Category Archives: Ponzi Scheme

It’s become an increasingly common crime: Elder investment fraud. Every day, there are more stories about elderly individuals – many suffering from dementia – who have been taken advantage of financially by an unscrupulous family member, stranger, friend, or even an investment adviser.

Fortunately, more attention is being paid to the issue of elder investment fraud. After a recent fact-finding initiative spearheaded by the Consumer Financial Protection Bureau (CFPB) last year, the non-profit Investor Protection Trust produced a survey about elder exploitation. Among the report’s findings: About 20% of Americans 65 years of age and older have been the victim of a financial swindle.

Criminals often target senior citizens because they manage a significant percentage of the nation’s liquid assets. They also are more likely to be vulnerable to fraud and deception because of age-related medical-conditions such as dementia, memory loss or Alzheimer’s disease. In many cases, the assets stolen from victims of elder fraud represent the individual’s life’s savings.

The scam artists behind these schemes and swindles often pose as “friends,” gaining the elderly victim’s trust. The perpetrators may be strangers or have a relationship with their targeted victim. The intent, however, is the same: To scam the intended victim out of his or her money.

Scammers who target the elderly can be difficult to detect. That’s because many of these fraudsters sound knowledgeable about the bogus product, scam or investment they are touting.  Moreover, they often have official-looking documents about the so-called investment, as well as information regarding the supposed professional credentials they possess.

Examples of common elder fraud schemes and investment scams include the following:

• Telemarketing or mail fraud. Every year, thousands of people lose money to telemarketing scams – from a few dollars to their life savings.  Fraudulent telemarketers are good at what they do. According to the Federal Trade Commission, dishonest telemarketers make an estimated $40 billion each year off of their victims. In many cases, scammers who operate by phone don’t want to give victims time to think about their pitch; their goal is just to get you to say “yes” to whatever they’re selling. Other unscrupulous telemarketers may ask for more personal information, such as checking and credit card numbers. Never provide this information via the telephone.
• Charity scams. Older Americans are especially generous when it comes to helping someone in need. And that generosity is exactly what appeals to scammers who call on unsuspecting consumers and ask for a donation or credit card information in order to help victims of recent natural disasters or tragedies. Case in point:  Type in “Boston Marathon Bombings,” and you’ll see a myriad of Web site pages appear. Some of these pages are legitimate; others may not be. Following the Boston Marathon tragedy, the Massachusetts Attorney General warned the public not to give into emotional appeals without first checking the charity in question and ensuring that any Web site visited actually belongs to a legitimate, established and registered charity.
• Redemption/strawman/bond fraud. Perpetrators of this fraud typically claim that United States Government or the Treasury Department holds a bond on every U.S. citizen and that  by submitting the proper paperwork, you can access to these “U.S. Treasury Direct Accounts.” Individuals promoting this scam frequently cite various discredited legal theories and may refer to the scheme as “Redemption,” “Strawman,” or “Acceptance for Value.” Trainers and Web sites will often charge large fees for “kits” that teach individuals how to perpetrate this scheme. They will often imply that others have had great success in discharging debt and purchasing merchandise such as cars and homes. Failures to implement the scheme successfully are attributed to individuals not following instructions in a specific order or not filing paperwork at correct times. According to the FBI, this scheme predominately uses fraudulent financial documents that appear to be legitimate. These documents are frequently referred to as “bills of exchange,” “promissory bonds,” “indemnity bonds,” “offset bonds,” “sight drafts,” or “comptrollers warrants.” In addition, other official documents are used outside of their intended purpose, like IRS forms 1099, 1099-OID, and 8300. This scheme frequently intermingles legal and pseudo legal terminology in order to appear lawful.

Part II of our blog features more scams and schemes targeting the elderly, plus how to avoid these crimes and what to do if you or loved one becomes a victim.

Independent broker/dealers continue to face a wave of legal and regulatory issues in 2013, with many expected to shutter their businesses.

As reported Jan. 20 by Investment News, the problems facing smaller B-Ds with 150 registered representatives or fewer include higher compliance costs, record low interest rates for money market accounts, competitive commission rates from large or discount broker-dealers and a tax increase that will cut available discretionary funds that investors can put to work in the stock market.

Small B-Ds make up the majority of firms registered with the Financial Industry Regulatory Authority (FINRA).  In the first 11 months of 2012, pressures on the industry reduced the number of FINRA-registered firms to 4,319 – down 97 firms from the prior year and a 14% decline since the end of 2007.

Regulatory and compliance issues are a key factor contributing to the reduction in smaller B-Ds. In a move to improve investor protections, the Securities and Exchange Commission (SEC) approved FINRA Rule 4524 in 2012, which mandated that broker/dealers file additional financial or operational schedules or reports as FINRA deemed necessary.

Many B-Ds to close up shop in the past few years have done so because of deals involving failed private placements, such as those connected to Provident Royalties LLC and Medical Capital Holdings LLC. The SEC charged both of those firms with fraud in July 2099, which in turn spurred a rash of investor lawsuits and arbitration claims. As a result, many broker/dealers were unable to contend with the litigation costs and subsequently shut down.

$2.9 billion: Estimated cost of financial exploitation and fraud for older U.S. adults in 2010.

69: Average age of an investment fraud victim.

2x: The rate at which older women are fraud victims compared to men. Most victims are between 80 and 89 of age, live alone, and need help with either health care or home maintenance issues.

51%: Estimated share of elder fraud committed by strangers. Thirty-four percent of fraud is committed by family, friends or neighbors. The business sector accounts for 12 percent.

84%: Estimated share of victims who do not report elder fraud because they are embarrassed or ashamed.

SOURCES: MetLife Mature Market Institute, AARP Foundation, Investor Protection Trust.

Five thousand victims, 50 years in prison. That’s what it came down to when a federal judge sentenced Indianapolis businessman and owner of Ohio-based Fair Finance Tim Durham to 50 years in prison for swindling investors out of $250 million.

Durham was convicted of using investors’ life savings to fund his own lavish lifestyle, which consisted of classic cars, mansions in California and Indiana, luxury gambling trips and other extravagant items. On Nov. 30, Durham and the judge responsible for determining his fate heard from several former clients who once trusted Durham with their life savings.

U.S. District Judge Jane Magnus-Stinson received more than 1,000 letters from investors of Fair Finance. One of the investors was Jane Kalina, who told the court that her father had invested everything with Durham’s company – only to lose his life savings of $170,000.

“My father’s been a farmer for many, many years and as soon as he had his farm paid off, he started investing in Fair Finance. When he sold the farm, he put some of that money in, too. Basically this is his life savings. He’s been devastated. He has no retirement, no 401(k) and this is his life savings for him and my mother,” said Kalina.

Then there’s 74-year-old Barbara Lukacik, an Ohio nun who lost more than $125,000 to Durham’s scam.

In speaking to the court, the 74-year-old looked Durham squarely in the face and said: “Shame on you!”

Two of Durham’s co-conspirators also learned their fate on Nov. 30. Fair Finance co-owner James Cochran was sentenced to 25 years in prison, while Rick Snow was sentenced to 10.

“Mr. Durham will never spend another day of his life in anything other than a federal prison,” said Joe Hogsett, U.S attorney, following Friday’s hearing.

In the end, Tim Durham’s own arrogance and sense of entitlement may have been the deciding factor to his fate. In handing down a 50-year prison sentence for Durham, Judge Jane Magnus-Stinson offered three words to describe the disgraced businessman, 50, and his crimes in conning more than 5,000 unsuspecting Fair Finance investors out of $250 million: Deceit, greed, and arrogance.

It’s quite a fall for Durham who once famously threw lavish parties at his Geist Reservoir mansion and drove expensive Bugatti cars.

Durham offered only a brief statement to the court before Judge Magnus-Stinson announced his sentence. What he did not offer, however, was an apology to his victims. Instead, Durham stated that he felt “terrible that they all lost money. My family has lost all of its investments.”

Durham’s 50-year sentence means he’ll likely spend the rest of his life behind bars. Unlike state prisoners, federal inmates are required to serve 85 percent of their sentences. Durham will have to live to the age of 93 to survive his sentence.

Judge Magnus-Stinson also sentenced Fair Finance co-owner Jim Cochran, 57, to 25 years in prison, and Fair Finance CFO Rick Snow to 10 years.

Durham attorney John Tompkins says he plans to appeal his client’s sentence within the next 14 days.

Before Durham’s sentence was announced, several Fair Finance victims spoke about the crime and its effect on their lives. One of the victims was Barbara Lukacik, a 74-year-old nun who lost her life savings of $125,000 to Durham’s scheme.

“What has happened is shameful,” she said in a Nov. 30 story by the Indianapolis Business Journal. “Yes, the economy was weak, but that didn’t give you the right to steal not only my money but all the victims of Fair Financial to use as you wish, for serious greed and pampering. And you say you haven’t hurt anyone; let’s be real. I honestly believe justice must be served because it’s the righteous thing to do.”

As she concluded her testimony, Lukacik turned toward Durham and said, “Shame on you.”

Following the sentencing, Lukacik stated to WRTV Channel 6 that she disappointed Durham failed to show any signs of remorse.

“If he had said he was sorry, that would have meant something,” she said.

James Cochran, the business associate of disgraced Indianapolis financier Tim Durham, has been sentenced to 25 years in prison for his role in a Ponzi scheme that swindled about 5,000 investors out of more $200 million.

U.S. District Judge Jane Magnus-Stinson sentenced Cochran about an hour after she sentenced Durham to 50 years in prison.

In June, a jury found Durham, Cochran and another business associate, Rick Snow, guilty of securities fraud and conspiracy.

Prosecutors say the three men used Ohio-based Fair Finance as their personal piggy banks, orchestrating an elaborate Ponzi scheme to steal investors’ money to buy mansions, fancy cars and other luxury items for themselves.

The party is really over for convicted Indianapolis Ponzi schemer Tim Durham. The once big spender will be spending the next 50 years of his life in prison. U.S. District Judge Jane Magnus Stinson announced Durham’s sentence today at approximately 2 p.m.

Durham, 50, was convicted in June of securities fraud, conspiracy and 10 counts of wire fraud for bilking 5,000 investors in Ohio-base Fair Finance out of more than $200 million. Many of the investors were elderly.

Judge Magnus Stinson’s sentence was much less than the 225 years that the state was pursuing. The judge noted, however, that it was “effectively” a life sentence. She told Durham it was easy for him to donate to charity and politicians because he was using other people’s money and that he was trying to play the system.

Durham took the stand on Friday, but no one testified on his behalf. Ten individuals, including Durham’s mother, did write character letters for Durham in which they described him as gentle, loving, charitable and unselfish.

While on the stand, Durham stated that he felt “bad” for investigators, telling the court that he didn’t know people invested on an individual basis and wishes he was clearer about some things.

Earlier this week, Durham’s attorney, John Tompkins, lobbied unsuccessfully for his client’s sentence to reduced to five years.

“We believe that (five years) is well-supported by the law,” Durham’s attorney John Tompkins told The Indianapolis Star. Tompkins argued that Durham deserves a shorter sentence because “the seriousness of Mr. Durham’s offenses is substantially overstated.”

Prosecutors, meanwhile, saw Durham’s crimes in a different light.

“Durham is responsible for one of the largest and most brazen frauds in Midwest history, and due to its terrible impact on the victims, also one of the most egregious frauds in history,” prosecutors stated in initial charging documents.

Durham and Fair Finance co-owner Jim Cochran (who was convicted on eight of 12 felony charges) bought Fair Finance in a 2002 leveraged buyout. Following the purchase of the business, court documents say Durham drained tens of millions from Fair Finance by making loans to himself and several failing businesses he owned. Millions of dollars also went toward Durham’s mansions, including one in the swanky neighborhood of Geist Reservoir in Indianapolis, a yacht, part ownership of an airplane, remodeling of his garage and $150,000 at one casino.

Rick Snow, Fair Finance’s chief financial officer, was convicted on five of 12 counts.

Cochran and Snow also will be sentenced Friday.

Convicted Ponzi schemer Tim Durham is crying foul over a presentencing report that recommends the disgraced Indianapolis businessman spend 225 years in prison and pay more than $200 million in restitution to victims of Fair Finance Company.

The presentencing report is not available to the public. However, Durham’s attorney, John Tompkins, revealed contents of the report in a 38-page filing on Oct. 31, calling the proposed sentence “absurd.”

Durham’s fate, along with co-defendants Jim Cochran and Rick Snow, will be decided on Nov. 30 by Judge Jane Magnus-Stinson. In June, a federal jury found Durham guilty on all 12 felony charges stemming from the collapse of Akron, Ohio-based Fair Finance.

Prosecutors in the case allege that after Durham and Cochran bought Fair Finance in 2002, they used it as their own personal piggy bank to fund their lavish lifestyles and to cover financial losses at various businesses they owned.

Prosecutors say that the huge withdrawals allegedly made by Durham were recorded as “loans,” and ultimately left Fair Finance unable to repay 5,000 Ohio residents who purchased more than $200 million of the company’s unsecured investment certificates.

FBI agents raided and shut Fair Finance down in November 2009.

A new trial brief containing excerpts of wiretapped phone conversations reveal details in the case against disgraced Indianapolis businessman and Fair Finance owner Tim Durham. According to the transcripts, Durham discussed ways to hide information from investors as Fair Finance began to unravel in 2009. When investors asked about getting their money back, they were given excuses by Durham – excuses that he and partners admitted to each another were false.

Durham, James F. Cochran and Rick D. Snow now face 10 counts of wire fraud, one count of securities fraud and one count of conspiracy to commit wire and securities fraud. They are accused of running a Ponzi scheme that ultimately defrauded some 5,000 investors in Fair Finance Co. out of more than $200 million. Instead of paying investors, the men allegedly funded other businesses, as well as supported their own lavish lifestyles.

A trial is set for June 8.

As reported May 15 by the Indianapolis Star, the wiretapped phone conversations offer some interesting insight in the case. In one phone conversation that took place on Nov. 9, 2009, Cochran and Durham agreed to close Fair Finance’s Ohio office in two days with no prior notice to investors. According to the government filing, the men used Veterans Day as an excuse for closing, when in reality they were trying to hide the fact that there wasn’t enough money to pay Fair Finance customers when their investments came due.

“So we’re going to buy a day,” Cochran told Durham in a phone call, according to the transcripts. “And I told (a Fair employee) . . . make sure you don’t tell customers in advance.”

“Why?” Durham asked.

“He said ’cause they will run in on Tuesday,” Cochran replied.

“Oh yeah, good story,” Durham said, according to the transcript.

Ten days later, Durham and Cochran discussed what to tell a customer who was asking when he would receive interest payments. Cochran suggested telling the customer the redemptions were being processed.

“Don’t use that explanation too often because it’s really not true,” Durham told Cochran.

In yet another conversation, Durham and Cochran discuss how to blame delayed payments on “office miscommunication.”

“Yeah, we thought, yeah, just say it was a mistake, we told our office to put everything on hold until the authorization and they thought that meant put everything on hold,” Durham is heard saying.

“Yeah, I like that,” Cochran responded.

“So just a miscommunication,” Durham went on. “That’s how we’ll explain it.

One of the key players connected to the Medical Capital Holdings fraud may be heading to jail, following a private-placement scam that resulted in almost $1 billion in losses for investors.

On Monday, Joseph J. Lampariello, former president of Medical Capital, pleaded guilty to wire fraud. He now faces up to 21 years in federal prison and a $49 million restitution order when he is sentenced on Jan. 14. Lampariello also pleaded guilty to failing to file a federal tax form.

So far, Lampariello is the only Medical Capital executive who has been criminally charged.

As reported May 7 by the Orange County Register, Assistant U.S. Attorney Jennifer Waier is not saying whether the investigation is continuing or whether Lampariello is cooperating with the government.

Medical Capital Holdings was charged with fraud by the Securities and Exchange Commission (SEC) in July 2009. From 2003 to 2009, the company raised almost $2 billion from investors under the guise it was using the money to buy discounted medical receivables. In reality, Medical Capital operated similar to a Ponzi scheme, with various MedCap entities buying fake receivables, often from older MedCap funds. The scam generated profits on the older funds’ books, along with commissions for MedCap execs, including Lampariello.

When the SEC entered the picture, more than $1 billion had been stolen from thousands of investors across the country.