The number of scams to cheat people out of their hard earned money is matched by the number of groups that schemers will target, including the elderly, college students and those hoping to save their homes from foreclosure. “Ponzi schemes” named after their “founder” Charles Ponzi of Boston, MA. They promise a high return or dividend on investments that are not available through traditional investments. They have become one very popular method of cheating people out of savings and retirement, and bus drivers were their most recent target.
The Department of Justice is charging Thomas Mitchell with running a 15 year investment scheme that earned him a reported $15 million dollars.
Who are his victims?
Frances Willis age 67 lost $156,000, Bobby Bradley age 70; $250,000; Charles Black worked for 23 years to save $250,000, and Robbie Gilbert age 55 is relative of the accused lost her $150,000 retirement fund. Reports are that there were approximately 150 retirees who lost their entire life savings.
The Ponzi scheme
Thomas Mitchell’s Ponzi scheme was first discovered by the SEC in 2010. The U.S. District Court for the Central District of California granted the SEC’s request on March 3 for a temporary restraining order and asset freeze against Mitchell and his companies. It was first thought that the scheme was at 82 victims, however, the investigation found many more, most of which were retirees from the Los Angeles County Metropolitan Transit Authority.
According to a plea agreement in which Mitchell agreed to plead guilty to mail fraud, which mandates a sentence of 20 years in a federal prison, Mitchell has agreed to pay restitution of $7 million dollars, but both his victims and authorities are afraid he doesn’t have the money after spending millions of dollars on a lavish lifestyle including 3 BMW’s, luxury vacations, and an expensive apartment.
Mitchell drew investors into the scheme with promises of a return on their investment of 9% – 12%. He would then only invest small amounts of their money in legitimate investment options, paying them each month a little bit. Each month, victims thought that their money was safe, secure and earning them money.
One victim says, “That money would have helped me to live out the rest of my life and enjoy a few things, but more or less just take care of my basic needs — nothing extravagant,” said Bradley. “I can’t afford anything anymore. It takes everything I bring in from social security just to survive, but even then it ain’t enough to cover all the bills,” he said.
One victim is desperately looking for work, another is facing foreclosure.
According to Harvinder Anand, assistant United States attorney for the Central District of California and the prosecutor assigned to the case “People losing their retirement money puts them in a much more serious position, with some of the victims in this case actually having to go back to work — in addition to losing their homes and money.”
What about the Securities Investor Protection Corp.?
The Securities Investor Protection Corp is an insurance fund financed by several brokerage firms and designed to assist victims with a compensation of up to $500,000 for individual investors after they are victims of Ponzi schemes. However, in this instance is appears Mitchell was acting on his own, and not part of a brokerage firm, so these retirees are probably not eligible for compensation.
Other Ponzi schemes target retirees
This isn’t the first Ponzi scheme to target retirees. FINRA (Financial Industry Regulatory Authority) in 2009 permanently barred two brokers for their participation in a defrauding the elderly, retirees, and even impaired individuals.
Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement says “The protection of seniors and other vulnerable investors from unscrupulous brokers remains one of FINRA’s highest priorities, and we will continue to identify and expel those within our jurisdiction who take unfair advantage of their clients.” “The misconduct of these brokers was nothing short of egregious — and their financial exploitation of the elderly, the infirm and people who considered them trusted friends shocks the conscience.
You may have heard of the well-known Bert Madoff $50 billion Ponzi scheme, one of the largest scams to date. Other Ponzi schemes include the ATM Ponzi scheme, Stanford Case, and Wholesale Grocery Distribution.
The FBI makes the following recommendations to help you avoid Ponzi schemes:
- Be careful of any investment opportunity that makes exaggerated earnings claims.
- Exercise due diligence in selecting investments and the people with whom you invest—in other words, do your homework.
- Consult an unbiased third party—like an unconnected broker or licensed financial advisor—before investing.