The goal of this blog will be to provide information on various types of scams, hacks, cons, and schemes using real-life examples from around the world. So, let’s dive right in with the grand-daddy of them all – the “Ponzi scheme.”
As described by the United States Securities and Exchange Commission, a Ponzi scheme is “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” Generally, Ponzi schemes involve little or no legitimate earnings and usually collapse when a large number of investors begin to cash out. The scheme is named after Charles Ponzi, an Italian immigrant who pulled one of the first massive schemes of this type in the United States. Ponzi’s scheme purported to take advantage of a form of arbitrage involving postal reply coupons that could be purchased in Europe for 1 cent and exchanged in the United States for a stamp worth 6 cents. However, Ponzi never actually purchased the coupons in Europe or exchanged them in the United States. He merely paid off earlier investors in his idea from money obtained from later investors.
On January 13, 2012, a Seattle-area pastor named Anthony C. Morris pled guilty to operating a Ponzi scheme involving his parishioners. According to documents in the case, between 2003 and 2011, Morris promised various investors up to 400% returns on their money in a very short period of time if they would allow him to invest their money. Morris purportedly told the investors the money was being invested in an overseas trading program, or used to invest in property for his church. However, these representations turned out to be false, and Morris was merely using money from later investors to pay off earlier investors. In total, Morris took $1.6 million from 24 parishioners.
Morris pleaded guilty in federal court in Seattle to wire fraud and money laundering. Under the federal wire fraud statute, 18 U.S.C. Section 1343, it is a federal crime for anyone to transmit any communication by means of the wires, as part of a scheme to defraud. Under the federal money laundering statute, 18 U.S.C. Section 1956, it is a federal crime for anyone to conduct a financial transaction involving the proceeds of unlawful activity with the intent to promote the unlawful activity or to conduct a financial transaction knowing that the transaction is designed to either conceal the funds or to avoid a reporting requirement. Wire fraud is punishable by up to 20 years in prison and money laundering is punishable by up to 10 years in prison.
This article was written by New Jersey criminal defense lawyer Nace Naumoski.