It’s a scheme that goes by many names like the Pyramid and the Matrix. Historically, it was called the “Peter-to-Paul.” We know it best as a Ponzi scheme. And a surprising number of these cases are being prosecuted by the U.S. Attorney’s office here in Charlotte.
Securities lawyer Jordan Maglich doesn’t live or work in North Carolina. But news from our state crosses his desk in Tampa on a regular basis. "I started Ponzi tracker in mid 2011."
Ponzitracker.com does just that, it tracks the number and magnitude and posts legal documents on Ponzi scheme cases across the world. Headlining the site right now is the case against a Davidson County company known as ZeekRewards or Zeek for short.
"Zeek was very unique in that Zeek was over the internet," says Maglich, "And Zeek, to my knowledge, is the largest Ponzi scheme in history in terms of victims."
Allegedly hundreds of thousands of victims from around the globe. An estimated $850 million in ill-gotten gains. All allegedly masterminded by a man named Frank Burks who once worked as a retirement home magician.
Last Thursday Burks pleaded not guilty to a host of federal charges. This after two co-defendants pleaded guilty.
Jordan Maglich from Ponzi tracker says its one of many examples of a North Carolinian accused of running a Ponzi scheme. "My records show that North Carolina is in the top 20 percent of states in terms of Ponzi schemes. I don’t have any reason to explain that. But I can tell you the data says what it says."
And the data is right.
Assistant U.S. Attorney Kurt Meyers runs the criminal division for the Western District of North Carolina. "We have noticed in the last four or five years an incredible number of these cases." Meyers adds, "We have 10 or so white collar prosecutors in the office. And about half of them have at least some part of their diet as securities fraud or Ponzi cases."
Here’s how a Ponzi scheme works.
The mastermind comes up with some proprietary something (and it could be almost anything) they say will guarantee huge profits quickly for investors. But whatever they’re investing in is a lie. Early investors often get paid out as money from new investors come on board. And so on and so on until the whole scheme collapses because they cant generate enough new money to pay what’s due to others.
Foreign currencies, Mexican bonds and penny auctions have been featured in recent North Carolina Ponzi schemes. "What happens with these victims is they have a trusted friend, and advisor, someone with credentials and who tells them all the ways in which this makes sense," says Meyers. Now it's easy to say a fool and their money are soon parted and all that. But Meyers says, don't. "I have literally been sitting in conference rooms with victims before and when they’re done talking, describing what was told to them, it sounds good to me."
Kurt Meyers estimates the Western District of North Carolina has prosecuted between six and 10 Ponzi scheme cases this year alone. "Many of these schemes are nationwide schemes that effect victims everywhere." And could be prosecuted just about anywhere. So why Charlotte? Meyers says, "We are recognized for our ability to do these cases and as a result often get the call when there are multiple prosecuting offices that could do the case."
Meyers also credits the cooperation between federal and North Carolina law enforcement bodies ranging from the IRS and FBI to local sheriffs and city police departments.
Meyer says the economic collapse six years ago is key to the growth of Ponzi schemes for two reasons. First, it created a bigger pool of potential victims. "When your traditional retirement savings appears to you to be in jeopardy you are much more susceptible to a con artist coming to you and telling you about a better investment that’s going to save your retirement egg."
And second, ongoing schemes are easier to discover during bad economic times. "When an economy is good people don’t ask for their money back. But when its bad they start asking for money. And when enough people ask for their money back eventually the con artist doesn’t have any more money to give."
So the Ponzi, Pyramid, whatever you call it collapses. And the duped investors start calling the authorities.
