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Unpacking Ponzi Schemes so You Don’t Have to Invest in Them

Another day, another investment scheme charged by the feds, and this new one hits close to home here in Oregon. According to the complaint, a pair of Portland-area men and the companies they controlled, ran a four-year “Ponzi-like” scheme and convinced investors – many of them friends – to put their money into a rental real estate business. The promise? Above-market interest rates of 9-15%.

“But from the outset,” the Securities and Exchange Commission said, Robert D. Christensen and Anthony M. Matic’s plan “was not financially viable.” It is worth noting that 40 people believed in the investment opportunity because of the business experience the operators had. Christensen is a former residential loan officer and loan originator for national mortgage companies, and Matic is a licensed real estate agent. Some invested their life savings, the SEC says.

Between the investment money that came in -- $10 million – and the interest that racked up under the terms of the promissory notes, the victims were owed $15 million by the end of 2022.

Some perpetrators of alleged investment schemes never have a legitimate business to begin with, but Christensen and Matic actually did purchase rental properties in Indiana, Ohio, and Pennsylvania. The SEC reports the investment homes are now worth almost $6 million. Christensen and Matic have agreed to settle with the SEC and pay nearly $5.4 million in “disgorgement and prejudgment interest,” and $400,000 in penalties if the deal is approved in court.

That could mean investors will get some of their money back. More on the government’s work to try to make Ponzi investment victims whole in a minute.

But first, what is a Ponzi scheme?

You might call it the gift that doesn’t keep on giving. Investors are recruited to fund an operation – sometimes there is actual business, and sometimes it’s all a sham – and the incentive is higher than average returns for the investors. Early investors are paid, but with new investors’ money. Eventually, the business, if there is one, and new investments, if people are still buying in, don’t generate enough funds to pay people back. The house of cards collapses, and those at the bottom of the pyramid are left holding the bag.

Charles Ponzi was the father of these schemes back in the 1920’s. His legacy was duping investors in a postage stamp speculation scheme and his namesake artifice is his legacy. Thanks, Chuck.

Praying to prey

Ponzi and other investment shams are often called “affinity” scams because the perps target people who trust them – folks in their own families or church groups.

That’s what the government says happened in a huge case in Las Vegas that targeted Mormons. According to a federal indictment, the alleged mastermind, Matthew Wade Beasley, said he could find plaintiffs in personal injury lawsuits, who were willing to borrow at high interest rates against their pending settlements. The indictment says he hired promoters to recruit investors into the pool. Most of those promoters were prominent Mormons, and they invited churchmates and friends into the investment pool. Up to 1,000 believers believed there really was such a fund, and eagerly invested increments of $80,000- $100,000. By the time the F.B.I. raided Beasley’s home in March of 2022, the operation had brought in over $450 million. Early on in the investigation Beasley wrote a letter to the F.B.I essentially taking responsibility for the operation, but following his indictment, plead not guilty. He is scheduled for trial in February 2024.

Living large on your life savings

Even as their “business” is failing, Ponzi scammers often use their victims’ money to support their own lavish lifestyles. It’s not unusual for them to ensconce themselves in multi-million-dollar homes, to own a fleet of cars, boats, and aircraft, and to purchase expensive jewelry. The SEC is often able to freeze the “ill-gotten gains” of investment scams, sell the properties, recover cash in bank accounts, and return as much money as possible to investors.

In the Beasley case, the court appointed a Portland-based receiver, Geoff Winkler, to oversee this process, and he and his team have made impressive progress in just over a year. They’ve set up a website so victims can follow the case.

What’s in it for you? Nothing.

Beware of too-good-to-be-true investment scams. Start by staying away if you’re approached by a friend or churchmate. Take the close connection out of your decision. Would you invest your hard-earned money in such an operation if you didn’t know this person? Just because you share a pew with them at church doesn’t make what they’re hawking good for you.

The volatility on Wall Street and the virtual currency world are only providing more opportunity for scammers to come after your money, unfortunately. The SEC offers some great guidance online.

If an offer makes you nervous, your instincts are probably right.

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