Ponzi Schemes & Fraudulent Investments
Investment Fraud — What it is and what to do if you are a victim.
It is an unfortunate fact of life that Southern California is a major center for investment fraud. While our region has not produced anything quite as grand as the Bernie Madoff multi-billion dollar Ponzi Scheme, there have been and are nonetheless many bad actors in Southern California. For more than a dozen years our Firm has regularly represented plaintiffs in both State and Federal Court, who have been defrauded out of much or most of their life savings. In most cases we have obtained a monetary recovery.
Identifying an investment fraud — how to determine if you are a victim.
The ingenuity and variety of investment fraud schemes is limited only by the imagination of the human mind. But all investment frauds have one thing in common and follows a simple formula: the fraudster takes your money, and then refuses to give it back. Sadly, in some cases victims have received bogus account statements from the fraudster for years showing that the victim was a multi-millionaire, with huge profits sitting in their “account.” In reality the fraudsters are simply looting most of the money and doing no legitimate investment activities. The victim’s account is in fact worthless. Commonly the bad actor will have honored small requests over a period of time to return minor amounts of money. This makes the victim feel secure that he or she can, in fact, withdraw all the money whenever necessary. What often then happens is that when the victim tries to do just that, (to buy a house, pay for the kid’s college, etc.) the fraudster balks, and begins to make excuses as to why this cannot happen right away. There may be excuses about “temporary liquidity problems” or the like. In one instance a fraudster claimed that it was the fault of the Securities and Exchange Commission which had unjustly “frozen” the funds. (In fact there was no SEC action pending.) The excuses are limitless, but they always boil down to the same thing: the fraudster does not return the victim’s money.
Here are some almost universal identifying traits of fraudulent investment schemes:
» The fraudster has promised a guaranteed return at zero risk. No investments, not even US T-Bills, have zero risk.
» The guaranteed return is more than 10% per year. (Our Firm has worked a case in which the guaranteed return was as high as 57% per year!). But any guaranteed return is a huge red flag.
» The victim (you?) cannot actually articulate what it is that the investment program does that results in such good and risk-free returns.
» When the fraudster refuses to immediately return a large portion of your investment, he or she states that it will be possible for him or her to do so soon, because other investors are going to be putting in funds. (Note that this is an explicit admission that investors are getting their money from newer investors–the precise definition of a Ponzi Scheme. This happened in a recent series of cases which our Firm successfully closed.)
Our Firm has never reviewed a case where any one of the above traits was present that did not turn out to be an investment fraud. It may seem odd that investors will place money in investments that they do not really understand, but this is very common. Not one of Bernie Madoff’s victims understood what it was that he claimed to be doing and in fact Madoff himself never articulated it in any coherent fashion. Some of these investors were sophisticated Wall Street personalities. The Madoff scheme involved all of the first three factors listed above. Most investment frauds do.
What to do if you believe that you are the victim of an investment fraud.
This is the easy part. If you believe you have placed your money into a fraudulent investment scheme, retain a lawyer. Immediately. There are various Statutes of Limitations that apply to investment fraud cases and Courts will enforce them. Delay is death. The fraudsters usually know this, and will try to engage you in a discussion and letter-writing campaign, hoping that the victims will delay. And victims often do just that, delay, partly because it is human nature not to want to believe that you have been victimized and that you have possibly lost everything. Our advice: see a lawyer, i.e. Buffington Law Firm, PC, immediately. Before contacting the authorities. Before discussing things with the fraudster. See a lawyer first. It is a mistake to correspond with the fraudster once you believe that you have been victimized. The letters and emails that you write can be used against you in court to show that you had a reasonable suspicion of fraud and that the Statute of Limitation began to run as of that date. See a lawyer first.
Our Firm has seen sophisticated victims wait years before retaining counsel, all the time digging their case’s grave by corresponding with the fraudster, with the SEC, with the local police, etc. thereby establishing when the Statute of Limitation began to run. This is a simple rule: if you suspect fraud–see a qualified lawyer immediately. If you are not happy with that lawyer or his or her advice, see another lawyer. If there has been investment fraud, it is almost always the case that the next step is to file a lawsuit. Not complain to the authorities. Not write a demand letter to the fraudster. File a lawsuit. Only this stops the Statute of Limitation from running, to your infinite harm.
Buffington Law Firm, PC, has handled many investment fraud cases involving Ponzi Schemes, loan frauds, real estate frauds, and many other types of investment fraud. If you believe that you may have been the victim of investment fraud, our Firm does not charge for the initial consultation, which is usually enough for us to develop an opinion as to whether there has been a fraud. Do not delay. Delay can have tragic consequences, such as causing your claim to be time-barred, however valid.