SCAMS GALORE
A decade since Bernie Madoff’s arrest, the U.S. has prosecuted 50% more Ponzi schemes than the decade before,
It has been more than 10 years since Bernard Madoff was caught running the biggest Ponzi scheme in history, a case that became a cautionary tale for investors and a call to action for regulators. The Securities and Exchange Commission made changes in its enforcement division to better detect fraud, established specialized teams and even revamped its system for handling tips from the public.
But the prosecution of Madoff — who took investors for more than $50 billion (U.S.) — was not the Ponzi case to end all Ponzi cases. The SEC brought 50 per cent more Ponzi prosecutions in the decade after Madoff’s arrest than in the 10 years before, according to a New York Times analysis of the agency’s enforcement announcements.
Whether the increase is the result of enhanced enforcement or a proliferation of scammers, records show that Ponzi victims lost $31 billion in the decade beginning 2009, more than three times the amount lost in non-Madoff schemes in the previous decade. (The figures are not adjusted for inflation.)
Sioux Schaefer was one of those millions of victims, and her case demonstrates one of the ways scammers have changed tactics in hopes of ensnaring unwary investors: Instead of pitching secretive, market-beating stock strategies as Madoff did, schemers are more frequently selling esoteric investments like natural resource mining and cryptocurrencies.
Schaefer, a horse trainer and photographer from Santa Cruz, Calif., was recently widowed and wondered how to leave an inheritance to her daughter and grandson. A friend told her about investing in gold mines with Daniel Christian Stanley Powell, a gregarious Cornell graduate and the founder of a Los Angeles investment company, Christian Stanley.
As she spoke with Powell on the phone, they bonded over a shared love of horses. He promised her a 10 per cent return on her money, and she gave him $175,000. The payments Powell promised never came.
Federal prosecutors said he had victimized Schaefer and dozens of other investors through false promises of profit from gold mines, coal leases and a business for which he had trademarked the term “reverse life insurance.” Instead, they said, Powell used new investors’ money to pay the old — skimming off a healthy cut to buy a luxury apartment, sports cars and other items.
“In my mind, in my spirit, it just knocked everything out of me,” Schaefer said. “How could I be so gullible?”
The SEC’s enforcement announcements demonstrate how scammers’ offerings have evolved to take in people, like Schaefer, who might otherwise be wary of a pitch involving traditional investment funds. Half the 291cases brought in the past decade involved schemes promoting untraditional products. In the decade before the Madoff case, about 38 per cent did.
“Fraudsters are trying to wrap themselves in new products to garner the attention of investors,” said Jeff Boujoukos, director of the SEC’s Philadelphia regional office.
It’s not the only way that scammers have sought to distinguish themselves. Some victims said they had been fooled by pitches offering modest returns, which made them seem more believable than promises of astronomical profit.
The scheme that Christopher Parris has been accused of running leaned on more traditional Ponzi pitch tactics; the investments were said to be in businesses including financial services, insurance and real estate. Jaleen Dambrosio of Rochester, N.Y., entrusted to him her life savings — $600,000 — and for a few years received steady returns that assured her that she had made the right investment.
But Parris and an associate, Perry Santillo, were actually running a Ponzi scheme that defrauded more than 600 investors, the commission said. The money Dambrosio had given him was gone, along with about $100 million that others had invested.
The men had spent lavishly on themselves, including commissioning a song that Santillo had performed at a party he threw at a Las Vegas nightclub, according to the commission. “It was like somebody punched me in the face,” said Dambrosio, who had retired from Kodak, where she was a purchasing manager. “Everything stopped.” Dambrosio — who has gone back to work, at a Walmart deli counter — lost an unusually large amount for a Ponzi victim. The average loss for Ponzi victims in the decade after Madoff was $150,000, according to an analysis of SEC data, compared with $80,000 in the previous decade for non-Madoff scams.
Jane Naylon, who had taken music lessons from Parris’s father while growing up in the same Rochester neighbourhood, contacted the SEC after growing suspicious of Parris and Santillo.
“Why are these guys walking around free?” asked Naylon, who declared bankruptcy after losing her $105,000 investment. “They froze their assets, but they still seem to have money.”
Lawyers for Santillo did not respond to repeated requests for comment. Court records do not list an attorney for Parris; messages and emails to him were not returned.
All Ponzi schemes — whether they result in international headlines or minor headaches — have the same basic shape: they use new investors to pay the old ones. That type of scheme long predates its current name, which comes from Charles Ponzi, whose 1920 investment scam brought in millions of dollars.
Perpetrators’ outreach methods are still often the same as they were in the days of Ponzi. Friends, family and acquaintances are common targets, and word-of-mouth helps recruit new investors.
“These are investors who didn’t even know where to begin doing due diligence,” said Scott Silver, a Florida lawyer who has assisted dozens of people who contend they were victims of Santillo and Parris. “A lot of the traits of this scheme have become very typical of what we’ve seen over the last decade.”
Another thing that hasn’t changed: victims rarely get their money back.
Some accusers of Parris and Santillo — although not Dambrosio and Naylon — have sued Bank of America. They claim that the bank enabled the fraud by providing the defendants with dozens of accounts and facilitating transactions between them. The bank has asked a judge to dismiss the case, calling it “a misguided attempt to hold Bank of America responsible for the misdeeds of its customers.”
Schaefer, who was caught up in the gold-mine scheme, has less reason for hope. In 2015, Powell was sentenced to 10 years in prison and ordered to pay $4.4 million in restitution to his victims — a judgment that has yet to be fulfilled.
“He could have stayed out, for all I care,” Schaefer said. “Just as long as we got our money back.”