Wednesday | May 23, 2012
Investment Fraud 101
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By
Kenneth J. Hines and Daniel C. Wardlaw
11 August 2008
Thousands of victims.
Billions of dollars.
Lives destroyed… too many.
Investment fraud. Sounds like something you hear about on the evening news or see glamorized in the movies. As two trained financial investigators who have interviewed too many victims whose lives are shattered, our advice to you is this: Be leery and be on guard. Avoid schemes and scams that promise to make you rich.
Taking from the 1980’s big screen hit, "Wall Street", the character, Gordon Gecko, says, "The point is, ladies and gentleman, that greed, for lack of a better word, is good." But beware! Greed can cloud your judgment, compromise your integrity and tarnish your reputation. Most importantly, it can destroy you financially and land some in jail.
What is investment fraud?
Investment fraud happens when deception and trickery are used to convince you that someone can make you a lot of money by investing with them. Fraudsters might say, "Your bank is only giving you 4% on your savings account. But I can get you 75-85% if you invest with me." No matter how sophisticated their plan my sound, their real intent is merely to separate you from your money.
The fraudsters like to make you think they’re including you in their circle of "insiders" who know how to build wealth. They might play on the perceived frustrations some have with corporations and government regulations. Such criminals have repeatedly proven that they’re willing to defraud anyone – including 18 to 25 year olds.
Examples from U. S. Attorneys Offices’ Press Releases
Example #1
In 2007, four Oregon residents were sentenced after pleading guilty to charges from their promotion of a $170 million fraudulent scheme in the name of First International Bank of Grenada (FIBG).
FIBG offered interest rates to depositors as high as 300%. It claimed to have earned more than $12 billion in high-yield trading, and to have acquired assets in excess of $26 billion. In reality, it was just a ponzi scheme. The perpetrators of the scheme paid early investors in the form of "interest payments" with money received from the new, later investors. Much of the money received from all investors was used by the con-artists to fund their luxurious lifestyle.
Examples:
- Defendant #1 purchased a $1.3 million home in Oregon, a $2.8 million home in Nevada, and invested more than $1 million in a tomato farm.
- Defendant #2 purchased a $350,000 yacht and wired more than $1 million to accounts in Austria.
- Defendant #3 and a friend received more than $25,000 per month.
- Defendant #4 chartered private flights between Grenada and the U.S. for $30,000 per trip, purchased three Mercedes automobiles for approximately $200,000, and rented a beachfront home in Florida for more than $300,000.
Sentences for the defendants ranged between 18 and 97 months in prison, plus they were ordered to pay at least $26 million in restitution to the victims.
Example #2
A defendant in Florida, headed an investment fraud business which took in money from more than 1,500 victims throughout the United States and Canada. In 2006, the defendant pled guilty to failing to file a federal income tax return and various mail and wire fraud charges.
The perpetrator and another individual formed Pacific Achievements International (PAI) and used PAI to solicit investment funds, primarily through the internet. Based upon various false promises, investors transferred more than $13 million into PAI bank accounts in Oregon, Washington and Florida.
Individuals were led to believe that for every $5,859 invested, they would see a return of $9,720 within three weeks; and they could earn more than $1 million per month thereafter. As with most investment fraud cases such as this, the perpetrators used a ponzi scheme. They took money from late investors to pay early investors so that it appeared that PAI was successful.
The defendant and another PAI promoter diverted more than $2 million from investors to fund their lavish lifestyle. For his crimes, the defendant was sentenced to six years in prison and ordered to pay over $8.7 million in restitution to the victims.
Example #3
In North Carolina last year, another con artist was convicted of tax fraud mail fraud and money laundering for spearheading a pyramid scheme spread across 41 countries It cost more than 5,000 victims $4 million in losses.
The fraudster told potential investors that if they invested $98 with New Millennium Group (NMG), that they would be provided with a one-ounce bar of silver and commission checks totaling $15,853.50 over a fourteen month period. In reality, the program was a pyramid scheme since NMG had no legitimate business activities. The defendant paid initial investors with funds obtained from investors who later joined the NMG silver program.
Before it was stopped, the defendant sold 75,920 silver bars to more than 5,000 investors, promising them they would collectively receive approximately $1.2 billion dollars.
The defendant was sentenced to ten years in prison and ordered to pay $2.8 million in restitution to the victims.
Don’t be a victim of Investment Fraud!
You work hard for your money to build your financial future. Don’t be conned by a fast talking snake oil salesman who promises you the easy road to a lavish lifestyle. When it comes to investments, get second opinions from legal, tax and investment professionals. Research websites from the FBI, your state attorney general’s office, and the IRS regarding investment scams. Bottom line: if it sounds too good to be true, it probably is. Trust your gut.
Investment Fraud Assistance Contacts
Sometimes, shame and embarrassment prevent victims from coming forward. Believe us when we say we have interviewed victims ranging from doctors, to lawyers, and CPA’s. Anyone can be victimized.
If you have information regarding an investment fraud scheme, contact your local IRS Criminal Investigation or FBI office, or your local law enforcement agency.
Source: IRS Criminal Investigation Office
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