Ponzimonium Revisited: An Interview from the Front Lines of the Battle against Investment Fraud

September 3, 2013

Ponzimonium: How Scam Artists Are Ripping Off America (FREE eBook from CFTC available at http://bookstore.gpo.gpo) With the recent publishing of the FREE EBOOK edition of the CFTC’s best-selling investment fraud paperback book Ponzimonium: How Scam Artists are Ripping Off America on the U.S. Government Bookstore website, Government Book Talk interviews the team behind Ponzimonium at the Commodity Futures Trading Commission (CFTC)– Commissioner Bart Chilton, Consumer Outreach Officer Michael Herndon, and Whistleblower Office (WBO) Director Christopher Ehrman– to talk about life after Ponzimonium was first published and the state of the CFTC’s battle against investment fraud.

Background: What is Ponzimonium about?

In November 2011, Government Book Talk reviewed the recently released book in Part I of this 2-part Ponzimonium blog series:

“Ponzimonium: How Scam Artists are Ripping Off America introduces some of the lesser known, but equally despicable fraudsters that have been uncovered since 2008 by the CFTC and SEC (Securities and Exchange Commission).

The book lays out the fascinating and dramatic details behind the fraudulent schemes, their smooth-talking masterminds, and their many honest, hard-working victims, who often lose the money they’ve saved for their kids’ college funds, needed health care expenses, or their own retirement as a result of misplaced trust in these criminals.”

In addition to the engrossing stories of crime and consequences, Ponzimonium also includes some very useful features for consumers that make this a valuable resource for any investor to avoid getting scammed, including Red Flags of Fraud, Investor Checklist, Fraud Resources and a Glossary of Terms, among others.  To learn about how a Ponzi scheme works and more details of the book, read our Part I blog post.

Reaction to Ponzimonium

Government Book Talk: Commissioner Chilton, now that it’s been two years since Ponzimonium first came out, what has been the reaction to the publication?    

Commodity Futures Trading Commission (CFTC) Commissioner Bart ChiltonCommissioner Chilton: It’s been great! The media has helped to get the word out about how folks need to be cautious.  A lot of times, in conjunction with a speech, the organizers will provide copies to their participants.  I get all sorts of positive feedback from people and schools are using it as well.  But, most importantly, I receive letters and emails all the time from folks who, because of this book, avoided making a major misstep.  Some have questioned their investment choices and saved themselves and their families a lot of agony.

GOVBOOKTALK: What are you most proud of with Ponzimonium?

Chilton:  I’m most proud that we created something totally different for the Government with this book. Ponzimonium is about real life Ponzi scams that is told in an engaging way and it’s actually helping people avoid becoming a victim of a financial fraud.  It’s more than just another spiffy web site, or a brochure.  Those things are great and necessary too, but Ponzimonium is a value-added education tool which never existed before.  It’s a new and needed tool in our education and outreach arsenal.

GOVBOOKTALK: Any examples of how consumers or others are using Ponzimonium?

Chilton: In addition to consumers who have printed it off or purchased it in print  and now are downloading it for free as an eBook from the GPO bookstore, we have many professors who are using Ponzimonium as a supplemental teaching text.  The book has been used at Georgetown University, the University of Chicago, New York Law School, Rice University, Notre Dame, Northwestern, Washington University in St. Louis, the University of Delaware, Cornell and several other colleges and universities, not to mention many high schools. 

If you would like copies of Ponzimonium for educational purposes, please contact our outreach office at consumers@cftc.gov.

Also, we just started offering Ponzimonium to public libraries and have had an excellent response.  Some are even providing extra copies of it to patrons in addition to keeping one in their permanent collection.  Our Office of Consumer Outreach is continuing to explore ways to get the book and its message out to the public.

Current Status of Investment Fraud in the U.S.

GOVBOOKTALK: Michael, do you believe the amount of fraud is increasing and if so, why?

Michael Herndon, Consumer Outreach Officer, Commodity Futures Trading CommissionMichael Herndon, Consumer Outreach Officer for the CFTC:  Federal, state and local law enforcement officials have reported enormous increases in tips and criminal activity since the economy tanked in 2008, and are still witnessing historic levels of these scams today.  At any one time, enforcement staff at the U.S. Commodity Futures Trading Commission (CFTC) are investigating anywhere between 750 and 1,000 individuals and entities for various violations of the law. 

Increases in tips and fraud cases have also occurred at the U.S. Securities and Exchange Commission (SEC), at the Federal Bureau of Investigation (FBI), in the states, and in various localities around the world.

Advice to Consumers on Avoiding Investment Fraud

GovBookTalk: What are some common con artist tactics to watch out for?

Herndon, Consumer Outreach Officer for the CFTC: Con artists, especially in investment/trading frauds, use a lot of tactics that seem obvious after the fact, but work at getting someone to fall for their scam. They include:

* “Easy Money”—dangling the prospect of quick riches and enticing you with the high returns you want but can’t find elsewhere.

* “Credibility”—trying to build credibility by claiming to be with a reputable firm, have a special credential, or possess lots of experience.

* “Social Consensus”—leading you to believe that other savvy investors have already invested.

* “Tradeoff”—offering to do a small favor for you in return for a big favor, like take you to lunch and then ask you to invest with them.

* “Scarcity”—creating a false sense of urgency by claiming limited supply or time limit of the investment.

GovBookTalk: Any additional advice to consumers not included in the original book?

Herndon: Report fraud! We know that falling for a fraud is painful and can be financially devastating. Yet so many people don’t report fraud that’s happened to them for a variety of reasons including shame and a sense there’s no point in trying to get their money back. However, there are several financial benefits of reporting fraud including tax implications and possible restitution.

And I always like to remind people, for fraudsters, ripping people off is their job and sadly they are very good at it. There’s no shame in making a mistake to someone who is that good.

GovBookTalk: If a consumer suspects something “fishy” with a proposed investment, how does he check it out? What is the process s/he should follow? Whom should they contact?

Herndon: If a consumer suspects something fishy, there’s VERY good reason for that usually. You’d be surprised how many people think something is odd about a deal, yet go ahead with it. That gut feeling often proves to be correct. As for checking it out, there are a few simple things consumer should ALWAYS do, no matter the profession.

First, check with an independent government agency or authority about the person or business. If you ask someone, “Are you legitimate?” of course they will tell you yes, and that their registered as they need to be. However, with a few quick phone calls or internet searches you can find out for yourself.

For individuals under CFTC jurisdiction, consumers can find information on the National Futures Association’s Background Affiliation Status Information Center database (BASIC).

For other investments, you can research brokers, brokerage firms, investment advisers and firms with this free tool from the Financial Industry Regulatory Authority, FINRA’s BrokerCheck. Also, just a simple call to see if the person has a business license or even searching their name on an internet search engine can help.

 My advice is always consult THREE independent sources for background information before you invest, or conduct any financial transaction for that matter.

GovBookTalk: Thanks, Michael, this is great advice for our readers and their friends and families!

FINRA_broker_checkImage: FINRA’s website with link to Broker Check:
http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

How and Why to Blow the Whistle

GovBookTalk: Christopher, what about a whistleblower in a company that suspects something illicit is going on?  How should s/he report his/her suspicions and why?

Christopher Ehrman, Director, Whistleblower Office (WBO): The person is encouraged to report the information to the CFTC’s Whistleblower Office. The office was created to receive and process original information from individuals who voluntarily report potential violations of the Commodity Exchange Act.  The program provides monetary awards if the CFTC brings an action, based on that information, resulting in more than $1 million.

If the person chooses to report internally first, their information will be deemed to be submitted to us on the date they reported it internally if they also report it to us within 120 days of that date.  Under these circumstances, we will consider their place in line for determining whether the information is “original information” to be the date they reported it internally. Also, the fact that the whistleblower reported their information internally, and the extent to which they helped their company uncover a violation, will be considered as factors that may increase the size of any award that they are eligible to receive.

However, please note that a whistleblower is not required to report internally to be eligible for a whistleblower award, and they may submit their information directly to us at any time. 

For a more detailed overview of the CFTC Investment Fraud Whistleblower program and how to contact the office, please visit http://www.cftc.gov/ConsumerProtection/WhistleblowerProgram/index.htm.

Government Book Talk: Thank you, Christopher. Hopefully, those who have knowledge of a known or suspected fraud going on will get in touch with your office and prevent these despicable criminals from devastating more lives. Which brings me to my last question.

Michael, speaking of “these despicable criminals”, inquiring minds wish to know if there are any updates on the perpetrators listed in the original Ponzimonium book?

Michael Herndon: Yes, in the reprint of the book– due later this year– we are including updates to two of the cases, Chapters 3 and 10. Stay tuned…

GovBookTalk: We– and America– can’t wait! Thanks again to all of you at the Commodity Futures Trading Commission and for all you do to help honest investors.

How can you get a copy of Ponzimonium?

With this special offer, the GPO best-selling book on Ponzi schemes and other investment frauds and how to avoid them, Ponzimonium: How Scam Artists Are Ripping Off America, is now AVAILABLE FOR FREE as an eBook from the CFTC on the US Government Bookstore website.

Download the FREE Ponzimonium eBook in these formats:

About the Author: Government Book Talk Editor Michele Bartram is Promotions Manager for GPO’s Publication and Information Sales Division in Washington, DC, and is responsible for online and offline marketing of the US Government Online Bookstore (http://bookstore.gpo.gov) and promoting Federal government content to the public.

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Posted by Michele Bartram, U.S. Government Online Bookstore

Ponzimonium: How Scam Artists Are Ripping Off America

November 18, 2011

“Every single day, someone somewhere makes a gigantic mistake by giving his or her money to a fraudster,” says Bart Chilton, one of the commissioners of the Commodity Futures Trading Commission (CFTC). Chilton is the author of Ponzimonium: How Scam Artists are Ripping Off America, a shocking new book available from GPO about some of the worst perpetrators of investment fraud in recent U.S. history.

Figure 1: Ponzimonium: How Scam Artists Are Ripping Off America available from GPO.

Ponzimonium looks to the CFTC’s own recent public case files stemming from fraud investigations that began with the recent economic downturn- talk about hitting people when they’re down! Because of the this, the book is generating a lot of positive buzz in The New York Times, TheStreet, and other media outlets.

The CFTC is an independent Federal agency with the mandate to regulate commodity futures and options markets in the United States. After the financial crisis of 2008, their authority was expanded under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act to include over-the-counter derivatives markets and hopefully prevent and uncover more of these frauds.

What is a Ponzi scheme, you ask?

The world really learned about Ponzi schemes in December of 2008 when, as Chilton writes in his introduction, “legendary investment guru Bernard Madoff ‘made off’ with an estimated US$50 billion in what was called the ‘Mother of all Ponzi Schemes’.” (By the way, an interesting related read is the report about the Investigation of Failure of the Securities and Exchange Commission To Uncover Bernard Madoff’s Ponzi Scheme, also available from GPO.)

Unlike pure pyramid schemes in which it is mandatory that a new investor recruit others into the deal in order to receive payments, Ponzi schemes purport to offer investors a “too good to be true” deal by simply handing over their money. However, no real investment is made by the criminal.

Instead, Ponzi schemes, named after 1920’s postage stamp speculator-fraudster Charles Ponzi, are scams in which early “investors’—often friends, colleagues, and family members—are asked to invest in a this great “no risk” deal offering unbelievable returns.

Typically, the investor makes an initial investment and then some purported “phantom profits” are paid out by the con artist (really just money from other investors), prompting that investor to assume that his or her money has increased in value—and inspiring the investor to turn over more money to invest and tell others about it. In actuality, the perpetrators pocket the money for themselves.

This splendid infographic from the New York Times explains the concept visually:

Figure 2. Ponzi scheme infographic. Image source: The New York Times 12/21/2008 Week in Review.

Made in Madoff’s Image

Ponzimonium introduces some of the lesser known, but equally  despicable fraudsters that have been uncovered since 2008 by the CFTC and SEC (Securities and Exchange Commission).

The book lays out the fascinating and dramatic details behind the fraudulent schemes, their smooth-talking masterminds, and their many honest, hard-working victims, who often lose the money they’ve saved for their kids’ college funds, needed health care expenses, or their own retirement as a result of misplaced trust in these criminals.

These stories are so engrossing— at times it felt like I was taking in a marathon of America’s Most Wanted or I Almost Got Away with It episodes— I found it hard to decide which of these criminals is the most despicable. Was it Beau Diamond of Diamond Ventures who wiped out his parents’ savings along with 200 other clients who invested US$37 million? Or how about Marvin R. Cooper of Billion Coupons, who created a combination Ponzi and pyramid scheme called an affinity fraud, to target and recruit fellow deaf community members in the U.S. and Japan? And there’s James Ossie of CRE Capital Corporation (CRE) who bilked investors out of US$25 million, including a desperate father’s US$200,000 he invested to fund his young daughter’s cancer treatments.

Figure 3. Fraudster Marvin R. Cooper and deaf client. Image source: BusinessInsider.com

The human side behind these frauds makes them all the more compelling… and contemptible.

The best way to avoid getting swindled, advises Chilton, is to “remember what your parents told you when you were little: ‘Don’t take candy from strangers’”, and my personal favorite, “Just because it is on the TV, Internet, etc. doesn’t mean it’s real!” That’s advice you can take to the bank.

Some “don’t miss” features of this book

Ponzimonium: How Scam Artists are Ripping Off America includes some very useful features for its readers that make this a valuable resource for any investor.

  • Red Flags of Fraud: Includes 20 red flags to look out for when considering an investment.
  • Investor Checklist: Detailed list of questions to ask before investing.
  • Investors’ Bill of Rights: Common sense advice and legal rights for any investor.
  • Resources: Useful contact information for victims or witnesses of a fraud.
  • Glossary of Fraud Terms: Definitions of legal and financial terms within each story.
  • The Loot: Color photos of the criminals’ misbegotten gains and lavish lifestyle.
  • The Numbers: Calculations of the staggering amounts collected, paid, lost, or stolen, and prison sentences and restitution.

How can you get this Ponzimonium eBook?

About the Author:  Michele Bartram is Promotions Manager for GPO’s Publication and Information Sales Division and is responsible for online and offline marketing of the US Government Online Bookstore (Bookstore.gpo.gov) and promoting Federal government content to the public. She has been researching identity theft and privacy issues for years, both on the web and in the real world, and is a big fan of more fraud protection for citizens.

27 Comments | Award Winning Books, Business, Commodity Futures Trading Commission (CFTC), Congress, Consumers, Law Enforcement | Tagged: , , , , , , , , , , , | Permalink
Posted by Michele Bartram, U.S. Government Online Bookstore