PONZI SCHEMES: INFAMOUS PERPETRATORS - Part 5

RETIREE RIPOFF

Michael Eugene Kelly owned a resort in Mexico and scammed $428 million from senior citizens and retirees. Kelly offered his prey the opportunity to make timeshare investments in Cancun hotels, which he referred to as “universal leases.” With the timeshare, investors received rental agreements that promised them a nice fixed rate of return. Many of the people that invested into Kelly’s scam thought the venture appeared to be solid with a low-risk return so they invested their retirement savings. According to the SEC, “more than $136 million of the funds invested (came) from IRA accounts.” While investors were losing their money, Kelly was buying a private jet, four yachts and a racetrack.

PONZI SCHEMES: INFAMOUS PERPETRATORS - Part 4

PONZI PRODUCER

Lou Pearlman was a name you’d hear quite often during the 1990’s. Not only is he Art Gunfunkel’s cousin, but he is also the former manger of boy band acts ‘N Sync, Backstreet Boys and O-Town. What many didn’t know was that he was also involved in a Ponzi scheme. His Federal Deposit Insurance Corporation (“FDIC”)-insured Trans Continental Savings Program would offer investors a very attractive return to gain their confidence. Much to the investors’ dismay, the scheme Pearlman was perpetrating was neither FDIC approved nor was it part of a savings and loan. This didn’t stop Pearlman from continuing to bilk his investors out of close to $500 million. Pearlman’s plan was to use the funds for three shows for MTV and to build an entertainment complex.

PONZI SCHEMES: INFAMOUS PERPETRATORS - Part 3

HAITIAN HOTBED

The residents of Haiti became victims of Ponzi schemers in 2001 when outfits referred to as “cooperatives” were offering rates up to 15%. The cooperatives gave the impression that they were government backed. They were quick to become rampant amongst inhabitants. Individuals also felt comfortable since the coops were actively promoted through radio and TV advertisements. Even Haitian pop stars were spokespeople! Unfortunately, it is estimated that residents lost more than $240 million in these scams, which is comparable to 50% of Haiti’s Gross Domestic Product.

PONZI SCHEMES: HOW TO DETECT AND AVOID THEM - Part 5

BEING ACCOUNTABLE

A red flag should go up with there has been unauthorized trades, missing funds or other issues on your account statements. True, this could be the result of a genuine error; however, it could also indicate the occurrence of fraud. Be sure to keep a close eye on your account statements in order to make sure it is consistent and is in alignment with your instructions.

Also, be sure to know exactly who is in charge of your assets. Note if the investment advisor is working as the custodian as well, which would make it easier for fraudulent actions to be commissioned. Confirm that your investment is being held with a reputable financial institution and that your money is, in fact, being held by them. Furthermore, verify that all of your accounts with the firm list your name and a specific account number.

Give a long look to the account statements being provided to you by the salesperson. It is to your benefit to be supplied with statements from the brokerage firm, third-party custodian or mutual fund company as well. The statements you receive from your promoter will offer some clarification on your investments, but should never be relied upon as the sole source for performance and trading information.

CONCLUSION

The tips in this article will greatly improve your chances of detecting and avoiding Ponzi scheme pitfalls. Truly take the time to research the investment transaction opportunity being offered and the individuals promoting them. Make sure that your funds are in good hands and be wary of anything that sounds too good. Protect yourself and your pocket from poisonous Ponzi promoters.

Gary Opper, CPA is the Managing Member of Levie-Opper, LLC, Weston, Florida. He is a member of the American Institute of CPAs and the Florida Institute of CPAs. He has written over 500 published articles in over 20 magazines. Mr. Opper has been the National Association of Mortgage Broker’s “Writer of the Year” and “Featured Writer of the Year.” He has spoken to many groups including the Florida Bar Association, the Florida Institute of CPAs, the Mortgage Bankers Association and Northern Trust Bank. He has lectured at four colleges including University of Florida and Florida International University. Opper has an Accounting degree from UF and a Master of Science in Taxation from FIU. Opper is Past President of the Florida Association of Mortgage Professionals - Miami Chapter and the FICPA - Gold Coast Chapter. Levie-Opper, LLC focuses on forensic accounting and fraud auditing. They handle state and federal cases including civil, commercial and criminal. Mr. Opper is available to speak to your group. He may be reached at (954) 384-4557, fax: (954) 384-5483, or e mail: Gary@Levie-Opper.com.

© Gary Opper. All Rights Reserved.

PONZI SCHEMES: HOW TO DETECT AND AVOID THEM - Part 4

PARTICIPATION

If you have already given a salesperson your money for an investment, do not provide additional funds or reinvest without seeing an initial return on your investments. Promoters easily keep their scams continuously going by convincing their investors to simply roll-over their preliminary profits with the promise of an even greater return. While it does make sense to follow through with the investment for a certain period of time, be suspicious of salespeople that are reluctant to let you cash out after the first sign of success.

A product that offers an overly consistent return is a cause for concern. Also, an investment with a rising return or that gives remarkably steady returns, regardless of the current market conditions, should be a cause for concern. Especially during these economic times, it is common for even the most solid investments to experience fluctuation from time to time. Be aware even if you receive funds back, they may be from other investors.

PONZI SCHEMES: HOW TO DETECT AND AVOID THEM - Part 3

WHO CAN YOU TRUST

A pushy salesman could indicate a less than reputable individual. No trusted salesperson should ever try and push you to make a quick decision about making an investment. The words “act now” are a clear indicator of something with which you should not be involved. If the investment is truly without fraud, there would be no reason to pressure you into getting involved.

The company that manages your investment should not be custodian of your investments. With this arrangement, you will receive periodic statements from a source independent from the manager/promoter.

PONZI SCHEMES: HOW TO DETECT AND AVOID THEM - Part 2

RESEARCH RIGHT

Do your homework! Spend some time investigating the background of the promoter. Ask the promoter which regulator has issued their license and if it has ever been suspended or revoked. Follow up on their response by speaking with your state, county or city securities office to locate the licensing/registration documents. The number for your state securities regulator can be found in the government section of your local phone book or by speaking with the North American Securities Administrators Association at (202) 737-0900.

It is important to know that anyone selling a security must have a license. A legitimate salesperson will be registered with the Financial Industry Regulatory Authority (“FINRA”), The Securities and Exchange Commission (“SEC”) or a state securities regulator. If the person claims to be exempt, you may follow up with your regulator’s office, but more than likely it is best to thank them for their time and walk away. The Financial Industry Regulatory Authority even offers a Scam Rating and Risk Rating Questionnaire at http://www.finra.org to assist in fraud evaluation. To verify a broker’s license and registration, including whether or not they have ever had a complaint filed against them, contact BrokerCheck at (800) 289-9999. Investment advisors can be verified by the SEC’s Investment Advisor Public Disclosure website at http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx. Additionally, to check on an insurance agent, you can speak with your state’s insurance department, which can be located through the National Association of Insurance Commissioners (“NAIC”) at http://www.NAIC.org. Individuals that are sellers should be investigated through your state securities regulator.

Request an onsite visit to the advisor to see the company’s operations and meet with their employees. A Ponzi scheme promoter will not want his fraudulent behavior exposed so they will most likely have very few to no employees. Be wary of someone that opens their own mail and answers their own calls, as it lessens their likelihood of being caught in a scam. Also, note that when the perpetrator is close to being exposed, it will be more difficult to get in touch with them.

PONZI SCHEMES: HOW TO DETECT AND AVOID THEM - Part 1

Knowing how to detect and avoid Ponzi Schemes will help you to avoid fraudsters’ clutches. With more and more scams occurring in our society, it is wise to be aware of how to avoid their traps. By following the tips in this article, you will have a greater chance at sidestepping the Ponzi pitfalls.

THE BIG BAD WOLF

Be wary of any financial transaction that sounds too good to be true. Donald Trump has said, “Some of my best investments were ones I didn’t make.” The easiest way to spot a Ponzi scheme is if you are being offered lofty promises that come with guaranteed profits. With any legitimate business investment there is a degree of risk that makes it impossible to be assured of a profit, let alone one that comes with such a high rate of return as Ponzi Schemes do.

The promoter should be able to provide you with clear and easily explainable details. Anyone that claims there is no simple explanation for their investment is to be avoided. Many individuals that commonly fall into these scams do not have a basic understanding of the subject transaction.

Ask the promoter for a detailed clarification of the investment in writing. As an investor, of course you have the right to receive information on the venture since you will be placing a substantial amount of money in it. Inquire about receiving information on the company, the officers and their financial records. For the product being offered, ask the salesperson for documents regarding cost, fair market value and the existing and potential markets.

Often times a Ponzi promoter will solely rely on their ability to speak quickly and offer documents that appear to be official. Anyone that is reluctant to provide you with the requested data should indicate to you to be very cautious.

THE MORTGAGE FRAUD TRIANGLE: Pressure, Opportunity and Rationalization - Part 5

RATIONALIZATION

Of course, in the broker’s mind, he is not seeing himself as a criminal. He feels like he was simply allowing a borrower to realize the American dream of homeownership. Yes, the broker financially benefited from the transaction; however, he feels he is entitled to the compensation for his technical skill in closing the loan.

After fraud has been committed on a frequent basis, it becomes easier. The individual is no longer bothered by their ethics or morals. It just becomes a continuous activity and feels normal. In fact, it may become enjoyable for them to find new ways to close loans and defraud their employers. They may even rationalize things by believing that if they weren’t the ones to do it then it would simply have been done by another broker. It then becomes an expectation to them.

CONCLUSION

Mortgage fraud can be viewed in a triangular pattern. Through pressure, the broker feels like there is the opportunity to commit fraud because it is a necessary action. Due to the frequency of the commission of fraud, a greater number of avenues must be explored to put an end to this terrible plague.




Gary Opper, CPA is the Managing Member of Levie-Opper, LLC, Weston, Florida. He is a member of the American Institute of CPAs and the Florida Institute of CPAs. He has written over 500 published articles in over 20 magazines. Mr. Opper has been the National Association of Mortgage Broker’s “Writer of the Year” and “Featured Writer of the Year.” He has spoken to many groups including the Florida Bar Association, the Florida Institute of CPAs, the Mortgage Bankers Association and Northern Trust Bank. He has lectured at four colleges including University of Florida and Florida International University. Opper has an Accounting degree from UF and a Master of Science in Taxation from FIU. Opper is Past President of the Florida Association of Mortgage Professionals - Miami Chapter and the FICPA - Gold Coast Chapter. Levie-Opper, LLC focuses on forensic accounting and fraud auditing. They handle state and federal cases including civil, commercial and criminal. Mr. Opper is available to speak to your group. He may be reached at (954) 384-4557, fax: (954) 384-5483, or e mail: Gary@Levie-Opper.com.

© Gary Opper. All Rights Reserved.

THE MORTGAGE FRAUD TRIANGLE: Pressure, Opportunity and Rationalization - Part 3

PRESSURE

There are many pressures in today’s society thanks to the recession that is currently taking place in our economy. Many people are suffering financially with such issues as debts or high medical bills. There is also a perceived financial need when you are surrounded by numerous individuals rich in material goods. In the mortgage industry, there is pressure put on brokers from the system. Managers will place tremendous pressure for production on their brokers to close. Therefore, there is additional pressure to compete, keep up with fellow brokers and earn. Unfortunately, these were great enough incentives for fraud to establish itself and grow.

Brokers have that pressure to close put on them by their supervisors, but they also feel it coming from their borrowers. They are looking to quickly close a file to benefit their borrowers. So, some individuals cave and commit fraud in order to get their clients into a home as fast as possible. Other brokers might also commit fraud in order to get their clients a lower rate in a refinance.

THE MORTGAGE FRAUD TRIANGLE: Pressure, Opportunity and Rationalization - Part 1

Fraud has become a rampant occurrence in the mortgage industry. It has become such a common practice that many people are getting away with it. There are numerous reasons why an individual would commit this illegal act. By utilizing the mortgage fraud triangle, we can explore the pressure, opportunity and rationalization.

COMITTING FRAUD

Unfortunately, many mortgage companies create a corporate culture that allows for corruption to occur. Techniques to commit fraud were taught to their new employees as part of instructing them in mortgage processing. Lenders have also created programs on how to detect fraud, which were then used by dishonest brokers as ways to actually conduct it. Through the combination of financial pressures, employer pressures and a lack of ethics there was too great a temptation created and brokers have begun to take the risk and commit fraud.

PONZI SCHEMES: AN OVERVIEW - Part 2

THE ELEMENTS

There are five key elements to a Ponzi scheme: 1) benefits, 2) the understanding, 3) initial trustworthiness, 4) investors receive initial return and 5) communication of success. At the beginning, a promise will be made to the investors that their participation will receive a greater rate of return. The scammer will often indicate the rate of return, which will be a significant enough amount to make it worth an investment. It can’t be too high though or the investor will get suspicious.

The set up for the scam will need to possess a plausible explanation to investors as to how their investing will achieve the promised greater rate. A typical Ponzi schemer will utilize an explanation that claims they have a special skill or additional inside information that will be to the investors’ benefit. Another possible explanation offered by a Ponzi perpetrator is that they possess a business opportunity that is not available to the public. That way, the investor feels they are getting preferential treatment.

The fraudster must be believable to the investor in order to establish a connection with them that encourages participation in their scam. The investment must also payoff to the investors at the promised rate of return, if not better.

Finally, the scammer will inform the investors of their potential payoffs. They will try and convince them of the budding opportunity for exponential growth. In order to convince the investors, at the very least, they will need to hear that more money will be coming in than is being paid back to them.

HOW IT WORKS

Once the arm has been twisted and an investment made, the Ponzi schemer sets to work on creating the façade. When the specified return time period is reached, they will receive their funds plus the expressed interest rate or return. Next, the scammer will point out to the investors various historical successes of the scheme so they will convince them to place further money into the system. It is common that the initial investors will return to the scam since they have already received such great benefits.

With all their ducks in a row, the fraudster continues to promote his scheme a number of times. They will; however, break the pattern during the second step of the cycle. Rather than repaying the investment money and their promised rate of return, the Ponzi schemer will run off with the money and begin a brand new life.

PONZI SCHEMES: AN OVERVIEW - Part 1

The words “Ponzi scheme” can be found quite easily throughout the world of media these days. What exactly is a Ponzi scheme though? It’s something to be forewarned about so that you don’t fall into its deadly trap.


DEFINITION

First things first, according to the American Bar Association, a Ponzi scheme is:

“…a type of securities fraud where the promoter makes some sort of false or misleading statement about an investment (often including a guaranteed high rate of return) and pays off older investors with newer investor’s monies. Eventually, when the promoter can’t find any new investors, the scheme collapses.”

The difference between a Ponzi scheme and a pyramid scheme is that a Ponzi scheme the promoter handles the new recruits and the new money. Within a pyramid scheme, people within the scam recruit new participants. In both of these traps, the early investors receive an income from the subsequent individuals taking part in the scam; however, only in a Ponzi scheme does the organizer handle all of the recruitment.

COINING THE TERM

Charles Ponzi came to the United States at the turn of the century from Italy. He was an Italian swindler that went by many different aliases to con his prey and had been jailed many times. In 1918, he began offering his investors a choice between receiving a fifty percent return on a simple forty-five day investment and receiving one hundred percent return on a ninety day investment. Ponzi promoted that this was a possibility due to a special circumstance with the international postal reply coupon system. Back then, due to an international agreement, postal reply coupons were accepted by all countries despite the fact there were varying cost from country to country (depending on their economy).

As legal as Ponzi’s idea was (the cost for an IPRC in the US could have been a dime while a nickel in Germany), he full well knew that his idea would not be a success. It was impossible due to importation restrictions. The idea was too tempting though and Ponzi pushed it well.

Unfortunately for Ponzi, suspicions grew when investors would not receive the interest on their investments. The scheme had no underlying business so it couldn’t possibly generate any revenue! In 1920, Ponzi’s brilliant idea came crashing around when investors began requesting their money be returned during a growing governmental inquest into his company.

MORTGAGE FRAUD UNFORTUNATE GROWTH INDUSTRY –Statistics, FERA, Adding Mortgage Fraud to Your Practice and Mortgage Fraud Types - Part 4

ADDING MORTGAGE FRAUD CASES TO YOUR PRACTICE

Now is the right time to add mortgage fraud to your law practice. It has become the “hot topic.” It is usually the lead article of magazines and newspapers. With the growing cases of fraud, the government is seriously and aggressively pursuing guilty parties. A vast amount of money is being provided to the FBI, the Attorney General, the Department of Justice and other governmental agencies are working towards tracking down fraud and punishing the guilty parties. Because of the rampant outbreaks of mortgage fraud, it is a productive, worthwhile and rewarding area of exploration.

According to noted criminal defense attorney Brian H. Bieber, “The mortgage fraud industry has exploded to depths no one could fathom. On the state and federal levels, prosecutors are scrambling to find sufficient resources to arrest indict and convict individuals. The targets are not just mortgagees, but are mortgage companies, low, mid and high level executives. Many cases; however, are defensible. Experienced criminal defense lawyers know which questions to ask, which documents to look at and they can assist in pinpointing where the fraud began and who is responsible under the law.” Forensic mortgage fraud accounting can assist lawyers to determine the proper questions and documents.

Fraud cases can be both criminal and civil. Civil cases can involve lenders suing mortgage un-professionals, appraisers, title companies and private mortgage insurance companies.

MORTGAGE FRAUD UNFORTUNATE GROWTH INDUSTRY –Statistics, FERA, Adding Mortgage Fraud to Your Practice and Mortgage Fraud Types - Part 3

FRAUD ENFORCEMENT AND RECOVERY ACT

Fraud is a significant cause behind the U.S. subprime mortgage collapse and the international economic downturn. It is for this reason that the Fraud Enforcement and Recovery Act of 2009 (FERA) was created. FERA was designed to improve enforcing the mortgage fraud statutes. It will also assist in the recovery of funds that were lost during these fraudulent incidents and other related reasons.

FERA also offers the government additional tools needed in order to crack down on the occurrences of fraud that, unfortunately, have put numerous families at risk for losing their homes. Additionally, FERA expands the abilities of the Department of Justice to prosecute individuals and/or corporations responsible for predatory lending. Furthermore, through the passing of FERA, a bipartisan Financial Crisis Inquiry Commission has been established in order to explore the financial practices that have created our current economic crisis.

Under the Act, the following amounts have been allocated to combat mortgage fraud:

Fiscal Year 2010 2011 Total
(in millions of dollars)

FBI $75 $65 $140
US Attorney Offices $50 $50 $100
DOJ- Criminal Division $20 $20 $40
DOJ- Civil Division $15 $15 $30
DOJ - Tax Division $5 $5 $10
Postal Inspection Service $30 $30 $60
HUD Inspector General $30 $30 $60
Secret Service $20 $20 $40
SEC $21 $21 $42

Totals $266 $256 $522

The United States 2010 fiscal year begins October 1, 2009.

According to the U.S. Attorney’s office, they are attempting to fast track cases. In a case where the mortgage fraud is in the high millions, they may decide just to prove one to five million dollars of fraud and get a conviction with prison time instead of spending two years investigating to the get the maximum penalty.

MORTGAGE FRAUD UNFORTUNATE GROWTH INDUSTRY –Statistics, FERA, Adding Mortgage Fraud to Your Practice and Mortgage Fraud Types - Part 2

According to acting U.S. Attorney Nora D. Dannehy, most mortgage fraud cases involve false representations on mortgage loan applications and inflated property appraisals. In fact, appraisal and mortgage fraud cause an estimated 83% of all mortgages to be legally problematic.

Bank America, Wells Fargo & Co., JP Morgan Chase & Co. and Citigroup Inc – some of the biggest players in the servicing industry – are all facing litigation.

In mid-July, the Federal Trade Commission and the California Attorney General’s Office – in conjunction with the state Real Estate Department and other agencies – jointly announced lawsuits, injunctions and fines against 189 companies across the nation, claiming they deceived troubled homeowners through mortgage modification and foreclosure schemes.

While Taylor, Bean & Whitaker Mortgage Corp. (TB&W), headquartered in Ocala, Florida was attempting to give a capital infusion to Colonial Bank of $300 million, federal and state officials raided both entities. TB&W’s website states they are “… a top 10 national wholesale mortgage lender.” The Wall Street Journal says they are the third-largest underwriter of FHA loans. Colonial Bank is the sixth largest bank in Florida. There relationship was incestuous. TB&W was trying to give Colonial Bank a $300 million capital infusion at the same time that Colonial Bank was a major funder of TB&W.

Los Angeles County Department of Consumer Affairs director Pastor Herrera, Jr. noted that fraudulent foreclosure prevention services were so bad and rampant that the category could top the list of consumer complaints for 2009.

Governor Pat Quinn of Illinois recently signed a mortgage scam defense bill that offers better consumer protection to those who are in search of home loans.

According to the Mortgage Asset Research Institute, the states with the most significant mortgage fraud problems in 2008 were Rhode Island, Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado (in that order). Florida is the mortgage fraud’s epicenter and hypocenter. According to my conversations with anonymous sources at the U. S. Attorney’s office, Rhode Island’s position as first is an anomaly. Unfortunately, Florida is dubiously first.

Mortgage fraud may be pandemic and not just epidemic. It is pervasive in our society. As previously stated, Congress has devoted $522 million to prosecute mortgage fraud. The city, state and federal governments have devoted tremendous resources to fight mortgage fraud. It has brought down top companies and banks in America. It has changed the way that people act and think for the next generation.

MORTGAGE FRAUD UNFORTUNATE GROWTH INDUSTRY –Statistics, FERA, Adding Mortgage Fraud to Your Practice and Mortgage Fraud Types - Part 1

MORTGAGE FRAUD STATISTICS

Acting U. S. Attorney Jeff Sloman indicted forty-one “un-professionals” on mortgage fraud on July 28, 2009. These un-professionals face a variety of mortgage fraud charges involving $40 million in loans. The six separate cases epitomize the insidious nature of mortgage fraud from purchasers to mortgage brokers to real estate agents to lawyers, said Sloman.
Congress has appropriated $522 million in order to work towards higher mortgage standards. The money is to be spent in fiscal year 2010 and 2011 that is from October 1, 2009 to September 30, 2011. The majority of the money is for investigating and prosecuting mortgage fraud.

There are 2,440 pending FBI mortgage fraud investigations, as of April 2009. This is more than double from the past three years.

In total, mortgage fraud suspicious activity reports in 2008 were at 63,173. They indicated more than $1.5 billion in losses. So far, up to May 2009, there are 40,901 suspicious activity reports.

Mortgage fraud cases opened in 2009 equaled 965, as compared to 136 opened in 2004.

During the fiscal year of 2008, the FBI had 574 indictments and 354 convictions on mortgage fraud.

President Obama notes that last year, the Treasury Department received 62,000 reports of mortgage fraud, which is more than 5,000 each month.

The FBI has created sixty-five mortgage fraud task forces/working groups.

There are over 500 new internet pages a month regarding mortgage fraud.

AVOIDING PONZI SCHEMES: Four Tips (Part 2)

DO YOUR HOMEWORK

To save yourself from falling into the clutches of a Ponzi Scheme, it is important to do your homework and review an investment with a comfortable level of skepticism. Request a copy of the promoter’s license in order to confirm you will be entrusting your hard earned funds to someone legitimate. Check their credentials to see if they have ever had their license suspended or revoked. Speak with your state, county or city securities regulator to confirm the answer. The number for your state securities regulator can be found in the government section of your local phone book or by speaking with the North American Securities Administrators Association at (202) 737-0900. A legitimate salesperson will be registered with the Financial Industry Regulatory Authority (“FINRA”), The Securities and Exchange Commission (“SEC”) or a state securities regulator. To verify a broker’s license and registration, including whether or not they have ever had a complaint filed against them, contact BrokerCheck at (800) 289-9999. Investment advisors can be verified by the SEC’s Investment Advisor Public Disclosure website at http://www.adviserinfo.sec.gov/IAPD/Content/Search/iapd_OrgSearch.aspx. Additionally, to check on an insurance agent, you can speak with your state’s insurance department, which can be located through the National Association of Insurance Commissioners (“NAIC”) at http://www.NAIC.org. Individuals that are sellers should be investigated through your state securities regulator.

DIVERSIFY

A diversified investment portfolio will keep you protected from completely emptying your pockets should you somehow invest funds in a Ponzi Scheme. No one enjoys losing money, but through proper diversification you suffer a much smaller blow. By spreading out your investments, it will be a softer pain to lose 5% of your funds than your life savings. No matter how good an investment may appear to be doing, the safest security measure is not to put all of your money in one place.

CONCLUSION

Ponzi Schemes have become a pandemic cause for concern due to the state of our current economy. Hopefully, this article has provided you with several elements that you will put to use to guard your finances. It is easy to fall victim to venom without knowing proper keys for detection and avoidance. Secure your savings with dynamic diversification, a sense of skepticism, heeding your homework and avoiding overpromised payouts.

AVOIDING PONZI SCHEMES: Four Tips (Part 1)

By Gary Opper, Managing Member, Levie-Opper, LLC

There are many tricks to avoid falling into the traps of Ponzi Schemes. With more and more scams occurring in our economy, it is wise to be aware of how to stay clear of their snares. This article will explore four of the most significant ways to detect and evade Ponzi Scheme pitfalls.


THE FRAUDSTER

An easy way to detect a Ponzi Scheme is taking notice when an investment opportunity sounds too good to be true. A fraudster will make lofty promises for a guaranteed return; however, with any legitimate business investment there is risk involved. Therefore, it would be impossible to be assured of receiving a specific profit and/or rate of return. Affluent businessman Donald Trump has stated, “Some of my best investments were ones I didn’t make.” Follow “The Donald’s” lead and skip investing in an offer that seems too good to be true.


FOLLOW YOUR INSTINCTS

A product that appears to be unique or exotic is a cause for concern. It is not wise to invest your money on an investment that seems too risky or is unfamiliar. Investments that offer a rising return or that claim to provide remarkably steady returns, regardless of the current market conditions, should give pause. Due to the current state of the economy, even the most solid investments will note fluctuation from time to time. Furthermore, any funds you receive back should be given consideration, as they may be funds that originate with other investors.

MORTGAGE FRAUD: UNFORTUNATE GROWTH INDUSTRY –Defending the Mortgage Fraud Defendant and Minimizing Sentencing Time - Part 2

MINIMIZING SENTENCING TIME

Once mortgage fraud liability has been concluded, the economic damages as a result of the fraud must be calculated. This is critical since the fine for mortgage fraud in criminal matters is based on guidelines. So, the amount of the loss will be a factor in determining the sentence. The economic loss or damage must be determined through the culmination of the loan transaction. Therefore, tracing is required from the inception of the loan through the ultimate sale of the property. The net assets need to be computed in the calculation of damages. Net assets (as referred to in federal sentencing guidelines) are the “assets remaining after payment of all legitimate claims against assets by known innocent bona fide creditors.”

In order to reduce sentencing time, the expert needs to be able to minimize the economic loss, as the two are directly related. I will share an actual case in which the computation of damages was key in the judge’s determination of the sentence:

The defendant was convicted of mortgage fraud in the origination of approximately 50 loans. These loans were fully documented so that there were credit reports, appraisals, loan applications and tax returns in the loan files. The loans were purportedly suitable to be purchased by Fannie Mae. In fact, Fannie Mae did purchase them from the lender. The fraud occurred in the quality of the documents, which were altered so that they would qualify to meet Fannie Mae standards.

Upon conviction, the defendant was offered a plea bargain of a sentence of 5 years, which was turned down. The criminal defense attorney did not accept the alleged loss by the prosecution. Instead, he chose to have an expert compute the actual loss, which is critical in a mortgage fraud case. The value of the homes that have been foreclosed must be evaluated extensively to determine whether the bank/lender/investor is actually damaged by the amount they alleged. Remember the bank/lender/investor is using the government to go after what it believes is the criminal that tricked them into the loan application process. A federal criminal defense attorney will have the ability to hire experts, accountants and investigators to get the monetary loss down to a minimum. The lower the monetary loss the lower the exposure to prison time under United States Sentencing Guidelines.

In advance of the sentencing hearing, I was hired by the defendant’s attorney to compute the loss and to testify at the sentencing hearing. I attempted to compute the actual loss on each loan and used an Excel spreadsheet to summarize the findings. Factors used in the computation were the principal amount of the loans, interest rates promised to the investor, time period from the purchase of the loan to the date of foreclosure, appraised values at time of loan and appraised values of each property after the foreclosure or what the properties ultimately realized. In some cases, there were actual gains to the investor in the foreclosures as property values had increased which more than offset any loss in interest or principal. The loan losses were summarized on a net basis to arrive at a total economic loss, which was testified to and presented, to the Court. While the prosecution had its own expert to compute the loss, the final ruling was a much lower loss than alleged. Whereas the prosecution was seeking a sentence of 12 years, the judge ultimately ruled for a sentence of 3 years. The criminal defense attorney and the client were pleased since the sentence was less than that which was offered in a plea bargain.

CONCLUSION

This scenario will play out more and more as the indictments continue in mortgage fraud cases. Trials will naturally follow. As the federal government has earmarked millions of dollars in the prosecution of mortgage fraud, the defense of those charged is creating an unfortunate growth industry.