Beware Of Ponzi Schemes Investors Have Experienced

Wednesday, March 21, 2012, 2:00 AM | Leave Comment

There have been many Ponzi schemes investors fell for besides Bernie Madoff’s during the last couple of years. When we have examples such as mentioned in the following paragraphs we must be at full alert to avoid them in our personal financial life. The economy is hopefully on a rebound but many folks have been struck with lightening loss and they have been bitten by the lousy economy many times over.

Under those circumstances, con artists follow the news and wherever they find an opening for their confidence trick, they will spring up and strike the innocents with their poisonous bite like a rattle snake.

Either because of the consumer vulnerability (some have lost much more than others) or get-rich-quick mentality or just plain and simple human greed, these con artists seek ways to exploit the headlines to their advantage while leaving investors holding nothing but empty bags.

Examples of Ponzi Schemes

The following is a list of examples of folks who have been bitten by their own vulnerabilities or just get-rich-quick schemes.

The idea here is to let you know how some folks were stung by these Ponzi schemes and you must try wholeheartedly to avoid them.

Like I stated above whatever your reason may turn out to be – get-rich-scheme or human greed – you just avoid them, plain and simple.

The real-life examples are taken from an article on the North American Securities Administrators Association (NASAA).

Distressed Real Estate Schemes

In February 2011, a Florida man pleaded guilty to conspiracy to commit mail and wire fraud in a scheme that solicited $2.3 million from 39 investors nationwide. He was to purchase and refurbish distressed properties and, in turn, sell them for a profit.

Instead he used the money to fill up his own pockets and make distributions to later investors, just like Madoff did. Investors were even issued corporate promissory notes with returns of up to 12 percent.

What happens in this kind of scam is the scammers create an investment pool. It then collects money to purchase and renovate distressed properties. These are then sold at a profit.

It’s an otherwise legit business but the scammers take advantage of the consumers vulnerability or get-rich-quick mentality or just plain and simple human greed. The problem is these scammers are in abundance and so are the vulnerable consumers.

  • What to do?

    Just like other securities, real estate shares must be registered with state regulators. Check with your state’s office before you get into this kind of arrangement.

Energy Investments

Colorado securities regulators issued a cease and desist order earlier in 2011 against a Texas oil and gas company for allegedly violating state securities registration and licensing provisions.

The case came to light after a company sales agents unwittingly cold called an employee of the Colorado Division of Securities and offered a joint venture interest in two Pennsylvania oil wells with next to no drilling risk.

  • What to do?

    Don’t believe promises of big returns from companies claiming access to untapped oil and gas deposits. Whomever makes such promises are lying to their teeth. The best thing you can do is to not do nothing. On a personal note, I lost $27,000 six years ago in such scheme.

Gold and Precious Metals

In 2011, the founder of Florida-based Gold Bullion Exchange pleaded guilty to fraud charges in a scheme that collapsed on more than 1,400 investors who lost $29.5 million.

Investors were solicited through a sophisticated telemarketing operation to purchase precious metal bullion using purported leverage financing.

Investors were led to believe that they would need only to provide a fraction of the total cost of the purchased metals, with the remainder of the purchase price to be covered by margin-type financing, which would purportedly be extended to the investor by a clearing firm.

  • What to do?

    If you want to buy gold, ignore the promises made in unsolicited phone calls or late-night TV or some sales brochure. Instead, speak to a trusted financial adviser about whether gold is right for your portfolio.

Promissory Notes

A former FBI agent was convicted in Alabama this year after an investigation by Alabama securities regulators revealed that he used promissory notes guaranteeing returns as high as 12 percent to lure investors into a Ponzi scheme.

The funds were to be invested in real estate and medical technology ventures, but investigators determined that the former agent used most of the funds, more than $4 million, to pay Ponzi-style returns to previous investors and for his personal use.

  • What to do?

    Unregistered promissory notes are often covers for Ponzi schemes and other scams. Always check with your state regulator to determine whether a promissory note and its sponsors are properly registered.

Securitized Life Settlement Contracts

In 2011, two executives of National Life Settlements LLC of Houston were indicted on charges of securities fraud and the sale of unregistered securities.

An undercover investigation by Texas securities regulators determined the pair had sold $30 million in unregistered promissory notes secured by life settlement contracts.

The company sold these unregistered investments largely to retired teachers and state employees through a network of financial professions, including insurance agents and securities brokers.

The criminal indictment alleges that investors’ money was spent on commissions and personal expenses, including the purchase of houses and cars.

  • What to do?

    Unregistered securities are often covers for Ponzi schemes and other scams. Always check with your state regulator to determine whether a security is properly registered.

Affinity Fraud

A 73-year-old North Carolina man pleaded guilty in 2011 to 19 felony counts of securities fraud. An investigation was conducted by North Carolina securities regulators.

They determined he had collected more than $18.5 million from more than 100 investors, many of whom he knew from church or other social circles.

  • What to do?

    Anyone who promises guaranteed annual returns of between 10 and 50 percent is a cover for Ponzi scheme. The scammer will almost always talk about unspecified companies. You have online facility available. Do your own research.

Bogus or Exaggerated Credentials

Securities regulators in Utah came across a broker who listed C.H.S.G. after his name on his business card. When asked, the broker told regulators the initials stood for Certified High School Graduate.

  • What to do?

    Go online and check the acronym. Don’t always believe what’s on the business card.

Private Placements

In 2011, U.S. and Canadian authorities convicted three individuals of criminal fraud charges related to the sale of $33 million in oil and gas private placement offerings. The defendants claimed the securities were exempt from registration under Rule 506.

In an attempt to avoid regulatory scrutiny, the defendants organized their company in the Bahamas and sold the securities from a boiler room located in Ontario, Canada, while telling investors the company was located in Kentucky.

Securities regulators also have taken civil fraud actions against private placement issuers, Medical Capital Holdings, Inc. and Provident Royalties, which raised more than $500 million from investors though private offerings sold by dozens of broker-dealers.

The companies are alleged to have defrauded investors by misrepresenting the use of the investment proceeds and misappropriating millions in investor funds.

  • What to do?

    Under the guidance of SEC, each state has its own securities regulator who enforces what are known as blue sky laws. These laws are confined to securities sold or persons who sell them within each state. So check with your state.

Securities and Investment Advice Offered by Unlicensed Agents

In 2011, an insurance agent unlicensed to sell securities and his manager were barred from working in the Missouri securities industry for five years.

Missouri securities regulators uncovered a complex scheme that saw the liquidation of more than $7 million in securities investments from 180 customer accounts.

Agents had moved most of these funds into proprietary fixed or equity indexed annuities.

  • What to do?

    Again, check with your state if the person is licensed before you deal with him/her.


In a Nutshell
These Ponzi schemes have found not only senior citizens but folks of all ages to be vulnerable and just looking to invest their hard-income money. It’s advised to do your own research before you invest in any kind of security.

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