They always collapse. Always! Some have lasted for over ten years – others not nearly that long, but in the end they collapse and the perpetrator pays a significant consequence. And while an indictment does not mean guilt, rarely in my experience has the government brought an indictment that they didn’t prove.
Named after Charles Ponzi, a ponzi scheme is a fraudulent investment operation where high returns are promised to investors and usually paid out of other investors money rather than from profits generated from the investment promised.
According to the US Attorney’s news release: HAYMIN REGENSBERG engaged in a scheme to defraud multiple investors by falsely promising to invest their money in one of two ways. One method involved his claim that he had access to IPO issuances on foreign stock exchanges before the general public, and that he would invest money in international IPO stock that would be sold in the public market at the earliest possible moment thereafter, thereby obtaining for his investors quick returns of between approximately 5 percent and 15 percent within weeks of the IPO, with little or no risk to the invested capital. REGENSBERG told investors that he had used the same international IPO investment strategy successfully in the past, and had a consistent and highly positive investment track record in such investments. In fact, REGENSBERG did not invest the investor funds as represented.
This is classic Ponzi at work. As a white collar crime speaker, I address groups nationwide on issues related to fraud, theft and white collar crime. The first thing tell any group is – if it sounds to good to be true – it is likely a fraud. Most people understand that and agree, but the seduction of fast money and winning seems more powerful that common sense. Likewise, those who offer such fabulous returns are often trusted advisers – so the trust factor is already built into the equasion – thus making the ploy easier to achieve.
REGENSBERG also claimed to employ a second investment strategy in which invested funds would be “loaned” to trading
firms, which would use those funds merely as collateral relating to leveraged investments made by those trading firms (the “Lending Product”). REGENSBERG also represented that these funds would not be further invested by the trading firms, but rather would remain in the trading firms’ accounts. REGENSBERG promised each Lending Product investor a high, fixed annual rate of return of up to 18 percent per year, and told investors that funds invested in the Lending Product would be subject only to the low risk that a trading firm might collapse. In fact, REGENSBERG made no such investments.
Again, a classic Ponzi scheme at work. Promises of low risk and outstanding return by someone trusted is a tell tale sign of “something” not right with the picture. As this indictment is explored, the question is – how did the Ponzi scheme collapse?
Apparently, REGENSBERG invested large portions of the funds obtained in highly speculative and risky trading, including options trading. I suspect (only my opinion) that REGENSBERG felt that he could – through speculation – beat the market and hence have funds to repay the original investors. Rarely does that happen and if it did – it would only fuel the fire that “he was the smartest man in the room” and hence perpetuate the continuation of the scheme.
True to a classic Ponzi – REGENSBERG also sent investors money he claimed represented the proceeds of their investments. REGENSBERG paid out to earlier investors money he took in from new investors, thereby perpetrating a “Ponzi” scheme. REGENSBERG also diverted significant amounts of investor funds to himself and his relatives.
When certain investors confronted REGENSBERG about the fact that they had stopped receiving regular payment of promised investment returns, and asked him whether their invested proceeds were safe, REGENSBERG provided the investors with a forged bank document purporting to show he still maintained approximately $9 million in a bank account he controlled, when in fact that account contained only approximately $9,000 at that time.
Every choice has a consequence! While I am not proud of my next statement – I, too, was a white collar criminal convicted of a similar scheme and served time in federal prison as appropriate punishment – the fact remains that I understand the crime and concept behind how it is committed. Today, my role as a national speaker is to help businesses and individuals understand the nature of white collar crime and how to avoid it – if possible.
Just like the law of gravity that we all live with daily without thinking – so is the law – YOU REAP WHAT YOU SOW. How true.
Your comments are welcome.