Beware of Scam Artists

By Bart Chilton
Miami Herald
December 15, 2009

Last Tuesday, FBI Miami Division Special Agent in Charge John Gilles, whose team recently arrested Fort Lauderdale attorney Scott Rothstein on charges relating to his $1.2 billion Ponzi scheme, warned a Boca Raton audience that corruption is the No. 1 criminal threat the United States today. According to Reuters, Gilles reported that in the last year, financial fraud cases have increased a staggering 42 percent.

Coincidently, it has been almost a year since the world was rocked by the revelation of the Bernard Madoff Ponzi scheme -- the longest running and largest scheme to date with an estimated value of $65 billion.

Not a week has gone by this year where we don't hear about another ``mini-Madoff'' popping up somewhere. Recent schemes adding momentum to the Ponzimonium surfaced in Sarasota, Weston and Jacksonville.

And, we cannot forget the fraudsters who came before Madoff stole the scene, like Boca Raton resident Michael Meisner, whose $5.8 million scam was personally revealed to his victims in 2008 through letters that informed them that he had been running a Ponzi scheme and using their money to support his lavish lifestyle.

Stories like this force you to recognize that regular folks, like the Sarasota residents who were duped by Beau Diamond with lines like, ``No client loses a single penny,'' are the usual prey for fraudsters. Despite Diamond's promises, when the Commodity Futures Trading Commission (CFTC) filed its complaint against him in September, about $9.7 million of client funds were unaccounted for. That's a lot of pennies.

For bottom feeding fraudsters, it doesn't matter where the money comes from as long as it keeps coming.

Ponzi schemes involve the use of new investor money, in part, to pay returns or purported ``profits'' to earlier investors. Diamond's scheme purportedly did just that for more than three years. Despite the fact that the only evidence of profitable trading consisted of false account statements, he doled out approximately $14 million to investors, concealing the fact that those funds were other investors' money. Amidst the collapsing economy, new investor funds dried up, and Diamond could no longer make his monthly ``guaranteed'' profit payments.

In January 2009, he emailed investors explaining that he was trying to come up with a plan to repay their funds and urging them not to ``initiate a federal investigation'' because, otherwise, ``no one will ever see a penny, and I most likely will be behind bars.''

These fraudsters just can't stop. Like Special Agent Gilles pointed out: Greed is a strong motivator.

Diamond was arrested on Sept. 1 for operating a $38-million Ponzi scheme. Two days later, the CFTC obtained an emergency federal court order freezing his assets and those of Diamond Ventures LLC. Diamond's requests for bond have been denied and he remains in custody.

The attention received by Madoff and the rampant Ponzimonium it triggered has led investors to question the safety and soundness of their financial assets. That's a good thing because an increasing number of people, after double-checking, are learning that they too have been duped.

It is astounding to think about what can be purchased with other people's money. In Florida alone, Ponzi operators have purchased, among other things, $1.4 million of jewelry, real estate, a luxury suite at the BankAtlantic Arena to watch the Miami Heat play, and over 25 luxury cars.

Diamond purportedly racked up $2.2 million worth of vacation expenses, real estate, and a Lamborghini.

These frauds combined have harmed tens of thousands of Americans, many of whom thought they were investing properly. Regulators often get a bad name -- many times deservedly so -- but now more and more bad guys are getting caught for Ponzi schemes, and some of them are doing time for their crimes.

Bernie Madoff is now serving a 150-year sentence -- the maximum sentence allowed, and just a few weeks ago, a Philadelphia Ponzi schemer was handed a 15-year sentence for his role in a $50 million fraud.

These, at least, are very good things.

Bart Chilton is one of the five commissioners of the Commodity Futures Trading Commission.

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