Ponzi Schemes Continued To Proliferate In 2014

Despite a burgeoning economy, increased regulation, and heightening scrutiny on financial crime, data compiled by Ponzitracker shows that Ponzi schemes continued to be uncovered at a steady pace in 2014 and result in numerous and lengthy prison sentences for the perpetrators.  In 2014, at least 70 Ponzi schemes involving more than $1.5 billion in investor funds were uncovered - equating to the discovery of a new scheme every five days.  Additionally, nearly 1,500 years in prison sentences were handed down in 2014 to at least 136 individuals for their involvement in Ponzi schemes.  Analysis of this data, illustrated in the below database and assembled with the assistance of Alison Jimenez at Dynamic Securities Analytics, suggests that the era of the Ponzi scheme is unfortunately here to stay for at least the near future.

The Madoff Era: Unprecedented And Devastating

The collapse of Bernard Madoff's massive Ponzi scheme in late December 2008 heralded the start of a likely-unprecedented period of time during which over 500 schemes have since been discovered.  This onslaught was not gradual but rather sudden and violent; in the 14-month period from October 2008 to December 2009, the three largest Ponzi schemes in history collapsed in stunning fashion (with losses from the largest, Madoff's fraud, more than doubling those of the second-largest scheme)  Yet, while the number of schemes discovered annually has decreased since peaking at 113 in 2009, the proposition that increased regulation and heightened public awareness might significantly curb the number and severity of schemes going forward has not been borne out by the data.  Rather, the ensuing years showed an alarming consistency in both the number and magnitude of schemes uncovered. As the graphic (right) illustrates, the number of schemes uncovered from 2010 to 2014 has ranged from a low of 67 in 2013 to a high of 100 in 2012.  

The increased prosecution of these schemes has resulted in a corresponding increase in prison sentences handed down to Ponzi scheme perpetrators and their accomplices, with more than 5,000 years in prison sentences handed down to more than 400 individuals in the past six years.

2014 Data Shows Positive, Alarming Trends

  

An analysis of Ponzi scheme discoveries and prison sentences in 2014 points to both positive and alarming trends.  On the one hand, the average Ponzi scheme discovered in 2014 was approximately $21.8 million - an approximately 50% decrease from an average size of nearly $43 million in 2013 and the lowest average size since 2011.   Coupled with a modest increase in the median Ponzi scheme size, the data suggests that the number of large schemes that had previously boosted the average scheme size appears to be on the decline.  However, any comfort from that statistic is negated by the fact that both the number of schemes uncovered and accompanying prison sentences increased in 2014 (albeit modestly) compared to 2013. 

There was also a notable increase in the role of women in Ponzi schemes discovered in 2014. During the 2008 to 2013 time period, males comprised 90% of the individuals arrested and sentenced for Ponzi schemes.  While that percentage remained constant for Ponzi scheme sentencing in 2014, women made up over 16% of individuals implicated in Ponzi schemes discoveries in 2014 - a 240% increase from the same time period in 2013 and a 181% increase from the 2008 - 2013 average.  While the sample size is much too small to draw any substantial or permanent conclusions, the sudden increase in schemes involving females may be a trend worth further scrutiny.  

Finally, the data shows that California significantly outpaced the rest of the United States in terms of discovered Ponzi schemes.  Of the 70 Ponzi schemes uncovered in 2014, an astounding 13 - or nearly  20% - were based in or had ties to California and had a collective total of nearly $370 million of investor funds at stake.  Florida was a distant second with seven schemes discovered.   

In closing, any hopes that 2014 might finally signal the final curtain on the "Madoff Era" are belied by the data.  While authorities have done an admirable job in rooting out Ponzi schemes over the better half of the past decade, it simply appears that new fraudsters have been more than willing to take the place of their fallen brethren.  The result has been a continued evaporation of investor wealth, which serves not only to decrease legitimate investments but continues to breed mistrust in the financial markets for those slighted victims.  While significant strides have been made in increasing regulation and educating the investing public, more must be done.

For a comprehensive database of Ponzi schemes spanning the last six years, visit the Ponzi Database.

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Self-Described “Richard Gere" Accused Of Targeting Women In $400,000 Ponzi Scheme

A Canadian man who likened himself to Richard Gere from the popular movie “Pretty Woman” is under arrest after authorities accused him of operating a Ponzi scheme in which he targeted female investors on online dating websites or at local bars.  Salim Damji, 45, was arrested on multiple charges, including fraud over $5,000, fraud over $5,000 public, laundering proceeds of crime, and false pretenses.  An accomplice, Tatiana Krainova, 39, was also charged with fraud over $5,000, fraud over $5,000 public, and laundering proceeds of crime.  

According to authorities, Damji would use online dating sites or visits to local watering holes to meet potential victims.  After holding himself out to be a financial expert - and even engaging in relationships with several victims - Damji convinced multiple victims to invest with him with the promise of lucrative short-term returns.  At least eight female investors were alleged to have entrusted at least $400,000 with Damji.

After one of the victims googled his name, they discovered that Damji had a lengthy series of run-ins with authorities that included a previous prison sentence for his involvement in a tooth-whitening fraud scheme that duped 4,000 victims out of approximately $77 million.  In the early 2000s, Damji solicited investors though his company, Strategic Trading System, on the promise that they could become millionaires after Colgate-Palmolive bought his tooth-whitening invention for $400 million.  Thousands of investors, including many Ismaili Muslims, suffered losses.  After a judge refused to accept Damji’s contention that unnamed mobsters had forced him to carry out the fraud, he was sentenced to a six-year prison term.  Following his release from prison, he was subsequently charged with check fraud.  A website has even been established at Salimdamji.com for “victims of Salim Damji’s heartless fraud upon the members of his family, friends, and the Ismaili community.”  

After Damji’s recent arrest, he described himself to Toronto detectives as “Richard Gere from the movie ‘Pretty Woman,’” confessing that he sought to emulate the lifestyle Gere’s character lived in the film.  

Individuals with information are encouraged to contact Det. Ken Bardai with the York Regional Police Major Fraud Unit at 1-866-876-5423, ext. 6671, Crime Stoppers at 1-800-222-TIPS, leave an anonymous tip online at www.1800222tips.com, or text your tip to CRIMES (274637) starting with the word YORK.

Zeek Founder Seeks To Delay Upcoming Trial

A North Carolina man accused of masterminding a massive Ponzi scheme that caused hundreds of millions of dollars in losses has sought to postpone his trial that was scheduled to start later this month.  Paul Burks, who allegedly duped hundreds of thousands of victims who invested in Zeek Rewards, filed the request through his attorney seeking to remove the case from the January 2015 trial term on the basis that his defense team required additional trial preparation time due to ongoing discovery.  Burks, 67, was indicted late last year on charges of mail fraud, wire fraud, mail and wire fraud conspiracy, and tax fraud conspiracy. 

Zeek Rewards

Burks, a former nursing home magician and country music DJ, founded Rex Venture Group, LLC ("RVG") in 1997.  In 2010, he formed zeekler.com, which operated as a penny auction website offering participants the ability to place incremental bids on merchandise in one-cent increments.  Individuals were required to purchase "bids" in lots, usually at a cost of $.65 per bid, in order to participate in the auctions.  Burks launched ZeekRewards in January 2011 as an "affiliate advertising division" of Zeekler.  Participants were then solicited to become investors, or affiliates, in ZeekRewards in the form of investment contracts called the "Retail Profit Pool" and the "Matrix."  None of these investments were registered with the SEC or any state regulatory authorities.

The Retail Profit Pool promised investors the chance to earn lucrative daily returns of "up to 50% of the daily net profits" after completing a process that involved enrolling in a monthly subscription plan, soliciting new customers, selling or purchasing ten Zeeker.com "bids", and placing one free ad daily for Zeeker.com.  According to the ZeekRewards website, a daily commitment of "no more than five minutes per day" was required to share in daily profits.  The daily "award" was usually 1.5% of the individual's 'investment'.  Due to the compounding nature of these "Profit Points", as they were called, the cumulative amount of outstanding Profit Points now numbers nearly $3 billion.  Assuming a 1.5% daily "award", this would require daily cash outflows of $45 million should all investors seek to receive their "award" in cash.  

In addition to the Retail Profit Pool, investors could also participate in the "Matrix", which was a form of multi-level marketing that rewarded investors for each "downline" investor within that investor's "Matrix".  The Matrix consisted of a 2x5 pyramid, and each person added to an investor's Matrix qualified that investor to receive a bonus.  

While ZeekRewards represented to investors that the operation was extremely profitable, in reality, the company's revenues and payments to investors were derived solely from funds contributed by new investors - a classic hallmark of Ponzi schemes.  Indeed, authorities alleged that 98% of all incoming funds were derived from the funds of new investors. Thus, the scheme could only stay afloat so long as new investor contributions were sufficient to satisfy the amount of outflows.  However, because investors were actively encouraged to "roll-over" their "profit points" back into the scheme, the number of outstanding liabilities to investors steadily increased, reaching approximately $2.8 billion in August 2012 despite available cash reserves of less than 4300 million.  Due to the likelihood that those funds would soon be exhausted, the Commission initiated an emergency enforcement proceeding and sought an asset freeze in August 2012.

Burks, as principal of Rex Ventures and Zeek Rewards, is alleged to have withdrawn over $10 million in investor funds for the benefit of himself and his family members.  

January 2015 Trial Date

Indicted in late October 2014, Burks' case was scheduled on the January 2015 trial docket - an ambitious task given the sheer magnitude of the alleged scheme and the fact that hundreds of thousands invested from all over the world.  Burks is the third former Zeek employee to be charged after former Zeek chief operating officer Dawn Wright-Olivares and computer programmer Daniel Olivares pleaded guilty in December 2013 for their role in the fraud.  Neither of the latter two have been sentenced yet, leading to speculation that their agreement includes providing testimony in support of the government's case against Burks.   

The Motion is below:

23 by jmaglich1

New York Man Indicted For $2 Million Ponzi Scheme

A New York investment manager has been arrested on multiple felony charges that he operated a Ponzi scheme that duped several companies out of at least $2 million. Steven Canady, 42, faces four counts of grand larceny in the second degree, four counts of criminal possession of stolen property, and one count of scheme to defraud in the first degree.  Canady has pleaded not guilty to the charges, and is currently being held on $1 million bail.

Canady was the owner and operator of Alliance Warburg Capital Management ("Alliance Warburg"), holding himself out as the Vice President of Structured Finance.  In that position, Canady is accused of soliciting various companies under the guise that he could assist in locating and securing funding for those companies and their business ventures.  Each of the potential companies was promised that, after paying a fully refundable due diligence fee or pre-paid interest, Alliance Warburg would secure them funding.  In total, Alliance Warburg received more than $2 million in due diligence fees or pre-paid interest from three companies: ABA Ventures, of Florida, West Chester Host, LLC of Kentucky, and Lents Construction in Tennessee.  Additionally, a Georgia company, Global Capital Advisers ("Global Capital"), was promised a lucrative short-term return in exchange for a $150,000 investment in one of Canady's business ventures.  

However, no funding was ever secured by Canady or Alliance Warburg for the benefit of ABA Ventures, West Chester Host, or Lents Construction. Nor did Canady make the promised interest and principal payment to Global Capital.  Rather, authorities allege that Canady misappropriated those funds in typical Ponzi scheme fashion to pay off earlier victims or to support a lavish lifestyle that included travel, dining, and living expenses. 

According to prosecutors, Canady was previously convicted by a Georgia court of similar rimes.  Canady has also run afoul of securities regulators in other states, including a 2007 cease-and-desist order issued by the Connecticut Department of Banking relating to an alleged offering of unregistered securities.  

19-Year Old Nightclub Owner Arrested For $500,000 Ponzi Scheme

Ian Bick / FacebookA Connecticut teenager has been arrested on numerous criminal charges that he operated a Ponzi scheme that duped friends and family - including his parents - out of $500,000.  Ian Bick, 19, was charged with eleven counts of wire fraud, three counts of money laundering, and one count of making a false statement to law enforcement.  Wire fraud carries a maximum prison term of twenty years per count, while money laundering and making false statements to law enforcement carry maximum sentences of 10 years and 5 years, respectively.  Bick was released on $250,000 bond, with one of the conditions of his bond prohibiting him from using social media.

Bick is the owner of a popular Danbury, Connecticut club known as Tuxedo Junction.  In addition, Bick also owned multiple entities such as This is Where It's At Entertainment, Planet Youth Entertainment, W&B Wholesale and W&B Investments. According to authorities, Bick used these entities to solicit friends, business partners, and even his parents with the promise that their investments would be used for multiple purposes to yield lucrative returns in short time periods.  For example, potential investors were told that their funds would be used to buy electronics and subsequently resell them for a profit, as well as for the organization and promotion of concerts in Connecticut and Rhode Island.  These investments were memorialized through "loan agreements" and "music venture participation agreements."  In total, approximately $500,000 was raised from at least 15 investors.

However, according to authorities, Bick did not use the funds raised from investors to purchase electronics or organize concerts.  Rather, Bick is accused of diverting investor funds for his own personal use, including luxury travel, the purchase of jet skis, and the payments of fictitious interest to investors.  At an interview with U.S. Postal Inspection Service in June 2014, Bick represented to investigators that 70% - 80% of investor funds had been used on "artist deposits."  However, in reality, only a minimal portion of investor funds were allegedly used as promised.

At 19 years old, Bick is likely one of the youngest known defendants accused of a Ponzi scheme.  Donald French, a Florida man, was 25 when he was arrested in 2012 and charged with operating a $10 million Ponzi scheme.  French is currently serving a 10-year prison sentence.