A $195 million Ponzi scheme has affected 724 victims in multiple states, including several Texas investors. At least three of the perpetrators behind the investment scheme have received felony sentences, including an order to pay more than $155 million in restitution.
As defined by the FBI, a Ponzi scheme typically promises high financial returns or dividends not available through traditional investments. The funds of the victims are never invested, however. Instead, any payments to initial investors purporting to be dividends are usually just the funds of subsequent investors. When enough new investors can’t be found to support the fraudulent dividends, the scheme usually falls apart.
The advertising of such Ponzi schemes can be extremely persuasive. In this case, the scheme allegedly targeted retirees with promises of tax-free earnings and no penalties for withdrawals from the investment, and used radio pitchmen and financial advisors with outstanding customer service skills to earn the trust of potential investors. Without the assistance of an outside third party, like a broker or licensed financial advisor, many potential investors would not be able to spot the fraud.
At trial before a nine-member jury, many of the victims testified about how the scheme had devastated retirement earnings they had carefully saved over a lifetime. Their testimony apparently convinced the jury: the head organizer received 30 years in prison, and a co-conspirator received 20 years. A third player who testified for the prosecution against his former colleagues received a reduced sentence of 7 ½ years and avoided trial.
For anyone facing felony charges of fraud or embezzlement, the testimony of the alleged victims can be very damaging at trial. An experienced criminal defense attorney, however, might be able to mount an aggressive cross-examination or seek other ways to minimize the potential sentences a defendant might be facing.
Source: The Star Tribune, “Scam artists get 57 years in prison for $195 million scheme,” Dan Browning and David Chanen, Jan. 4, 2013