A Ponzi scheme is one type of investment fraud. In a Ponzi scheme, an investor is led to believe they are receiving a return on their investment either in the form of a profit, dividend, or interest payment based on the investment principal invested. In reality, whatever is being received by that investor is actually funds contributed by newer investors. One of the main reasons that Ponzi scheme and fraud cases unravel during a financial downturn is because new investor funds are drying up and as the scheme cannot replenish with new investor funds, it tends to unravel when payments cannot be made to old investors, or when those payments are delayed or fall short. Over the first quarter of 2020, the market volatility and economic issues stemming from the recent coronavirus outbreak, saw many investors liquidating investments and trying to raise as much cash as possible.
As there is typically no real underlying legitimate productive business invested in, new investor funds are needed not only to maintain the flow of funds to old investors, but also to sustain whatever business operation is the “front’ for the fraud or Ponzi scheme. With less new investor funds to work with, it is usually just a matter of time before the scheme collapses.
According to the National Law Review, in 2019 alone, state and federal authorities halted 60 alleged Ponzi schemes that raised more than $3 billion in investor funds. As a result of the recent economic downturn, they expect to see a similar number of Ponzi schemes and fraud cases uncovered in 2020.
If you are an investor in a private (non-publicly traded investment) and you suspect a potential fraud or Ponzi scheme, please call or email our office. We will provide a review of any documents, statements, or other material at no charge. Otherwise, consider some of the most common red flags, and do not ignore your gut feeling if you are the least bit concerned or suspicious:
- Compared to the safe secure traditional investments, there are promises of above-average investment returns with little or no risk.
- Notwithstanding volatility in the market, your investment value appears consistent as do your purported returns, regardless of market or economic conditions.
- Your investments are not traded on any exchange, not registered with the SEC or an appropriate state regulator.
- You do not completely understand the underlying business or how it produces the returns that are being claimed, or similarly, the investment strategy or underlying business is being kept mysteriously secretive or is described as being a complex strategy that prevents you from getting complete information.
- There is a lack of paperwork or documentation, what you do receive appears informal or suspicious, and if you ask for additional records, there is a purported excuse why information or records are inaccessible.
- There is difficulty or delay in your receiving payment on time, or there are promises of “rolling over” investments or payments in the future, often with a promise of potential higher returns in the future.
These Ponzi schemes and frauds are taking place everywhere. While some may share common characteristics or red flags, just know that you are not immune and your ability to take action and not wait for a securities regulator may make all the difference in your ability to recover your investment. Recently, GPB Capital was accused of running a ponzi scheme.
$80 Million Ponzi Scheme
In May 2019, the SEC charged a commercial real estate developer and two of his entities with fraud for operating a Ponzi scheme. According to the SEC’s complaint, Robert C. Morgan raised $80 million from investors through sales of securities directly to retail investors. Morgan represented that their investments would be paid a target return of 11%. Instead of investor funds, Morgan used new investor funds to pay earlier investors. In addition, the SEC alleges that Morgan used at least $11 million of investor funds to pay an inflated, fraudulently-obtained personal loan on an apartment complex.
$6 Million Ponzi Scheme
In November 2019, the SEC filed charges against two individuals who orchestrated a Ponzi scheme that defrauded at least 55 investors of over $6 million. According to the SEC’s complaint, Neil Burkholz and Frank Bianco misappropriated investor funds by diverting them to pay other investors and by transferring funds to themselves. They delivered false reports to investors indicating their assets were profitably invested. There were claims of massive positive returns when the funds were either misappropriated or lost. To perpetuate the scheme, the schemers discouraged withdrawals.
$5 Million Ponzi Scheme
In December 2019, the SEC announced charges against Edward Espinal and his companies, Cash Flow Partners and Cash Flow Capital. There were at least 90 investors defrauded. According to the SEC’s complaint, Espinal offered investment returns between 14% and 48% annually. Once investors agreed to invest, Espinal promised a higher return if they invested more money. Instead of acquiring real estate, investor funds were used to pay earlier investors monthly “returns” and to sustain the personal living expenses of Espinal and his family.
$75 Million Ponzi Scheme
In January 2020, the SEC announced an enforcement action against a Ponzi scheme that involved over 500 investors. According to the SEC, Kenneth Courtright persuaded investors to invest in The Growth Consultant Inc. (“TGC”) which supposedly was buying, building, maintaining websites. Investments were sold through unregistered offerings and guaranteed high returns. To further fund the scheme, Courtright borrowed large loans from distressed lending companies and co-mingled those funds with his investors.
$910 Million Ponzi Scheme
In January 2020, the SEC filed charges against a California-based couple for orchestrating a Ponzi scheme involving over $900 million. According to the SEC’s complaint, Jeffrey and Paulette Carpoff offered and sold investments through their two privately-held alternative energy companies making, leasing, and operating mobile solar generators. When investors began to look into locating their generators, the search revealed that the company only purchased a fraction of the generators it claimed to have purchased. It appears the Carpoffs used investors’ money to not only pay other investors but to support a lavish lifestyle— they transferred tens of millions of dollars to their personal bank accounts.
For some investors, where the individual recommending the Ponzi scheme or fraud investment a private FINRA arbitration customer dispute enables them to bring a claim and potentially recoup their investment losses, often from a potential third party. These disputes typically involve only paper discovery and no depositions, and they are generally faster and more efficient compared to traditional court litigation, as they provide a private forum to resolve disputes more quickly and efficiently.
About Haselkorn & Thibaut, P.A.
Haselkorn and Thibaut, P.A. is a nationwide law firm specializing in handling investment fraud and securities arbitration cases. The law firm has offices in Palm Beach, Florida, on Park Avenue in New York, as well as in Phoenix, Arizona and Cary, North Carolina. The two founding partners have nearly 45 years of legal experience.
Haselkorn & Thibaut, P.A. has filed numerous (private arbitration) as well as state or federal court cases to help investors recoup losses from fraud or Ponzi scheme investments. In customer disputes with the Financial Industry Regulatory Association (FINRA) for customers who suffered investment losses relating to issues similar to those matters mentioned above. There are typically no depositions involved, and those cases are typically handled quickly, efficiently, privately and on a contingency fee basis with no recovery, no fee terms. Experienced attorneys at Haselkorn & Thibaut, P.A. are available for a free consultation as a public service. Call today for more information at 1-800-856-3352 or visit our website and email us from there at www.investmentfraudlawyers.com.