Suicides Mount As Details Emerge From Massive Indian Ponzi Scheme

As investors begin to come to terms with a Ponzi scheme that is estimated to have duped hundreds of thousands of Indian investors out of billions of dollars, details are beginning to emerge about the scheme and its mastermind, while suicides continue to mount in a grim reminder of the true human toll of Ponzi schemes.  In a script perhaps better suited for a Hollywood movie, there are tales of bribes paid to politicians, a factory where workers pretended to work to impress potential investors, and a mastermind so opposed to having his picture taken that his website simply features a picture of an empty chair in his stead.  Now, two weeks after the scheme unraveled, many are trying to piece together what is likely the largest scam in India's history.

Shockwaves began emanating out of India in late April that Sudipta Sen, the man behind an Indian conglomerate known as the Saradha Group, was missing amid rumors of financial irregularities and increased scrutiny from India's Securities and Exchange Board of India ("SEBI").  Sen's Saradha Group operated a series of companies that offered 'depositors' the ability to invest in a wide range of ventures ranging from real estate to motor vehicles to even bio gas.  Investors were offered the ability to make short-term investments with promised returns based on the duration.  

Sen was able to promote his investments to the masses through a wide range of sources, including an extensive presence in television and newspapers and connections to members of one of the leading Indian political parties.  Sen also employed an extensive network of approximately 300,000 agents that were paid commissions to recruit new investors into the scheme. In total, it is estimated that hundreds of thousands of Indian investors may have entrusted billions of dollars to Sen's many ventures.  

However, as details have emerged from India, it is now becoming increasingly apparent that Sen's massive business empire may have been nothing more than a devastating Ponzi scheme.  As the Hindustan Times reports, Sen appears to have taken elaborate measures to attract investors to his scheme - even creating a full motorcycle factory spanning nearly 8 acres and manned by 150 employees who did little more than perform for busloads of potential investors.  As the article relates,

For two years since January 2011, employees at the Saradha group-owned Global Automobiles were forced to pose in front of the conveyor belt to give the impression that the plant was operating in full swing.

They pretended to work whenever truckloads and busloads of prospective depositors of Saradha Realty visited the plant for a first-hand check before investing.

Just before the depositors reached the factory, the workers would get dressed in their blue uniforms, rush to the shed where the assembling of motorbikes used to be done and pose in front of the conveyor belt as if they were really assembling the twowheelers.

They also used to turn on the fountains inside the campus. The prospective investors had no way of doubting that the plant had actually stopped production in January 2011.

There has also been an immense amount of scrutiny directed towards the ruling Trinamool Congress that has been linked to Sen.  Some politicians had extensive ties to Sen's businesses, including Kunal Goosh, a member of the Trinamool Congress Parliament who also served as head of Sen's media operations.  As the Hindu BusinessLine has reported, Sen filed an 18-page complaint letter wth the Central Bureau of Investigation shortly before he fled, accusing at least two members of Parliament for receiving bribes in return for protecting him from potential prosecution.  Additionally, Chief Minister Mamata Banerjee has made several comments that have been ill-received by investors, including admonishing victims that "what's gone is gone."

Minister Banerjee has since proposed the establishment of a relief fund that would provide $9.2 million for defrauded investors, that plan too has sparked a backlash - this time from Banerjee's announcement that 30% of the fund would be collected by increasing cigarette taxes.  Said Banerjee, 

"Smoke a little more to help the investors,"

Finally, in a grim reminder of the true devastation of Ponzi schemes, there have been multiple reports of suicides linked to the scheme.  Two victims are believed to have committed suicide in the immediate aftermath, with one woman setting herself on fire while another man hung himself.  Additionally, another deliberately drank poison and remains in critical condition. Recent news reports out of West Bengal suggest that two more individuals committed suicide within the past several days, including the father of an individual who served as a commission agent for the scheme who was being heckled by investors at his house.  According to the Hindustan Times, this brings the total number of deaths attributable to the scheme to ten - with seemingly no end in sight.  

Sen remains in police custody, and recent news reports have indicated he is cooperating with authorities.

California Man Receives 10-Year Sentence for $17 Million Ponzi Scheme

A California man was sentenced to ten years in prison for masterminding a Ponzi scheme that duped dozens of investors out of nearly $17 million.  Jeffrey J. Sykes received the sentence from a Texas federal judge after previously pleading guilty earlier this year to two counts of securities fraud.  U.S. District Judge John McBryde also ordered Sykes to pay nearly $17 million in restitution to his victims.

Sykes operated Gemstar Capital Group ("Gemstar"), which solicited investors for what was billed as a U.S. Treasury Bill trading program.  In 2006, Sykes met an individual identified only as M.K. while at a golf tournament, telling him that Gemstar was looking to expand its operations by enlisting the services of a brokerage firm to buy and sell U.S. Treasury Bills.  M.K. agreed to assist Sykes, forming a limited liability company known as KCG in order to solicit investors.  Investors were provided with quarterly account statements purpritedly showing consistent account growth.  In total, M.K. and Sykes raised more than $45 million from dozens of investors.

However, unbeknownst to investors, there was no U.S. Treasury Bill trading program, and Sykes did not use investor funds as represented.  Instead, Sykes operated a Ponzi scheme, in which money from newer investors was used to pay older investors in the form of interest and principal redemptions.  Additionally, Sykes used a great deal of investor funds for personal expenses.  In a fortunate stroke of luck for investors, at the time Sykes was arrested there remained a great deal of investor funds in money market accounts that allowed investors to receive some of their funds back.

Toronto Pastor, Wife Accused of $8.6 Million Ponzi Scheme

Toronto police have accused a local pastor and his wife of defrauding more than 200 parishioners out of nearly $9 million in a massive Ponzi scheme.  Marlon Gary Hibbert, 49, and Verna Hibbert, 48, were charged with thirty-eight counts of fraud are facing thirty-eight counts of fraud.  In addition, Lorraine Bahlmann, an administrative clerk, was also charged with fraud in connection with her role in sending falsified account statements to victims.  The Hibberts could face decades in prison if convicted of the fraud charges.

According to authorities, the fraud occurred between 2005 and 2010, when Marlon Hibbert served as pastor at the Masonic Church of God.  Parishioners were solicited to invest with Hibbert, who claimed that he could deliver annual returns of 8.5% by engaging in foreign exchange ("forex") trading.  Based on these promises, at least parishioners are thought to have invested nearly $9 million.

However, Hibbert did not engage in forex trading, but instead ran an elaborate Ponzi scheme that used investor funds to sustain a luxurious lifestyle that included expensive cars and high-end homes.  Victims who thought they were receiving their promised interest payments were instead being paid with funds from incoming investors.  

The news comes several years after Hibbert was the subject of an inquiry by the Ontario Securities Commission after he ran a similar fraud while operating the Dominion World Outreach Ministries.  Hibbert did not appear for the hearing, and was later found to have committed fraud in what one of the OSC commissions called one of the worst frauds he had ever seen.

Toronto police believe many more victims remain unaccounted for, and are urging them to come forward.

Prison For Illinois Men Who Hatched Comic Book Ponzi Scheme From Prison

Three Illinois men are headed back to federal prison for masterminding a Ponzi scheme they concocted in prison that promised lucrative returns through the distribution of comic book rights.  Daniel Parrilli, 62, John Lauer, 48, and Christopher Anderson, 57, received 70-month, 31-month, and 95-month prison sentences, respectively, after previously pleading guilty to fraud charges.  The scheme raised more than $7 million from over 150 investors.

After meeting in prison, the trio formed Sundown Entertainment Inc. ("Sundown"), which purported to specialize in the distribution of film and comic-book rights.  Beginning as early as 2006, the trio solicited investors for Sundown, telling them that their funds would be used to purchase the rights to old film footage in order to produce and distribute movies and documentaries.  Investors were told that the venture was extremely profitable, and that they could expect interest rates on short-term investments of up to 150%.  Based on these representations, over 150 investors eventually entrusted more than $7 million to the trio.

However, while at one point Sundown actually did engage in comic book and film production, the realized revenues were, not surprisingly, insufficient to sustain the exorbitant returns promised to investors.  For example, over a 2-month period from November 1, 2007 to December 31, 2007, less than $8,000 of deposits to Sundown's bank account came from the sale of movies, while nearly $1.7 million came from new investors.  This was not disclosed to investors, and the men continued to promise high returns in a classic Ponzi scheme that avoided collapse by paying existing investors with funds raised from new investors.  

The men concocted the scheme after they met while serving time in a Wisconsin prison, where each had been convicted of fraud-related charges.  Indeed, a background check would have raised a number of red flags, as Andersen had been convicted of selling fraudulent investments, Parrilli had been convicted of bank fraud, and Lauer had been engaged in an investment scheme that caused losses of more than $20 million.  

Each of the men was also ordered to pay restitution to scheme victims.

Charlotte Man Charged With $4.7 Million Forex Ponzi Scheme

Federal authorities charged a North Carolina man with operating a foreign currency Ponzi scheme that duped at least 500 investors out of nearly $5 million.  James H. Mason, 66, was charged with a single count of securities fraud, which carries up to a twenty-year prison term as well as a $5 million fine.  

According to the indictment, Mason operated JHM Forex Only Pool ("JHM Forex") and Forex Trading at Home Association ("Forex Trading"), which purported to engage in trading in over-the-counter foreign currency exchange ("forex").  Mason told potential investors that he had over 35 years of experience investing in commodity futures and options trading, and promised substantial returns.  Based on these representations, at least 500 investors were induced to invest nearly $5 million with Mason and his entities.

However, Mason did not have 35 years of experience in forex trading.  Instead of achieving significant gains trading forex, Mason is alleged to have operated a classic Ponzi scheme, using new investor funds to pay purported returns to existing investors.  Mason also misappropriated investor funds for his personal use, including the payment of personal and business expenses, and the purchase of real estate and cars. 

Of the nearly $5 million raised from victims, Mason used only a small percentage of funds for actual forex trading, which resulted in nearly total losses.  Investors were not told of these losses; rather, they were provided with falsified statements showing that their accounts were profitable.  Investors were also provided with an online account portal where they could track their account's progress and see their growing balances.  According to authorities, this was all false, and in many cases the investor accounts were empty.

Mason has been in federal custody since April 15, 2013.