$50 billion! Yes, that is a large number in anyone’s book, but it is also a conservative estimate of the investment losses perpetrated upon the American public over the past six years from just Ponzi schemes alone. Yes, there are stock, real estate, and commodity losses galore, but a major portion of the pain can also be attributed to clever foreign exchange con jobs that are slowly making their way through the criminal justice system at present. As soon as the details hit the press, a new cadre of copycat con artists hits the streets, using the same playbook that worked before for others.
Greed and the desire to get rich quick drive many Americans to buy in early to the marketing spiel that high returns are guaranteed and a sure thing. The problem is also global in nature, such that the total true amount of losses could be multiples of the $50 billion figure. There is also one other aspect that makes a forex Ponzi schemes so appealing – Foreign exchange is complex, has a mystique about it, and is hard to understand, such that potential marks feel empowered when they are conned by so-called “experts” in the field. Crimes in forex fraud in 2014 may have had smaller loss values, but modern crooks are learning to fly beneath the radar, so to speak.
We have chosen below three high-profile cases that entered the court system in 2014. Each one has eerily followed the guidelines established by the Trevor Cook fiasco that shook the forex world in 2009 when nearly $200 million in losses surfaced. His five-year heist was uncovered after the Great Recession forced his investors to scream for immediate withdrawals. The requests were ignored. Complaints were filed, and then arrests commenced. The defendants have been sentenced, although a few are still appealing, but investor reparations remain in doubt.
In each example, you need to note how quickly trust and respect are established, either by reputation in the community or through slick videos or presentations. As with any con job, the “hook” must be set first, before the “mark” can be reeled in and then fleeced. It is also worth noting the poignant words of one reporter that wrote, “In addition to being a land of opportunity, America is also a land overwhelmed by Ponzi schemes.” If ever there was a time to validate that your fund manager was legit, now may be it, because the appeal of Ponzi schemes does not appear to be waning here or around the world.
The Trevor Cook playbook for successful forex Ponzi schemes
The best “How To” book award for foreign exchange frauds is generally given to Trevor Cook, a self-proclaimed investment mogul who now sits behind bars, serving out a 25-year sentence. He and his associates stole $194 million from over a thousand investors. To achieve such success, each of Cook’s three sidekicks were expert in their individual fundraising roles. One was a seasoned investment fund raiser, another, a former pro wrestler with crowd appeal, and a third, a radio talk-show host that broadcast specifically to elderly religious audiences preaching Cook’s great investment service.
Fundraising began in earnest in 2005. Cook and his merry band of hucksters professed that their foreign exchange strategies would yield no less than roughly 1% a month. Their plan was so safe that there was no risk of loss of principal, and withdrawal requests would be handled promptly at all times. Many duped investors put their life savings into supposedly segregated accounts, but funds were commingled and distributed to a series of shell corporations. $194 million flowed into the coffers of Oxford Global Advisors over time, much of it siphoned off for personal use.
To gain “physical” trust, the conmen purchased the famous Van Dusen House, a mansion in a posh neighborhood of Minneapolis, Minnesota, for $2.6 million and soon outfitted it to look like a state-of-the-art trading center with a multitude of flat screens, PCs, and frenetic staff in attendance. The group actually lost $68 million in the forex market. Most modern crooks eliminate this activity. Another $52 million was paid back to investors as phony returns to solidify the con and lure in more cash. At least $30 million flowed to the conmen for personal uses, parties, and other investment ventures. The whereabouts of the remaining funds have yet to be determined.
Example #1: January 2014 – Pastor Affinity Fraud
Louis Alonso Serna, a 61-year old preacher of the Zion Living Word Christian Center in Los Angeles, was arrested for allegedly defrauding 70 of his Latino congregation out of $4 million. He claimed to be operating on the side an outrageously profitable forex program that generated monthly returns of 20%. The pastor freely promised money miracles by showing a video, which was entitled the “Prosperity Gospel”. Authorities have had a hard time believing that the preacher alone prepared such sophisticated materials for his Ponzi scam. Many individuals were persuaded to take out loans on their homes and now face foreclosure. The lesson is simple: Beware of ridiculous returns that are presented to you by someone of trust in your community.
Example #2: February 2014 – Former Sheriff’s Deputy Affinity Fraud
David N. Hawkins, 44, a former deputy in the El Paso County, Colorado, sheriff’s department, was sentenced to serve 30 months in prison for his Ponzi scheme. Since he came from law enforcement, he was smart enough to keep his fundraising tactics to a modest scale to avoid early detection. He did, however, manage to convince friends and co-workers to hand over $1.2 million to participate in his foreign exchange trading operation that he claimed was raking in 20% returns every month. Hawkins soon got cold feet, as his actual returns went south. He proceeded to refund the majority of his investors up to $1 million, the primary reason the judge gave him such a lenient sentence. Once again, whom can you trust? If not law enforcement, then whom?
Example #3: April 2014 – Former Naval Pilot convicted of Ponzi fraud
If a man of the cloth or of the law cannot be trusted, then what about an ex-serviceman? Once again, the affinity angle was used to gain trust at the front end of the bilking process. Timothy Coughlin, 63, is currently being tried for allegedly robbing $12.8 million from over 5,000 individuals, one-third of whom live outside of the U.S. borders. He claimed to have been a former naval aviator with combat experience to gain trust, but officials have found no record of his service. Beware of ex-servicemen bearing gifts.
Ponzi schemes are alive and well in America, especially in the field of foreign exchange, and these examples are, perhaps, only a handful of the ones that have gone undetected. You can be assured that there are many more operating, perhaps, even in your own community. The amounts that we have witnessed in these three examples may seem modest when compared to the Trevor Cook caper, but this lower-amount profile might be disguising a much broader phenomenon.
When it comes to Ponzi schemes, the all time record still goes to Bernie Madoff, who actually made off with an estimated $65 billion, the largest Ponzi fraud in history. Authorities will be sorting through the rubble for decades before any reparations are made. After fines and court costs, investors rarely see as much as 20 cents on the dollar, but hope does spring eternal. The sad part for investors, however, is when they receive a notification from the bankruptcy judge that many of the ponzi-type interest and principal payments must be returned to the court, a process referred to as “clawbacks”. Ironically, you instantly become a defendant in a case where you had been victimized
Are you involved with a fund manager at present? Are you sure that everything is on the up and up? How were you initially approached? Was it through a member of your family, a trusted friend, co-worker, or other intermediary in the community that you trust? Have you been promised outrageous returns at no risk to principal? Remember to always be skeptical and that you are your first and last line of defense against fraud!