Recession Has Ponzi Schemes Crawling out of Wood work
From Colorado, where Shawn Merriman defrauded investors of $20 million and channeled the money into a collection of hundreds of art masterpieces, to Hawaii, where a promoter siphoned funds solicited from the Deaf at community centers, to the big daddy of them all, Bernard Madoff; Ponzi schemes are rearing their ugly heads left and right.
We have the recession to thank for the manner in which the words "Ponzi scheme" have become a part of main stream American culture in recent months. In December of 2009, the U.S. Securities and Exchange Commission (SEC) was bringing in an average of three Ponzi schemes a month. We are just four months into 2009 and that figure has leaped to more than 24. With each new Ponzi scheme that comes to light, it becomes more clear that we have yet to see the end of the fraudulent schemes.
In most cases, Ponzi fraudsters use investor money partly to fund their lavish lifestyles, while the rest is used to pay off early investors and keep the scheme afloat. The recklessness with which fraudsters squander investor money is a common feature of many of the Ponzi schemes that have been exposed.
Texas financial promoter Ray White has been accused of running a Ponzi scheme worth $10.9 million, some of which was diverted into boosting the auto racing career of his son. Shawn Merriman seems to have used his investment funds to undertake hunting safaris in Africa, filling his home with stuffed animal heads. Everything seemed to have been going well for many of these people until the credit crunch came about and funds stopped flowing in as freely as before. Anxious investors began to worry about the high returns they had been promised, which typically lead to the scheme's reveal.
Since January 1st, the SEC has filed more than two dozen emergency enforcement actions in order to stop Ponzi scams. Securities attorneys have been flooded with calls from worried investors. Last week alone, new action was taken against alleged frauds in Hawaii, California, and Montana.
Avoid Ponzi Schemes
Ponzi schemes tend to work perfectly until funds begin to dry up, which is why the worst recession in decades has led to the discovery of so many of these cases. The internet seems to have provided a good home for these fraudsters. Last week, the Council of Better Business Bureaus warned that several scams are beginning to move online and are targeting people with financial woes.
If you or a loved one has lost funds due to a Ponzi scheme or other fraudulent act a securities attorney can help you recover lost investments. For a free evaluation of your case and to find answers to your questions, contact a securities attorney at Arnold & Itkin LLP.
.jpg)
In a classic investment fraud tactic, Merriman promised his investors returns of up to 20%, but lost approximately $400,000 from the initial funds. It was then that Merriman started another fund to pay investors in a Ponzi scheme operation. As the scale of the fraud grew, he added two more funds to pay withdrawals. He traded securities during the first year of his scam, but eventually stopped and focused completely on his scheme. The SEC asked that Merriman‘s assets be frozen and that he be ordered to pay his investors back with interest.