Ponzi Schemes
What is a”Ponzi” Scheme?
Ponzi schemes are a type of illegal pyramid investment scheme named after Charles Ponzi, who in the 1920’s conned thousands of New England (USA) residents into investing in a postage stamp speculation scheme.
Ponzi claimed that it was possible to take advantage of the differences between the U.S. and foreign currencies used to purchase and sell international mail coupons.
He told investors that he could provide a 40% return on any capital invested with him in just 90 days compared with just 5% being offered for bank savings accounts.
Ponzi was inundated with investor’s funds, taking in $1 million during one three-hour period, a colossal amount for 1921. A few early investors were paid off to make the scheme look legitimate and allow the word to spread.
On August 12, 1920, Ponzi was arrested and placed under a Federal indictment for Mail Fraud. His liabilities were estimated at $7 million. It was discovered that he had only bought $30.00 worth of coupons.
His supporters were outraged at the arresting officers. Investigators discovered that seventeen thousand people had invested millions, maybe tens of millions, with Ponzi.
A large percentage of these investors who were ruined were so blinded by their faith in the man and refused to admit their foolishness still considering him to be a hero who was targeted by the Government at the time.
Ponzi schemes work on the “rob-Peter-to-pay-Paul” principle, with money from new investors being used to pay off earlier investors until the whole scheme collapses.
About Charles Ponzi
Born March 3, 1882 Lugo, Italy
Died January 18, 1949 (aged 66) Rio de Janeiro, Brazil
Charge(s) Mail fraud
Penalty 5 years (federal, served 3 and half years before facing state charge) and 9 years (state)
Status Deceased
Occupation Con man
January 17th 2009
Bernard Madoffs Investment fund Never Traded.
Bernard Madoff’s investment fund may never have done a single share trade throughout its history as a market-making business, in fact it may have never traded at all.
This is the latest allegation in a series of twists and turns since 70-year-old fund manager Madoff was arrested for an alleged $50bn fraud on December 11. It was made after a detailed examination of the trading records of Bernard L. Madoff Investment Securities (BLMIS).
A spokesman for the Financial Industry Regulatory Authority( FINRA) said that its examinations “showed no evidence of trading on behalf of the investment adviser and no evidence of any customer statements being generated by them.”
It has been suggested that Mr Madoff was either using a third-party firm to process trades something which FINRA considers to be unlikely or that he was not trading at all.
The allegations would add weight to the claim that the fund was just one huge Ponzi scheme and that Mr Madoff used to send out fake investment statements to his clients.
One statement seen by Reuters is said to show an alleged investment in Fidelity’s Spartan Fund, something which Fidelity, the world’s largest fund manager, has said it has no record of.
The US Government is to clamp down on fraudulent Ponzi schemes following the $50 billion (£33 billion) Bernard Madoff scandal and is to charge two men operating different schemes.
The US Securities and Exchange Commission (SEC) has brought charges against a fund manager based in the Philadelphia area alleging the operatiion of a $50 million Ponzi scheme. Ponzi schemes operate by paying off early investors with money from later investors.
It is alleged that Mr Forte, who is based in Broomall, Philadelphia, regulaly falsely reported annual returns of between 18.5 per cent and 38 per cent, claming that the profits came from successfully betting on the variations of the Standard & Poor’s 500 index. It is also claimed that Mr Forte racked up trading losses of $3.3 million on the portion of the money he invested and withdrew $23.1 million to his own account from investors monies.
Separately , the SEC and the Department of Justice have charged Richard Piccoli, an 82-year-old, with running another unrelated Ponzi scheme through his companies, Gen See Capital Corp and Gen Unlimited. Mr Piccoli, who resides in Williamsville, New York, raised money from clergy, Catholic parishioners, senior citizens and cemetery funds, who were often enticed through advertisements in Catholic newspapers.
March 4, 2009 –
http://www.hedgeco.net/news/03/2009/red-flags-new-evidence-may-help-convict-deaf-ponzi-schemer.html
New York – Marvin Cooper, who allegedly swindled deaf investors through his money management firm-turned Ponzi scheme, is maintaining his innocence despite new evidence uncovered Monday in federal court.
“Nobody’s been defrauded,” Cooper’s attorney, Michael Glenn told the Honolulu Advisor. “We’re working on an amicable settlement in which the investors will get all their assets back.”
According to papers filed by federal lawyers, Cooper, who ran Hawaii-based Billion Coupons Inc., may have been planning to hightail it to Panama after attempting to borrow $534,187 by putting his Kaimuki home up as collateral for a mortgage loan. Authorities believe the property was purchased with client funds.
Barry Fisher, the outside receiver appointed to take control of Cooper’s company by U.S. District Judge Michael Seabright, came to this conclusion after conducting a preliminary review of the business. Fisher also found an $80,000 check signed by Cooper which was to be used as a down payment for an $800,000 home in Panama, along with emails discussing his pending move.
Cooper, who is deaf, was charged last month by the Securities and Exchange Commission after allegedly raising $4.4 million by targeting investors in the U.S. and Japan Deaf communities. He then used about $1.4 million of those funds to purchase a new home and other personal expenses.
To gain the trust of investors, Cooper promised substantial returns from investments in Forex markets. Out of the millions, only $800,000 was actually used for Forex trading, with losses exceeding $750,000 from those trades. In typical Ponzi scheme fashion, new money coming in was then used to pay existing investors to keep up the appearance of steady returns. Cooper and BCI also have been hit with fraud charges brought on by the Commodity Futures Trading Commission.
“Being deaf and without the credentials required by the SEC and state regulators, Mr. Cooper focused on gaining access to deaf investors through feeder referrals, which were provided by other Deaf individuals with no investment background in exchange for a referral fee,” explains Joshua R. Beal, Managing Partner at investment advisor firm Schwarz Financial Services LLC. “He followed up with personal visits and calls over the video-phone where he promised returns of 15-25% a month based on automated computer trading programs.”
Cooper approached Beal with a call over the videophone in 2007 when he was looking for advice regarding his investment firm. Beal suggested that he should register with the Securities and Exchange Commission; a piece of advice Cooper chose to ignore.
“In 2007 and 2008, several deaf clients of mine along with some community members started telling me that they were having success with Marvin,” Beal recalls. “I contacted the State of Hawaii and the SEC because he did not require a social security number, nor did he employ a custodian or provide a fee statement for his clients.”
Although in most Ponzi schemes, investors rarely receive their money back, authorities are confident that clients will receive some or all of their original investment back, after the assets are liquidated.
March 3, 2009 -
Chicago Businessman Charged With Defrauding Two Dozen Investors of $4.7 Million in Alleged “Ponzi” Scheme
Chicago, IL – A Chicago businessman is facing federal fraud charges for allegedly luring more than two dozen victims to invest a total of approximately $4.7 million in commodity trading pools and using the money instead to fund two nightclubs, pay gambling debts and other living expenses, and to make “Ponzi-type” payments to earlier investors. The defendant, Anthony A. Demasi, was charged in a five-count indictment returned by a federal grand jury late yesterday, Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois, and Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation, announced today.
Demasi, 34, of Chicago, held himself out as “managing member” of Tsunami Capital, LLC and purported to operate several commodity trading pools using the Tsunami name. Between 2002 and April 2007, he allegedly fraudulently obtained approximately $4.7 million from 27 investors, selling interests usually for at least $20,000. He paid approximately $1.9 million back to investors during that time, resulting in investors losing approximately $2.8 million in principal alone, according to the indictment.
Demasi was charged with three counts of wire fraud and two counts of commodities fraud.
He will be arraigned in U.S. District Court on a date yet to be determined.
The indictment alleges that Demasi used less than $1 million raised from investors to trade commodity futures contracts. During the course of the scheme, he allegedly used the remaining funds to make payments to earlier investors and to benefit himself.
Demasi misrepresented and caused others to misrepresent to investors the profitability of his trading pools, when, in fact, at no time was the aggregate trading profitable, the charges allege. For example, Demasi claimed one pool had a 172 percent profit between January 2004 and May 2006 but the pool was not at all profitable during that period, according to the charges.
At various times, Demasi also allegedly made such misrepresentations as: there was no risk; there had been no losing months; investors could lose no more than three percent of principal; and the worst quarterly return was one percent. In fact, Demasi allegedly knew that Tsunami’s trading pools continually lost money and that he was misappropriating investors’ funds.
The government is being represented by Assistant U.S. Attorney April Perry.
If convicted, each count of mail fraud carries a maximum penalty of 20 years in prison and a maximum fine of $250,000, while each count of commodities fraud carries a maximum of 10 years in prison and a $1 million fine, or the Court may impose a fine totaling twice the loss to any victim or twice the gain to the defendant, whichever is greater. The Court, however, would determine the appropriate sentence to be imposed under the advisory United States Sentencing Guidelines.
The public is reminded that an indictment contains only charges and is not evidence of guilt.
The defendant is presumed innocent and is entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.
February 26, 2009 –
http://www.ecommerce-journal.com/
David Copeland Reed, a founder of OSGold Ponzi scheme arrested
On Tuesday this week U.S. authorities arrested David Copeland Reed, 38, who was accused of running a multimillion-dollar Ponzi scheme he founded known as OSGold as reported in court-documents. About seven years ago his operation was shut down and he himself escaped to Mexico with users’ money.
Reed was incriminated to conspiracy, money laundering and wire fraud. He faces a sentence of 40 years in jail. Reed’s business where investors were told their deposits were backed by offshore gold bullion reserves operated from March 2001 until June 2002, when he moved from North Carolina to Cancun, Mexico, taking customer funds with him. Investors and depositors never got their funds back. No gold bullion reserves ever existed.
The authorities arrested Reed in Columbia, South Carolina, where he moved recently.
In a move to attract customers Reed made his business look legal and reputable as it is reported in the documents of prosecutors. Once depositors opened a new account they were supposedly able to send their OSGold money around the world and make payments for the items over the internet. In addition clients were also offered to put money in a high-yielding investment program known as OSOpps under which they were promised to gain a guaranteed return of their principal as well as soaring rates of return. These returns were said to come from gains on foreign exchange trading, but neither Reed nor his associates did any such trades.
66,000 accounts were opened by clients worldwide with Reed’s Ponzi scheme OSGold with at least $12.8 million transferred to three bank accounts that he and his associates controlled.
March 2, 2009 –
http://www.thereporter.com/news/ci_11817614
Two indicted in alleged Ponzi scheme Robert Cephas Brown Jr., 55, and Duane Allen Eddings, 49
Two Vallejo men were indicted Thursday for a Ponzi scheme that allegedly defrauded hundreds of people out of more than $17 million.
Acting U.S. Attorney Lawrence G. Brown announced Friday that Robert Cephas Brown Jr., 55, and Duane Allen Eddings, 49, are being charged.
Brown faces 18 felonies, including mail fraud, wire fraud and money laundering, while Eddings is charged with 16 similar felonies, according to reports.
Brown was arrested Thursday night at his sister’s home in Vallejo. There is a warrant for Eddings’ arrest.
The case is the product of an extensive investigation by the U.S. Postal Inspection Service.
According to Assistant U.S. Attorney Matthew Stegman, the indictment alleges that from 2001 to the present, Brown and Eddings led potential investors to believe that Brown was a stock market expert who could make huge profits in both good and bad times.
They lured investors through “investment seminars” and word of mouth. They operated under the names Trebor Co. (“Robert” spelled backward), Trebor Investment Co., Trebor Seminars, Trebor Group, Trebor Group Fund and Wise Investors Simply Excel, LLC (WISE).
The indictment alleges that Brown spent investor funds on limousine services for dates with girlfriends, outings to professional football games and concerts, expensive clothes, hotels, restaurants and a Ferrari Testarossa. Further, he allegedly made cash withdrawals of more than $3.5 million of investor money.
In addition to the criminal case, the U.S. Securities and Exchange Commission filed a civil lawsuit on July 23, alleging securities fraud, and obtained an emergency court order prohibiting Brown from engaging in more activity. In addition to injunctive relief, the SEC lawsuit also seeks to recover the money and impose cash penalties.
If convicted, the maximum penalty for a violation of either mail fraud or wire fraud involving a financial institution is 30 years in prison and a fine of up to $1 million.
For money laundering, the penalty is 10 years in prison and a fine of up to $250,000, or twice the value of the money laundered, whichever is greater.
The actual sentence, however, will be determined by the court after consideration of the Federal Sentencing Guidelines.