Ponzis, Schemes and Scams – You’re the target

It never ceases to amaze me… that the adage “People and money… are funny,” proves itself over and over again.  Maybe it should be said that some people who deal with money become ‘funny’… in the head! It should not surprise anyone, yet it often comes as a shock that there are people so crooked that they will destroy the livelihoods and lives of others without nary a second thought.

We’re talking about fraud and its many faces.  Would you know if you were being defrauded? Would you know what you’re looking at if someone showed you a ‘statement’ for a particular investment? What are you willing to believe about investing and returns? We all know what we’d like to have happen with investments; that they would always go up! But that’s not real and neither is any claim that you can get a linear return every year.

Why am I bringing this up now? Let me first regale you with a couple recent stories… right here in Maryland.

Let’s start with federal authorities in Maryland charging three men with running a $364 million Ponzi scheme for more than five years. Kevin Merrill, Jay Ledford and Cameron Jezierski were arrested back in September and charged with using 30 companies and more than 55 bank accounts to bilk hundreds of investors.

The defendants lured investors through an elaborate web of lies, duping them into paying millions into the scheme. They convinced investors to join them in purchasing consumer debt portfolios – batches of defaulted debts owed to banks and credit cards, student loan lenders and vehicle financiers that are sold to companies that then attempt to collect that debt.

The ‘advisors’ told investors they would make money for them by selling the debt for a profit to third-party debt buyers. Instead, the men used roughly $73 million of investor money to support lavish lifestyles – high end homes in Maryland, Texas, Nevada and Florida, luxury cars, boats and jewelry, even purchasing a share of a jet plane and gambling $25 million at casinos.

The ‘statements’ they gave investors? A spreadsheet of complicated ‘transactions’.

Next up: in October, an ‘investment advisor’ was charged with orchestrating a multimillion-dollar Ponzi scheme and spending nearly three-quarters of a million dollars on prayers by Hindu priests in India to ward off a federal investigation and save her failing business. Using investors’ money, Dawn Bennet paid a man in Washington state approximately $720,000 between 2015 and 2017 to arrange for priests to perform religious ceremonies meant to ease her troubles.

Six-figure payments for prayers didn’t spare Bennet from a 17-count federal indictment on fraud charges. Oh… and the ‘hoodoo’ spells that she cast to stymie federal investigators didn’t work either.

Bennet raised more than $20 million from at least 46 investors in her luxury sportswear company, often preying on elderly clients who knew her from a radio show she hosted in the D.C. area. She used investor’s money for her personal benefit, including jewelry purchases (how much bling does one need?), cosmetic medical procedures and a $500,000 annual lease for a luxury suite at the Dallas Cowboys’ home stadium (I see a problem here.)

One of her lawyers said Bennet had invested $13 million of her own money into the fledgling apparel business, selling assets and mortgaging homes to generate cash. “It was a legitimate company, catering to only the most discerning people”. But the business never made a profit and had at least $15.6 million in liabilities and only $550,000 in revenue by December 2016 according to an SEC complaint.

The tragedies:  Joan, a retired travel agent whose husband has Parkinson’s disease and dementia, said she invested $200,000 in Bennett’s business. She’d known Bennet for more than 25 years and believe the promise that she could get her money back, plus 15% interest, whenever she needed it. Bennet showed her a business plan that showed the biz was profitable – ostensibly. “I trusted Dawn,” said Joan, “Bennet knew that this was the only money that I had to care for my husband and his illness.”

Another investor, Diane, fought tears when she testified that she hadn’t recovered any of the $816,805 she paid Bennet. Bennet had told her the online apparel company was thriving, “And I believed her.”

The FBI’s investigation began in 2015 after the SEC formally accused Bennet of defrauding investors by inflating the amount of assets she managed and exaggerating the returns on her customer’s investments. Her weekly radio show, “Financial Myth Busting with Dawn Bennet” was losing clients and incurring millions of dollars in losses before she turned to the fraudulent sale of promissory notes to “tap a new income stream,” the SEC filed in its complaint.

And lastly, a man barred from doing business in Maryland earlier this year is now facing civil charges from the SEC of defrauding more than 600 people through a $102 million Ponzi scheme. The SEC charged Perry C. Santillo of Rochester, NY and several other people and businesses with perpetrating this scheme. Interestingly, Santillo and one of his companies, First Nationle Solution LLC were previously barred by the MD Attorney General’s office in March because of numerous securities violations, including engaging in ‘dishonest and unethical practices’.

Santillo and his associates – High Point Insurance Solutions and High Point Wealth Management – had acquired Towson-based Everest Wealth Management and Everest Investment Advisors last year (2017) after the Everest companies (also known as “The Money Guys” on WCBM radio in Baltimore) and their founder were barred from doing business in MD by the AG’s office for “dishonest and unethical practices”. Everest wasn’t involved in High Point’s schemes.

High Point persuaded newly acquired clients to withdraw their savings from traditional investments and invest in companies controlled by Santillo and his associates. One of those companies, First Nationle, sells promissory notes. Investors were told that the funds would be used by the companies for financial services, insurance, real estate development and medical laboratories. The investors were also promised guaranteed dividends or double-digit returns.

Santillo and the other defendants spent at least $20 million to enrich themselves, paid $38.5 million in Ponzi-like payments and transferred much of the remainder in other transactions, unrelated to the businesses. The SEC’s complaint alleges that Santillo raised more than $102 million from at least 637 investors across the US since 2011, and at least $2.2 million from 24 investors in Maryland. He funded a ‘jet-setting lifestyle’ with multiple houses in multiple states, car leases, country club expenditures, including at a Las Vegas resort and casino where he threw himself a big party for which he commissioned a song about himself, referring to himself as “King Perry”. (Narcissist much?)

GUARD THE GATES:

  1. As you age, you become a target for elder financial abuse. Calibrate your radar. Guard loved ones. Talk with your adult children. I’ve told my dad he’s not allowed to answer the home phone anymore. Mom is the ‘enforcer’ (she’s also the ‘truth squad’ according to the doctors, but that’s a different story).
  2. Anyone who promises you a guaranteed rate of return is lying. The market is random and no one knows what returns will be until the year is finished.
  3. If you don’t understand the investment, or it’s not transparent, don’t invest. Never gamble with the money you want to keep. I don’t care how long you’ve known someone or think you ‘trust’ them. Get an independent advisor to look at the ‘investment’ to see if it’s real.
  4. If you get greedy, you will fall into the ‘greed trap’ that sociopaths set. Humans are irrational that way. Understand the facts – control your emotions – don’t get burned.
  5. Work with a fiduciary advisor, who puts your interests first. Discuss what you don’t understand. You need to be comfortable with the strategies you co-create.
By | 2018-11-13T20:50:04+00:00 November 13th, 2018|Uncategorized|0 Comments