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Wednesday 28 January 2009
Both rich and poor fall victim to Ponzi schemes
But the number of other people who have been caught running Ponzi schemes in recent weeks is adding up quickly, so much so that they have earned themselves a nickname: “mini-Madoffs.”
Their names lack the Dickensian flair of Bernie Madoff, and the money they apparently stole from investors was a small fraction of the $50 billion of his clients’ savings that Madoff allegedly lost.
But the number of other people who have been caught running Ponzi schemes in recent weeks is adding up quickly, so much so that they have earned themselves a nickname: “mini-Madoffs.”
Some of these schemes have been operating for years; others are of more recent vintage. But what is causing them to surface now appears to be a combination of a deteriorating economy and heightened skepticism about outsize returns following the revelations about Madoff. That can scare off new clients and make long-time investors demand their money back, which brings the charades tumbling down.
“There is no way for a Ponzi to survive given the large number of redemptions and a lack of new investors,” said Stephen Obie, the head of enforcement at the Commodity Futures Trading Commission, which has seen the number of reported leads to possible Ponzi schemes more than double in the past year.
At a suburban New York train station on Monday, Nicholas Cosmo surrendered to the U.S. authorities investigating a suspected $380 million Ponzi scheme, in which thousands of investors paid a minimum of $20,000 for high-yield “private bridge” loans.
Not far from the clubs of Palm Beach, Florida, where Madoff wooed some of his investors, George Theodule, a Haitian immigrant and self-proclaimed “man of God,” promised churchgoers in a Haitian-American community that he could double their money within 90 days.
He accepted only cash, and despite the too-good-to-be-true sales pitch, he found plenty of investors willing to turn over tens of thousands of dollars.
“The offices were beautiful and I was told it was a limited liability corporation,” said Reggie Roseme, a delivery man in Wellington, Florida, who lost his entire savings of $35,000 and now faces foreclosure on his home.
According to U.S. regulators who have accused him of operating a Ponzi scheme, Theodule bilked thousands of investors like Roseme out of $23 million in all and put $4 million in his own pocket, which helped pay for two luxury vehicles, a wedding, a lavish house in the state of Georgia and a recent trip to Zurich. The fate of the other $19 million is still unknown.
Investors in Idaho say they lost $100 million in a scheme that promised 25 percent to 40 percent annual returns. A Ponzi scheme in Atlanta that promised investors returns of 20 percent every month through something called “30 Day Currency Trading Contracts” was shut down this month after losing $25 million. And, in Florida, Arthur Nadel, a prominent Sarasota money manager and philanthropist, turned himself in to authorities Tuesday. He had disappeared this month, just days before the U.S. Securities and Exchange Commission charged him in a $300 million investment fraud that may have been a Ponzi scheme.
Investors in many schemes were told that their money would go into stocks, foreign currencies and other investments and earn above-average returns, a pitch backed up with what appeared to be legitimate monthly statements.
The SEC does not keep statistics on Ponzi fraud, but since the beginning of October, it has brought cases involving losses of more than $200 million. One case was against Norman Hsu, who used money from a $60 million Ponzi scheme to make campaign donations to leading candidates, including President Barack Obama and Secretary of State Hillary Clinton. (Both Obama and Clinton donated the money to charities after Hsu’s scheme was uncovered.)
Regulators, chastened by missing the Madoff scandal, are focusing more on such scams. The CFTC, for instance, has established a Forex Enforcement Task Force to prosecute Ponzi cases in which investors were told their money was being invested in foreign currencies.
Last week, Senators Charles Schumer, a Democrat of New York, and Richard Shelby, Republican of Alabama, members of the Senate Banking Committee, introduced legislation to provide $110 million to hire 500 more FBI agents, 50 more U.S. government prosecutors, and 100 more SEC enforcement officials to crack down on such crimes.
“Ponzi schemes are against the law,” Schumer said in an interview. “But we have not had enough law enforcement officials. Madoff should have been stopped. Our proposal would not just provide more resources, but it would work like a posse to go after this fraud.”
Lawsuits brought by bilked investors and U.S. government regulators are piling up in courts.
One case brought by the government against a North Carolina company called Biltmore Financial describes a $25 million alleged fraud going back for 17 years that drew in more than 500 investors, many of whom were members of a Lutheran community in that state.
For an investment of as little as $1,000, investors were told they were purchasing packages of mortgages with annual returns of 10 percent to 20 percent. In reality, the money went to buy an Aston Martin convertible, a $1 million recreational vehicle and vacation and rental properties for the head of the company, J.V. Huffman, who was charged by the SEC in November.
Last week, the SEC charged James Ossie of Atlanta with taking $25 million from 120 investors for whom he had set a minimum of $100,000. Ossie even held periodic conference calls describing his trading strategy, which promised 10 percent monthly returns.
In the South Florida Haitian-American community, Theodule turned to local churches, where he would use a flip chart to make his investment pitch and talk about how the money would fund new business ventures in Haiti and Sierra Leone. His scheme, however, fell apart on a day in November when 40 investors showed up at his office to try to get their money back.
“Theodule had been the king and lived in the community, and then one day he vanished,” Roseme said.
Nerline Horace-Manasse, a 31-year-old Haitian immigrant with six children, saw her life’s savings of $25,000 disappear. She had planned to use the money as a down-payment on a house.
Bogus statements showed that her money had grown to $90,000, but when Manasse began to ask questions of Theodule, “He advised he could not tell me where he was putting the money because there were a lot of copycats out there and he’d go out of business.”
Now Manasse and Roseme are part of a class-action suit against Theodule.
Theodule’s lawyer, Matthew Thibaut, did not return a call for comment. But, in court papers, Theodule denied all the charges but one: “Theodule admits he has told persons that he wants to help build wealth in the Haitian community.”
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Both rich and poor fall victim to Ponzi schemes
By Leslie Wayne
28 January 2009
Their names lack the Dickensian flair of Bernie Madoff, and the money they apparently stole from investors was a small fraction of the $50 billion of his clients’ savings that Madoff allegedly lost.
But the number of other people who have been caught running Ponzi schemes in recent weeks is adding up quickly, so much so that they have earned themselves a nickname: “mini-Madoffs.”
Some of these schemes have been operating for years; others are of more recent vintage. But what is causing them to surface now appears to be a combination of a deteriorating economy and heightened skepticism about outsize returns following the revelations about Madoff. That can scare off new clients and make long-time investors demand their money back, which brings the charades tumbling down.
“There is no way for a Ponzi to survive given the large number of redemptions and a lack of new investors,” said Stephen Obie, the head of enforcement at the Commodity Futures Trading Commission, which has seen the number of reported leads to possible Ponzi schemes more than double in the past year.
At a suburban New York train station on Monday, Nicholas Cosmo surrendered to the U.S. authorities investigating a suspected $380 million Ponzi scheme, in which thousands of investors paid a minimum of $20,000 for high-yield “private bridge” loans.
Not far from the clubs of Palm Beach, Florida, where Madoff wooed some of his investors, George Theodule, a Haitian immigrant and self-proclaimed “man of God,” promised churchgoers in a Haitian-American community that he could double their money within 90 days.
He accepted only cash, and despite the too-good-to-be-true sales pitch, he found plenty of investors willing to turn over tens of thousands of dollars.
“The offices were beautiful and I was told it was a limited liability corporation,” said Reggie Roseme, a delivery man in Wellington, Florida, who lost his entire savings of $35,000 and now faces foreclosure on his home.
According to U.S. regulators who have accused him of operating a Ponzi scheme, Theodule bilked thousands of investors like Roseme out of $23 million in all and put $4 million in his own pocket, which helped pay for two luxury vehicles, a wedding, a lavish house in the state of Georgia and a recent trip to Zurich. The fate of the other $19 million is still unknown.
Investors in Idaho say they lost $100 million in a scheme that promised 25 percent to 40 percent annual returns. A Ponzi scheme in Atlanta that promised investors returns of 20 percent every month through something called “30 Day Currency Trading Contracts” was shut down this month after losing $25 million. And, in Florida, Arthur Nadel, a prominent Sarasota money manager and philanthropist, turned himself in to authorities Tuesday. He had disappeared this month, just days before the U.S. Securities and Exchange Commission charged him in a $300 million investment fraud that may have been a Ponzi scheme.
Investors in many schemes were told that their money would go into stocks, foreign currencies and other investments and earn above-average returns, a pitch backed up with what appeared to be legitimate monthly statements.
The SEC does not keep statistics on Ponzi fraud, but since the beginning of October, it has brought cases involving losses of more than $200 million. One case was against Norman Hsu, who used money from a $60 million Ponzi scheme to make campaign donations to leading candidates, including President Barack Obama and Secretary of State Hillary Clinton. (Both Obama and Clinton donated the money to charities after Hsu’s scheme was uncovered.)
Regulators, chastened by missing the Madoff scandal, are focusing more on such scams. The CFTC, for instance, has established a Forex Enforcement Task Force to prosecute Ponzi cases in which investors were told their money was being invested in foreign currencies.
Last week, Senators Charles Schumer, a Democrat of New York, and Richard Shelby, Republican of Alabama, members of the Senate Banking Committee, introduced legislation to provide $110 million to hire 500 more FBI agents, 50 more U.S. government prosecutors, and 100 more SEC enforcement officials to crack down on such crimes.
“Ponzi schemes are against the law,” Schumer said in an interview. “But we have not had enough law enforcement officials. Madoff should have been stopped. Our proposal would not just provide more resources, but it would work like a posse to go after this fraud.”
Lawsuits brought by bilked investors and U.S. government regulators are piling up in courts.
One case brought by the government against a North Carolina company called Biltmore Financial describes a $25 million alleged fraud going back for 17 years that drew in more than 500 investors, many of whom were members of a Lutheran community in that state.
For an investment of as little as $1,000, investors were told they were purchasing packages of mortgages with annual returns of 10 percent to 20 percent. In reality, the money went to buy an Aston Martin convertible, a $1 million recreational vehicle and vacation and rental properties for the head of the company, J.V. Huffman, who was charged by the SEC in November.
Last week, the SEC charged James Ossie of Atlanta with taking $25 million from 120 investors for whom he had set a minimum of $100,000. Ossie even held periodic conference calls describing his trading strategy, which promised 10 percent monthly returns.
In the South Florida Haitian-American community, Theodule turned to local churches, where he would use a flip chart to make his investment pitch and talk about how the money would fund new business ventures in Haiti and Sierra Leone. His scheme, however, fell apart on a day in November when 40 investors showed up at his office to try to get their money back.
“Theodule had been the king and lived in the community, and then one day he vanished,” Roseme said.
Nerline Horace-Manasse, a 31-year-old Haitian immigrant with six children, saw her life’s savings of $25,000 disappear. She had planned to use the money as a down-payment on a house.
Bogus statements showed that her money had grown to $90,000, but when Manasse began to ask questions of Theodule, “He advised he could not tell me where he was putting the money because there were a lot of copycats out there and he’d go out of business.”
Now Manasse and Roseme are part of a class-action suit against Theodule.
Theodule’s lawyer, Matthew Thibaut, did not return a call for comment. But, in court papers, Theodule denied all the charges but one: “Theodule admits he has told persons that he wants to help build wealth in the Haitian community.”
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