Places like Naples and Palm Beach have always been fertile ground for Ponzi Scheme operators to work and steal. An extended period of reasonably good economic activity, such as the times in which we currently live, create the best climate for Ponzi scheme operators to work. In difficult economic times, investors are naturally skeptical about where they put their money. However, in better economic times – especially during extended periods of economic growth – investors are more confident and less vigilant about their investments. Moreover, during extended periods of economic growth, investors see more and more economic success stories. These success stories feed into and give credence to the Ponzi Scheme operators’ sales pitch of great returns with little risk, often premised on a secret or new strategy that the investor is lucky enough to get in on.
For example, Gary Todd Smith of North Carolina was just indicted this month in a federal court filing in Tampa, Florida by the Department of Justice. His alleged crimes are conspiracy to commit mail fraud affecting a financial institution and wire fraud affecting a financial institution. The maximum sentence for these crimes is thirty years. Gary Todd Smith operated Smith Advertising in Fayetteville, North Carolina and Sarasota, Florida. According to the indictment, Smith began his scam as a result of having financial problems with the business.
NEW SCAM USING THE SAME OLD TRICKS
To remedy his business troubles, Smith allegedly entered into a factoring arrangement (a financial transaction in which a business sells its accounts receivable – its invoices – to a third party at a discount) with CapitalPlus in Knoxville, Tennessee, and proceeded to submit fake invoices to CapitalPlus. After a number of years, CapitalPlus apparently became suspicious and made it impossible for Smith to continue to scam CapitalPlus. As a result, the indictment alleges that Smith reached out to investors in Florida to replace CapitalPlus on a larger scale. Allegedly, Capital Plus then effectively forced Smith to repay CapitalPlus from the Florida Investors who replaced CapitalPlus. The Ponzi scheme allegedly then expanded to include loans to Smith so his company could buy advertising space in bulk and then resell it a profit. Apparently, to the Florida investors, this change sounded rational and reasonable. To us, the change appears to have been a typical technique for allowing the scam to continue without detection by evolving the “pitch” as the original pitch becomes stale or suspicious.
According to the indictment, the Ponzi scheme became so brazen and institutionalized that Smith had an “Instructional Manual” which described how to create the fake invoices and promissory notes. What struck us as especially troubling, despite our experience, was the following e-mail interchange set forth in the indictment: Victim-lender e-mailed one of Smith’s employees asking “How are you finding renewals for those?? They are monster deals!!”; the employee then shared the victim’s e mail with another member of Smith’s team adding “Please read below for a good laugh!,” prompting an internal reply that said “HAHAHAHAHAHAHA… Yeah, they’re monster deals alright.”
PONZI SCHEMES START WITH DESPERATION AND EVOLVE INTO EMBRACING THEFT
As outlined above, many Ponzi schemes begin with a desperate attempt by the operator to keep a failing business afloat and then evolves over time to a culture where the wrongdoers actually embrace the art of stealing from the victims without detection from the victims or law enforcement.
In our opinion, the best way to deter Ponzi Schemes is through:
- Investor Education to avoid possible Ponzi schemes and to get out early from any suspicious investment they are in
- Exposing Ponzi Schemes early in their development
- Vigorously pursuing what we call “Gatekeepers,” who effectively “legitimatize” Ponzi scheme operators by negligently advising investors to entrust their savings to illegitimate investments.
Please read this article to learn more about how to avoid or get out of what you believe might be a Ponzi scheme in the making.
Vernon Litigation Group is based in Naples, Florida, with additional offices in Buckhead, Georgia. https://vernonlitigation.com/. Vernon Litigation Group currently represents victims of ponzi schemes and whistleblowers in court, arbitration, mediation, and regulatory filings throughout the United States.
Mr. Vernon handles the litigation and arbitration of complex business and financial disputes, with an emphasis on securities fraud and securities arbitration, throughout the United States.