Toast this recession loser: Ponzi schemes

By Abigail Goldman (contact)

Tuesday, June 16, 2009 | 2 a.m.

The FBI has opened a new Ponzi scheme investigation nearly every day for the past eight months, according to Las Vegas special agent Joseph Dickey.

This is a considerable jump, one Dickey and fellow agents attribute to the economy and the nature of the crime.

Ponzi schemes are investment scams: Returns are paid to initial investors with the money from new investors — a cycle that can be sustained only as long as there are increasing numbers of new investors. The worse the economy, the fewer people willing to invest. The worse the economy, the more existing investors will pull money out. With fewer people investing, and more people taking money out, the harder it becomes to sustain the scam. The harder it is to sustain, the more likely a scam will be exposed.

It all adds up to a perfect storm for Ponzi schemes. As FBI special agent David Nantz put it a little more artfully to The Washington Post on Friday: “When the tide goes out, you can see who isn’t wearing a bathing suit.”

Nantz is chief of the FBI’s economic crimes unit, a promotion that came after years of working as a special agent in the bureau’s Las Vegas division.

Nationwide, the FBI has nearly 500 open Ponzi investigations, up from about 300 in 2006, the Post reported.

In Las Vegas, agents are working on nine Ponzi investigations that involve hundreds of millions of dollars, Dickey said. Although that tally is not unusual for the Las Vegas office — and mortgage fraud remains the office’s No. 1 investigative demand for now — the local agents predict the number of Clark County-based Ponzi cases is going to grow.

“We believe there are a number of situations that may be Ponzi schemes in the making, just waiting to be unraveled,” Dickey said.

High-profile arrests, such as that of former Nasdaq stock exchange chairman Bernie Madoff, who was accused of running a $65 billion Ponzi scheme, make people look more critically at their current or potential investments — a death knell for Ponzi schemers who are promising deals too good to be true.

Scott Friestad, deputy director of enforcement at the Securities and Exchange Commission, told The Washington Post investors have “become more aware of the risks and are asking harder questions.”

The local FBI office has noticed an increase in calls from people reporting signs of schemes: They can’t get hold of the person they invested with; can’t get their money out of the investment; can’t understand the investment because it’s so complicated; or can’t get any written material describing investment prospects.

And some Ponzi schemes connected to Las Vegas wind up being pursued in another state. In May, for example, the SEC filed a complaint in California against Las Vegas resident Gordon Driver and his company, Axcess Automation LLC, accusing him of running a Ponzi scheme since 2006.

The complaint states that Driver raised at least $14.1 million from more than 100 investors who were told their money would be used to trade futures with a software program that Driver claimed he developed. Though Driver allegedly promised investors weekly returns on their investments, the SEC complaint said more than $10 million of the investments Driver solicited were used to pay back investors.