Putting a Lid on Ponzi Schemes

Since 2010, the Securities and Exchange Commission (SEC) has brought more than 100 enforcement actions against nearly 200 individuals and 250 entities for carrying out Ponzi schemes.  A Ponzi scheme is an investment fraud that involves payment of purported returns to existing investors from funds contributed by new investors. The people behind Ponzi schemes often solicit new investors by promising to invest funds in opportunities they say will generate high returns with little or no risk. With little or no legitimate earnings, Ponzi schemes require a constant flow of money from new investors in order to continue.

However, Ponzi schemes inevitably collapse when it becomes difficult for the perpetrator to recruit new investors or when a large number of investors ask for their funds to be returned.

Recent examples of SEC enforcement actions involving Ponzi schemes in 2013 include the following:

John K. Marcum – The SEC charged an Indiana resident who falsely touted himself as a successful trader and asset manager to raise more than $6 million from investors. He squandered the money on personal luxuries and other ventures such as a reality TV show, and continued soliciting money from new investors to pay earlier investors’ redemption requests.

Trendon T. Shavers – The SEC charged a Texas man and his company with defrauding investors in a Ponzi scheme involving Bitcoin.

Duncan MacDonald and Gloria Solomon – The SEC charged two executives at a Dallas-based medical insurance company with operating a $10 million Ponzi scheme that victimized at least 80 investors by falsely promoting their start-up venture as a thriving business.

Mark Morrow and Detroit Memorial Partners – The SEC charged a Cincinnati resident and his purported cemetery operations business with issuing approximately $19 million in fraudulent promissory notes and selling $4.5 million in equity interests through an investment advisory company that operated as a massive Ponzi scheme.

Alvin R. Brown and First Choice Investment – The SEC shut down a $3 million Ponzi scheme that targeted seniors, including an elderly investor suffering from a stroke and dementia, by falsely promising high profits from commercial and residential rental properties in California and other Western states.

Walter Ng, Kelly Ng, and Bruce Horwitz – The SEC charged three Bay Area real estate fund managers with operating a Ponzi-like scheme in which they solicited and secretly used $39 million in assets of a new real estate fund to make payouts to investors in an older, rapidly collapsing fund.

Five real estate executives – The SEC charged five former executives at Cay Clubs Resorts and Marinas with defrauding investors into believing they were funding the development of five-star destination resorts in Florida and Las Vegas when they were actually buying into a $300 million Ponzi scheme.