Beyond Madoff, Ponzi Schemes Proliferate

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Lucas Jackson / Reuters

Disgraced financier Bernie Madoff is escorted by police as he departs Federal Court in New York City on Jan. 5

Perhaps President Barack Obama shouldn't close down the Guantánamo Bay detention camp quite so fast — it might be useful for all our new Ponzi princes.

Since Bernard Madoff's arrest last month, the Securities and Exchange Commission (SEC) has busted three new Ponzi scams, though none are as spectacular as Madoff's $50 billion whopper. (See pictures of Madoff's demise.)

On Jan. 15 the SEC shut down James Ossie's high-flying currency trading outfit, CRE Capital Corp., based in Atlanta, and charged Ossie with allegedly bilking 120 investors out of $25 million. Not exactly Bernie-level action, but for investors who believed Ossie's "little-risk currency-trading contracts" pitch, it goes down as a dark day for their bank accounts.

A week earlier, on Jan. 8, the SEC came knocking on Joseph Forte's door in Broomall, Pa., for allegedly scamming 80 investors out of $50 million. Forte had been selling false securities in limited partnerships since 1995. Forte's forte, the SEC says, was in reporting consistent annual returns of 18% to 37%. In actuality, the fund's only real consistency was in its losses. On Sept. 30, 2008, Forte said his fund was valued at $150 million, while the actual balance was about $147,000. Whoops! (See the worst business deals of 2008.)

Forte may not have had Madoff's years of experience, but his instincts were dead-on: of the $50 million in investor monies, the SEC says Forte deposited $26 million, withdrew $23 million, took $12 million for himself, and gave the rest to early investors, a formula considered the Ponzi gold standard. Forte did not return phone calls to comment on his case. He appeared in court without a lawyer, according to local reports.

Back in Atlanta, Ossie and his currency-trading outfit also followed the classic Ponzi approach, the SEC alleges. The agency says he was guaranteeing 10% to 20% returns every 30 days, had an accounting firm proving legitimacy, and used the lure of lots of ground-floor investor winnings when CRE went public. It had planned for a $100 million stock offering later this year.

Bill Leonard, an attorney for CRE and Ossie, has said that Ossie "maintains that he acted with good faith at all times and intended to act with integrity for his clients." He said that Ossie and CRE have been "cooperating fully" with the SEC, opening all records for review.

Funny thing is, CRE and Ossie did trade in currencies — they were just lousy at it. SEC documents show that in June 2008, CRE shifted $12 million from its Atlanta fund to Deutsche Bank in London. In short order, it lost $8 million in European currency trading. (See pictures of the global financial crisis.)

Wait, there's more.

On Dec. 30 the SEC busted a $23.4 million affinity Ponzi scheme aimed at the Haitian-American community that was operated by George Theodule and his Creative Capital Consortium LLC and Creative Capital Concepts.

Like any good affinity fraud, Theodule allegedly tapped into the trust of his people — in this case, Haitian immigrants — and used unregistered investment clubs that fly under the SEC radar to make his scam work. The funds were said to be used for new Haitian-American business ventures in the U.S., Haiti and Sierra Leone. He even used the gambit of a fake investment-club regulatory agency he called Smart Investment Management Services LLC to add a measure of security and to tout independent verification. (See the top 10 scandals of 2008.)

The SEC charges that Theodule used the funds to play the market. In total, he lost 97% of all investor funds — including $18 million last year alone. In addition, the SEC says, Theodule took $3.8 million for himself and his family. So much for trust. Theodule's lawyer, Charles Pickett Jr., did not comment on the case.

"I'm not sure this is an unusual flow of Ponzis," says Katherine Addelman, SEC regional director in Atlanta. "But since Madoff, there's a lot more coverage. These cases are moving to the front page, and because of it more people are getting skeptical of these investments," she says. "They're more willing now to give information to us." Some Ponzi crooks are either so brazen or stupid, Addelman says, "they even solicit SEC staff members." (See pictures of TIME's Wall Street covers.)

Most Ponzis Addelman sees are unregistered funds, so it's often "too late for us to stop the major damage." In the new SEC case against Ossie, however, "this was ongoing and he was still getting money from investors," she says. "We had to move fast to shut it down." (See pictures of the top 10 scared traders.)

The SEC does not keep statistics on Ponzis, according to John Heine, SEC deputy director of public affairs. "There are too many variations," he says. "It's hard to categorize a Ponzi vs. a pyramid scheme vs. something else."

As for a post-Madoff enforcement on Ponzis, Heine says there's been no official push to go after Ponzi schemers. "We go after them as they come in," he said.

Maybe the new SEC chief, Mary Schapiro, should consider just such a push.

Robert Chew is a former investor with Madoff via a feeder fund. He lives in Colorado.

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