Two California women were arrested on charges that they orchestrated a Ponzi scheme that took in at least $8 million from unsuspecting victims, many of whom were part of the Vietnamese-American community. Lananh Thi Phan, 54, and Diane H. Do Bui, 49, are facing felony charges of grand theft and securities fraud in connection with the scheme, and are being held on $10 million and $5 million bail, respectively. Each could face decades in prison if convicted of the charges and sentenced to the maximum term.
Phanh, a licensed realtor, worked with Bui, a notary public, to solicit victims. Victims were told that their funds would be used for a variety of investments, including investments in foreign gold, a bail bonds business, and even a "secret" venture that the women would not disclose. Indeed, according to authorities, Phan told investors that if she told them the nature of their "secret" venture, "you would do it and everyone would do it." While the intended use of their funds was not entirely clear, the promised returns were clearly lucrative; the women promised that a $25,000 minimum investment would yield a monthly payment of $1,500 in what was an approximate annual return of more than 70%. However, after investors received several of the promised monthly payments, authorities alleged that the women would reach out to the victims to convince them to roll their payments back into their investment with the promise of even higher returns. In total, Phanh and Bui raised more than $8 million from victims.
However, while investors were led to believe that their funds were safe and akin to money sitting in a bank waiting to be used, authorities alleged that the women used investor funds to operate a Ponzi scheme and support their luxurious lifestyles that included Phan's collection of high-end Louis Vuitton purses. Indeed, according to authorities, the alleged investment ventures did not exist. Instead, the women are accused of using investor funds to pay returns to existing investors - a classic hallmark of a Ponzi scheme.
While authorities are aware of at least 18 victims, they believe that additional victims may be involved.
A significant red flag often seen in Ponzi schemes is the perpetrators' deliberate concealment of or ambiguity concerning the nature of the purported investment. While this is often done to create an aura of secrecy or exclusivity, and even intimidation in situations where investors push for answers, it should also cause concern to potential investors who have a right to know how their funds are being used. Coupled with a situation like the above where neither of the perpetrators were likely licensed to sell securities, such secrecy or ambiguity surrounding an investment strategy is a definite cause for concern.