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There’s always a big house and nice car.  Ponzi scheme operators can’t help buying them.  Even so, Michael Duane Smith (Smith) may hold the record for extravagance among Ponzi operators.  He bought not just a house, but a $6.5 million castle in Colorado.  He bought not just a nice car, but a stable of eight high-performance NASCAR racing cars.  Smith now faces 15 years in prison in connection with a Ponzi scheme that collected more than $50 million from 1,000 investors, many of them elderly retirees, nationwide. 

News reports about Smith often give him the title “Super Salesman.”  He was effective, no doubt; effective enough that more than a dozen character witnesses took the stand during his trial to testify that Smith was highly-ethical and highly-religious.  Presumably none of those witnesses knew about Smith’s life before he met them.  

Bill Morlin of the Spokesman Review reports: 

[They] make no mention of Smith being indicted by a federal grand jury in New York in 1997 on charges of bilking 1,100 terminally ill people out of $100 million for discounted purchases of their life insurance policies.  In that case, Smith was arrested by FBI agents April 4, 1997, in Denver as he got into a limousine with two women from an escort service. Agents found a $1.3 million negotiable check on Smith, who was being taken to a chartered jet going to Maryland.

Regarding the case for which Smith is awaiting sentencing, Morlin reports:

Smith and his pitchmen promised investors returns of 2 percent to 400 percent a month by investing in seven companies through “non-depletion” trust accounts.  Investors were told that there was little risk, and that their investments were insured by Lloyd’s of London or St. Paul Insurance.

Court documents allege Smith and others involved in the scheme “used a welter of corporate shells for the purpose of lending legitimacy to their operations,” and opened offices in Spokane, Denver and Cleveland.Companies identified in court records include Reserve Foundation Trust, Capital Holdings, Monarch Capital Holdings, Fast Track, Summit Ventures, Northwest Group, and National Marketing Solutions, which later became Senior Asset Preservation Services.

In hindsight, a Ponzi is a Ponzi is a Ponzi.  But by their very nature they can take on any shape that the operator decides will best promote the scheme.  The promise of a “guarantee” is trite.  The promise that the investments are insured by Lloyd’s of London occurs so often that Lloyd’s should be concerned that its name is becoming synonymous with Ponzi schemes.  In this case, however, there is a detail that should draw the attention of everyone interested in protecting a nest egg.

According to prosecutors, Smith often worked through insurance agents, gaining instant credibility through association with someone the investor had known and trusted for years.  That twist may have been among the tactics that earned Smith the title of Super Salesman.  If it weren’t so diabolical, we could call it ingenious.  Successful salesmen, especially successful stockbrokers and investment advisers, know that gaining the customer’s trust is essential to selling the customer anything.  Using insurance agents to vouch for the scheme allowed Smith to bypass much of the work involved in building that relationship of trust. 

With the SEC examination and enforcement staffs operating with only a fraction of the manpower necessary to address every big scam, it is a buyer beware world out there for baby boomers and seniors.  The wise will be wary of every person who asks for his or her trust and decide whether to give that trust only after evaluating not what that person says, but what he or she has done.  Imagine how many hundreds of people would still have their retirement funds if they had bothered to evaluate Smith’s investment based not on what he and their insurance agent said, but on what Smith had done.  

Only an SEC-trained investigation can give you the factual basis from which to make the most important decision you will ever make about your nest egg-the decision of who to trust.