to receive payments from true believers even while in prison. A few years back, Teresa Shaw, a real estate agent in metro-Atlanta, was sentenced to over seven years confinement for collecting over four million dollars in a Ponzi scheme involving so-called “bridge loans.” Shaw met her victims at the Mount Paran Church of God and gained their trust by praying with them.
A trained eye can spot a Ponzi scheme even if the offering materials are professionally prepared. Investor’s Watchdog can provide that review through its Friend or Foe™ product. Because Investor’s Watchdog keeps its customers’ identities strictly confidential promoters who claim that telling others about the investment will subject the investor to stiff penalties will never know that the investor sought the protection of an IW report.“Plans fail for lack of counsel, but with many advisers they succeed.”