Schemes Still Work --- for the Scam Artist!
Its an idea
that sounds too good to be true, yet otherwise intelligent people still
fall prey to con men every day. Human nature gets us in the end and the
Internet is just the latest tool being used by the scam artist.
In 1920, a little Italian in Boston named
Charles Ponzi raked in $15 million in eight months by appealing
to the greed that finds a home in all of us at one time or another. So
successful was Ponzi that his variety of pyramid scheme still bears his
name. Ponzi convinced people he was able to buy up postal reply coupons
in foreign countries and convert them in the United States to postage
stamps and reap a healthy profit. He never bought one, let alone the millions
he led people to believe were in his portfolio. He played it smart. He
acted wealthy but refused to talk about his business. He actually denied
people the opportunity to invest in his idea. He kept up appearances and
attitude until people were fairly drooling in anticipation of Ponzi taking
their money. Finally he relented and promised to pay back those he allowed
to invest with 50% interest in 90 days. He later moved that down to 45
days. At one point it is reported, people lined up four abreast for blocks
in hopes of giving money to Ponzi. His scheme was to pay back early investors
with money taken in from later investors. This classic scheme earned Ponzi
millions of dollars and a place in history. Of course, when it fell apart
as it had to, eventually it also earned Ponzi 3½ years in
Raejean Bonham of Fairbanks perpetrated a
classic Ponzi scheme in the 1990s in Alaska. Her idea was World Plus Travel,
a business that purportedly bought up free airline frequent flier coupons
from large companies which were then converted to low-fare tickets and
sold to third parties at a profit. (So arrogant was Raejean that she reserved
for herself the name "Ponzis House of Travel" and apparently
planned to do business under that moniker some day.) She hustled her World
Plus scam promising to pay investors as much as 50% on their investments
in as little as 60 days, sometimes less.
course, the only way she could accomplish that was, like Ponzi, to
pay off initial investors
with money taken in from later investors the rob Peter to pay Paul
ploy. It worked for a while, but as most such schemes, it eventually crumbled.
By that time though, Raejean had taken in over $60 million from more than
1,100 people in 42 states! Raejeans game was so attractive
she had among her regular investors several state prosecutors and
people who ought to have known better.
Ponzi schemes abound and, sadly, many people
get taken in by the lurid profit picture thats painted for them.
Now with the Internet available to them, scam artists can pounce, take
in your money, and fold up the tent in a very short time. In New York,
the Bennett Funding Group took in a reported $1.5 billion before
going bust. The Internet was used to take in some $5 million from investors
in Fortuna Alliance, who were promised monthly returns of up to $5,000.
Greed in that case got to more than 8,600 investors before the Federal
Trade Commission shut them down.
The Alaska Securities Division and the feds
the FBI, FTC, and others try to stay ahead of scamsters
and warn you as quickly as can be done. We use this web site to get the
word out. Its a good effort, but the operators of scams are a hard
group to pin down. While one operation is being shut down, two more take
its place. Some creative devils go the true Ponzi one better they
use the proceeds from a different scheme to pay off the victims of another
scheme. This way they are able to stay one step ahead of the law.
What can you do? When you see an offer thats
"too good to be true," steer clear. Thats hard to do for
some. Many times people have become angry with government when they are
warned off a "choice" investment opportunity. But know this,
in 95% of the cases, investors eventually lose their entire investment.
Dont be taken in by Ponzi and help us out by reporting fishy deals
to us. You can use the complaint forms at http://www.commerce.state.ak.us/
bsc/scomplaints.htm or give us a call at 465-2521.
|The Securities and
Exchange Commission, the federal agency charged with oversight of the securities
industry, recently brought securities charges against three current and
one former Washington, DC-area law students and a Colorado Springs, CO city
councilwoman for their involvement in an Internet price manipulation scheme.
The architect of the fraud, Douglas Colt, was charged in federal court with
committing securities fraud.
The SEC alleges that Douglas Colt created
"Fast-trades.com," a stock recommendation web site, which he
used to manipulate the price of four stocks during February and March
1999. The SEC alleges that Colt created a scheme in which he recommended
stocks on the Fast-trades web site to drive up their short-term prices,
sometimes by as much as 700 percent. By trading in advance of his stock
recommendations, Colt generated more than $345,000 in total profits for
himself, his mother Joanne Colt, three of his law school classmates, and
two of his friends. At times, some of them garnered profits exceeding
500 percent within an hour of the recommendation.
The SEC alleges that Douglas Colt targeted
low-priced, thinly-traded stocks knowing that his trades and subscriber
activity would artificially increase the price of the stocks selected.
Colt and the other scheme participants allegedly purchased their selected
stocks and entered sell limit orders before recommending the stocks to
Fast-trades subscribers, whose numbers grew to more than 9,000 by the
end of the scheme. The SEC contends that within a few hours of the recommendations
to Fast-Trades subscribers, the Fast-Trades participants had "dumped"
their shares at a profit. The stock prices subsequently plummeted in a
matter of hours.
The SEC contends that subscriber purchases
were essential to the scheme. The SEC alleges that to attract new subscribers,
Douglas Colt and three of his law school classmates -- Kenneth Terrell,
Jason Wyckoff and Adam Altman -- promoted the website by collectively
posting hundreds of false messages to various Internet message boards,
including boards on the Yahoo! and Raging Bull web sites. The SEC contends
that these messages disguised the authors' connection with the Fast-trades
site and misrepresented the investment success they achieved from following
Fast-Trades' recommendations. In addition, the SEC alleges that Colt posted
a false "track record" on the Fast-Trades website touting the
performance of several stocks he falsely claimed were Fast-Trades selections.
Richard H. Walker, Director of the SEC's
Division of Enforcement, said, "The Internet has replaced the boiler
room as the stock manipulator's tool of choice. Its low cost and ease
of use has attracted a new breed of persons seeking to profit at the expense
of innocent investors. People who commit fraud on the Internet will quickly
learn that the Enforcement Division will aggressively attack attempts
to undermine the integrity of our markets. Ridding the Internet of securities
fraud is a top priority of the SEC."
According to the SEC's allegations, in late
April, 1999, Colt boldly posted on an Internet message board unrelated
to Fast-trades an eleven-point "blueprint" for how to commit
a price manipulation scheme. His "posting" noted that someone
who wanted to manipulate the price of a security could, among other things,
"screen for thinly traded stocks in the $1 to $2 price range; ...
look for one with a ... low... volume; pull together information from
optimistic press releases; throw in some bull**** about the company being
an internet wonder; buy a bunch of this garbage stock; tell your idiot
subscribers... how great the stock is...; dump the shares you bought;
... laugh all the way to the bank."
The SEC alleges that Joanne Colt, in her
first attempt to partake in her son's scheme, lost $24,000 by purchasing
shares of one of Fast-trades' recommended stocks after she received the
Fast-trades e-mail. Ms. Colt placed a market order in the fast-rising
market, thereby incurring substantial losses. After this transaction,
Joanne Colt began receiving the Fast-trades selection from her son before
the recommendation was made public and entered sell limit orders, thereby
permitting her to participate in the scheme and to make a profit. (The
difference between market orders and limit orders is discussed in the
SEC's "Tips for Online Investing: What You Need to Know About Trading
In Fast-Moving Markets," which is available on the SEC web site at:http://www.sec.gov/investor/pubs/onlinetips.htm.)
The SEC sued Douglas Colt in the U.S. District
Court for the District of Columbia, seeking a permanent injunction, as
well as disgorgement of all ill-gotten gains, including prejudgment interest,
and civil money penalties. The SEC also entered an administrative cease
and desist order related to the conduct described in the complaint against
four others involved in the scheme: Kenneth Terrell, Jason Wyckoff, Adam
Altman, and Joanne Colt.
Investors are encouraged to read "Avoiding
Online Investment Scams: Tips for Investors," located on the SEC
web site at:http://www.sec.gov/consumer/offertip.htm.
Reprinted with permission of Jeffren Publishing
Heres a link to Jeffren Publishing
Co. That organization publishes a newsletter with all the scams that
the SEC goes after: http://www.jefren.com/sec/sec_options.htm.