This weekend, I read in the Winston-Salem Journal about an alleged Ponzi schemer named Keith Franklin Simmons who – up until the moment he was arrested in December – scrambled to find a way out. He came up with an elaborate story to explain why his investors hadn’t seen a dime in five months. The story went like this: the 240 investors in Black Diamond Capital Solutions had nothing to worry about. Their money was wisely and safely being invested in the foreign-currency exchange system. The reason they couldn’t make a withdrawal or receive a payment was simple. One of their fellow investors was a German fugitive under investigation by the Treasury Department.
Investors received a series of emails from a hedge fund manager (who says he was also duped by Keith Franklin Simmons) that are alleged to be total fiction. On Dec. 2, the story was that the German fugitive’s attorney had become involved and would ensure that $120 million was put back into the foreign-currency exchange. The hedge fund manager wrote: “…I felt good myself after hearing Keith this morning because he had a very upbeat tone in his voice and that can’t be anything but good for us.”
An upbeat tone in his voice, maybe, but what must Simmons have been feeling when he talked to the hedge fund manager? There was no German investor named Klaus. There was no $120 million. According to court documents, Simmons didn’t invest funds anywhere except for banks and on cars, real estate, luxury travel and, of course, in the Ponzi scheme itself.
By Dec. 11, the hedge fund manager admitted that he hadn’t been able to reach Simmons. “I wish I had more to report but we’re all in the same boat and just want our money…” Less than a week later, the FBI arrested Simmons.
This story caught my eye because it reminded me of one of our inductees. When James P. Lewis, Jr. knew his Ponzi scheme was winding down, he froze his investors’ accounts and blamed it on the Department of Homeland Security. He even placed a fake phone call from a “Mr. Sanchez” to convince his clueless employees that the freeze was happening on account of a suspicious wire transfer.
What do you make of this kind of behavior? Do you think these guys believed they could find a way out? Did they think that their employees and investors would buy a far-out story for long enough to allow them time to dig up more money? Or were they just stalling the arrest they knew was coming?
Thanks for voting on the con artist you’d like to see in the Hall of Infamy. If you missed this round, we’ll have another group for you to vote on next week.
And the crook with the most votes is…Lou Pearlman. At the same time that he launched two wildly successful boy bands, ‘NSync and the Backstreet Boys, Pearlman ran a huge 20-year Ponzi scheme. Among the investors he persuaded to fork over millions for two non-existent companies were close friends and the elderly; such details don’t go unnoticed. As the judge who sentenced Pearlman noted: “…The sympathy factor doesn’t run high with the court.”
So Pearlman is serving a 25-year prison sentence. According to several articles published in March 2009, he’s keeping busy behind bars and looking to promote a new band called Biteboy. Last year, he was working on a deal for a reality television show about Biteboy’s attempts to hit the big-time. “It’s part Charlie’s Angels, part Making the Band,” the band’s manager told Portfolio magazine. If this show pans out, Pearlman might even play a minor role in the show — or at least his voice on speakerphone would play a role. The tentative name for the show: “Jailhouse Rock.”
If it sounds like I’m making this up (and I know it does), check out this article in Portfolio magazine. Apparently, there are ways for convicted felons to work outside the confines of prison. And, apparently, some people still want to work with Lou Pearlman.
Crazy, I know. But, then again, as the Portfolio article points out, maybe Pearlman is just the guy to pull this off:
“Before he filed for bankruptcy in early 2007, Pearlman had parlayed a cash-strapped helicopter service into a blimp company, crashed his first blimp minutes after its launch, then used the insurance money to take a second blimp company public. At the same time, he lured investors by selling shares of 727s and 747s in his charter airline fleet—jets he never owned.”
We’ll learn more about this character soon – look for him when we roll out our 2010 inductees this summer.
We’re gearing up for our 2010 inductions — and we need help deciding which crooks deserve a spot! We’ve selected some of the best nominations submitted by visitors to the Hall of Infamy; every two weeks, we’ll post a bit about these schemers and ask for your VOTE. We’ll post the results the following week — and then give you another chance to vote on who you think we should add to this infamous crew.
VOTE #1:
Courtney Chauncey Julian may have had a big, flowery name but he used down-home folksy tactics to run his con in the 1920s. He reeled in thousands of people during the speculative oil frenzy that gripped the city of Los Angeles with clever newspaper ads that promised easy money. When the bubble burst in 1927, shareholders lost up to $150 million.
Jordan Belfort, the “Wolf of the Wall Street” ran a pump-and-dump operation in the 1990s; investors who bought his artificially inflated stocks lost $100 million. A movie about his life (and based on his autobiography) is due out in 2010 – it’s directed by Martin Scorsese and stars Leonardo DiCaprio.
The Jacobowitz family of New York ran a huge decade-long fraud with Allou Healthcare, from imaginary sales and inventory to phony insurance claims. The con collapsed when the family bribed an undercover Fire Marshal to describe the fire in an Allou warehouse an “accident” (rather than “arson”). Losses totaled about $160 million and three Jacobowitz brothers are serving prison time.
Philip M. Musica was known to the world at various times as Frank D. Coster and F. Donald Coster; under all three names, he ran afoul of the law until his suicide in 1938 – for bribing customs officials while importing cheese, for borrowing on invoices for a company that dealt in human hair and, finally, for masterminding a major financial fraud through McKesson & Robbins, a pharmaceutical company.
Lou Pearlman launched two of the biggest “boy bands” of the 1990s — and he swindled banks and individuals of more than $300 million. Over 20 years, Pearlman took funds from hapless investors for companies that only existed on paper. In 2008, he plead guilty to four counts of conspiracy, money laundering and making false claims of bankruptcy.
I remember feeling such outrage over Enron. I remember seeing news footage of grim-faced employees carrying boxes of their belongings from the corporate headquarters. Those employees – about 20,000 people in total – lost their jobs, along with billions of dollars in stock and retirement savings. I remember feeling such contempt for the architects of that gigantic fraud; feelings that were reawakened when I watched the excellent documentary, “Enron: The Smartest Guys in the Room.”
We learned about Enron nearly ten years ago. A lot has happened since then (much of it worthy of outrage), but it’s interesting to think back to that time and that particular outrage. Enron turned out to be the first in a significant wave of revelations of fraud. There was Bernie Ebbers of WorldCom, a company with inflated stock prices and as many as 55 distinct billing systems. Then there was Dennis Kozlowski, the CEO of Tyco known as “Deal-a-Day Dennis.” Like Enron and WorldCom, the details of Tyco’s $600 million fraud were shocking. But what really seemed to stick in the mind (and the craw) was Kozlowski’s gross and over-the-top extravagance on the company dime. Film footage of the $2.2 million party that Kozlowski threw in Sardinia (complete with an ice sculpture of Michaelangelo that dispensed vodka) was hard to stomach. Apparently, the jurors in his trial agreed; he was sentenced to 8-25 years in prison.
The crimes of Skilling, Ebbers, and Kozlowski (and the attendant front page headlines) happened in a very different atmosphere. An article that appeared in Fortune Magazine a few months ago poked at the question of then and now; David A. Kaplan, who’s working on a new book of great interest to us (”The Age of Avarice”), offered a “contrarian’s take” on crime and punishment. His article, “Why Tyco ex-CEO Kozlowski should get clemency,” laid out a case for clemency for Deal-a-Day-Dennis — or inmate No. 05A4820 as he’s now known.
Kaplan quotes the inmate himself, who acknowledges that he was “piggy” but feels he doesn’t deserve to be behind bars. In the light of the current “sea of financial shenanigans,” Kozlowski looks a bit different. He looks more like a “scapegoat deserving retrospective leniency.” Kozlowski was indeed piggy, but he didn’t bring Tyco down; Kaplan wonders if it’s fair for him to serve more time than that of most killers.
It’s a thought-provoking commentary. Do you think the punishment matches his crime? Bernard L. Madoff got the maximum sentence of 150 years. Fair? What about the execs who brought down AIG or Lehman? What do they deserve?
Charles Ponzi
As we prepare to enter a new year, it’s natural to take a hard look back at where we’ve been. There are some dark patches in the last decade – events and people we’d like to leave behind. Included in that discard pile: the scores of greedy crooks who recently slithered out into the sunlight. In a moment when so many Americans are struggling to get by with so little, we’d love to see 2010 unmarked by fraud, deception and financial ruin. But the tide hasn’t washed up all the scumbags. Nor will it ever, which is why this website could exist for eternity…
It goes without saying that the fraudster and the con artist are enduring characters; our infamous pack of 36 goes all the way back to the 18th century with John Law and the South Sea Bubble. It’s also clear that these crimes happen in waves when the market is booming and investors feel that anything is possible. When the cash dries up, the game is over.
We knew that 2009 was significant in the world of con artistry – it’s the year the Hall of Infamy launched. It’s also the year that both Madoff, and Ponzi, became household names. For (probably) unrelated reasons, this was a terrible year to be a con artist. An Associated Press analysis of scams in all 50 states revealed that nearly four times as many investment scams were uncovered this year as in 2008; about 150 Ponzi schemes fell apart in 2009, leaving investors with holes in their pockets totaling $16.5 billion.
The AP article notes that stepped up efforts to investigate fraud have helped to both uncover these crimes, and have resulted in greater caution and awareness amongst investors. We’re interested in exploring the enforcement side of the fraud story; in 2010, you can expect to see more about that on Con Watch. We’re also planning to nominate a new batch of inductees to the Hall of Infamy. Starting next week, you’ll have an opportunity to vote for the creeps you think are most deserving of a spot here. We’ll be drawing from the names submitted by Con Watch readers; if you have a crook in mind, there’s still time to nominate.
In the meantime, we wish you a happy new year. May you only experience deceit and ruin on the pages of this website!
Last Sunday, I sent an email to one of our inductees. Fifteen minutes later, the phone rang. I spent the next hour talking with the former chief financial officer of the Crazy Eddie fraud about immorality and “walls of false integrity.”
Sam Antar says he hasn’t changed. “I’m the same person that I was in 1985,” he told me. “The only thing that’s changed is that I’ve made a choice not to commit crime.” Back then, Sam helped build the crooked foundation of the Antar family’s business. Today, he runs a website devoted to white collar fraud and travels around the country giving lectures with “chilling straight talk about the mind, motivations, manipulations, and techniques of a fraudster.”
As for the chilling straight talk of our conversation, Sam said that he, his cousin, Eddie, and the rest of the Antar clan never gave a second thought to the victims of their crime. Their conversations were “cold-blooded,” focused solely on how to increase their profits and hold the fraud together.
It’s hard for me to understand such cruel self-interest, but I may not be alone in this. According to Sam, it’s a mistake to “humanize a crook” by trying to understand his actions. “We’re inhuman,” he tells me. “We have no humanity as it relates to morality.” Every single move that a con artist makes is designed to conceal his true intentions behind a “wall of false integrity” and bolster his victim’s comfort level.
So what about those of us who struggle to fathom how a person could set aside morals for a buck? What does Sam Antar make of us? “Enablers.”
And white collar criminals are very good at picking up enablers. They love moral people.
**
Stay tuned – there’s more to come from Sam Antar in the coming weeks. It turns out he’s not only an inductee to the Con Artist Hall of Infamy….he’s a fan!
Laurie Schneider, alleged "Ponzi princess," NY Post
As we rounded up our first group of inductees, we knew who was missing. We have profiles of con artists from the 1860s and the 1960s. We have crooks from Brooklyn and Sweden. We have pastors and CEOs. But we don’t have a single woman in the Hall of Infamy. Sure, women figure prominently in these stories. Some of them are pretty interesting, like the long-lashed Tammy Faye, who was married to Jim Bakker. One woman – Betty Payne – ended up behind bars for helping her husband run his con. But, like the female characters in a blockbuster action film, these women are peripheral. They didn’t engineer the cons; they played supporting roles.
So where are the women con artists? Is it lack of opportunity – a kind of criminal’s glass ceiling? Or maybe they’re better at not getting caught?! We’ve speculated and joked about the reasons; now we’re determined to feminize the Hall of Infamy. We’ve already received several nominations. The first arrived on the heels of the site’s launch in July, after Leah Garchik wrote about it in her San Francisco Chronicle column. She noted the popularity of the name “Bernie” amongst our con artists (Cornfeld, Ebbers and Madoff), as well as the absence of women. One of Garchik’s readers sent in a suggestion – a Long Island woman who allegedly ran a real estate-based Ponzi Scheme. I filed the woman’s name away in order to keep an eye on her: she was a “person of interest” – she wasn’t facing formal charges and she certainly hadn’t been found guilty in a court of law, which is a criteria for a contemporary inductee to the Hall of Infamy.
I was thinking about women con artists recently and did a quick search of the alleged con artist (Laurie Schneider) and the nickname she was given by Garchik’s reader: “Ponzi Princess.” To my surprise, I found an article that appeared just two weeks ago in the New York Post. The story included this quote from an investor, who claims to have lost $200,000 to Schneider: “Madoff is the king. She is like a little Ponzi princess. And no one has done anything about it.”
It appears that someone has done something about it; Schneider’s lawyer confirmed that the Brooklyn US Attorney’s Office has begun an investigation into the alleged scam, which is said to involve phony investments and the flipping of non-existent real estate. The alleged fraud may have taken in as many as 50 victims, who lost as much as $30 million, according to the US Bankruptcy Court trustee assigned to the case.
Perhaps it’s the (relatively) small scale of the crime that make this alleged con artist a “princess” next to Madoff’s “king.” Or perhaps because women are so rarely accused of con artistry, they make for a novel story and seem to need a cute nickname. Whatever the case, I happen to agree with the reader of Garchik’s column, who wrote of her reasons for wanting to see the Ponzi princess on this site: “I certainly do not want the world to think that only men could be sick schemers.”
Can you suggest any women (past or present, under investigation or convicted) to our equal opportunity website devoted to sick schemers?
Richard Monroe Harkless, the mastermind of a $35 million Ponzi scheme that took in about 700 investors in Southern California, was sentenced to 100 years in prison on Monday. That’s right: 100 years. Bernie Madoff, who ran a $65 billion operation, is facing 150 years.
It’s a long sentence but that’s not what I find most remarkable about Harkless. During his trial, he said that his problem was a failed business model. Acting as his own attorney, he claimed the sales agents who worked for him promised investors returns of up to 14% without his knowledge. He said he had no regrets and would make the same decisions again, reports the Los Angeles Times.
Harkless isn’t the first con artist to proclaim his innocence and blame his staff. And I’m sure he won’t be the last. But, really, is there a part of him that thinks he’s fooling anyone? In the face of all the evidence that’s putting him behind bars for 100 years, why doesn’t the 65-year-old just ‘fess up? The answer might be in the strange assertion that he wouldn’t change a thing. Maybe he has an overpowering need to seem like a man in control — a man in charge. Every con artist is concerned with how others perceive him; that’s the whole trick, to make people trust you and feel that you alone can make them rich. But these guys who deny what they’ve done: maybe they have some deeper need for approval.
A few members of the Hall of Infamy have proclaimed their innocence. From the courtroom and their prison cells, they’ve found ways to deflect their crimes. Richard Scrushy, the founder and CEO of Health South, blamed it on people who worked for him. Some of those people testified against him and described his micromanaging style; this was a CEO who wanted to approve what was being served in the cafeteria and who made hiring and firing decisions in a company that employed 50,000 people. And he overlooked a little thing like a $2.7 billion fraud?
John Rigas swore he was innocent of wrongdoing – in contrast to the SEC director who said he ran “one of the most complicated and egregious financial frauds committed at a public company.” He blamed the trial (and those of his sons) on a sinister plot by the company’s employees to bring the Rigas family down. It was, his attorney said, a case of “Rigas-cide.” (That was not such a terrific strategy for the defense.)
What do you make of the con artist who maintains his innocence? Why do you think he’s doing it? Does it make him any more or less despicable? Would Bernie Madoff be even more reviled if he said he did nothing wrong?
When a con artist builds and tends a Ponzi scheme, he must sometimes long for a partner in crime. He must wish there was someone he could trust with everything – a person with whom he could talk freely. A strategist, a confidant. A brother.
R. Allen Stanford, who’s accused of orchestrating a multi-billion Ponzi scheme, may have had such a person. According to his CFO and long-time friend, Stanford sealed his arrangement with a regulator of his Antigua bank by becoming his blood brother, reports The New York Times. In a plea agreement, James M. Davis said that Stanford and the bank supervisor, Leroy King, cut their wrists and mixed their blood as part of a “brotherhood ceremony.” From that point on, King allegedly referred to Stanford as “Big Brother” and enjoyed gifts of fraternity, including tickets to the Super Bowl.
None of our inductees have engaged in this form of strange Boy Scout ritual — but we do have a handful of crooked families. The existence of con teams of siblings, cousins, and fathers and sons makes obvious sense: they share values and know each other well enough to cover any weak spots. Then there’s the trust issue. It’s a dangerous move to bring others into a con. And blood is thicker than water…
In the 1980s, the Antar family ran a booming, efficient con with Crazy Eddie – a popular chain of electronics stores that used phony inventory to bilk shareholders of millions. Eddie Antar, who founded the Crazy Eddie empire, worked alongside his closest relatives. That is, until the con imploded. As the cash flow dried up, a bitter feud divided the family and Eddie’s two brothers and father either resigned or were fired. Eddie went on the lam to escape arrest; extradited from Israel, he was sentenced to 12+ years – in part based on the testimony of Sam Antar, his cousin and former accountant.
The Rastogi brothers ran an international con by dealing in non-existent metal trades. Narendra managed business in the U.S., while his younger brother, Virendra, kept the money flowing from his base in London. A misdirected fax, which an employee in Hong Kong accidentally sent to an auditor, sealed the fate of the Rastogis. As part of his plea bargain, Narendra named his brother as co-conspirator.
Then there’s John Rigas, our patriarch of fraud. He founded Adelphia Communications in 1952. By the late 1990s, Rigas and his two sons ran the sixth largest cable operator in the U.S. Adelphia was also something of a piggy bank for Rigas, who took out sizable “loans” to invest in golf courses and luxury condos. In 2005, the elderly Rigas was sentenced to 15 years. His son and former CFO, Timothy, got 17 years.
So: is blood thicker than water? Can a con artist trust anyone? And: if we’re missing any con artist families or “blood brothers,” please nominate a team to the Hall of Infamy.
A con artist is a menace to the gullible and foolhardy. His only interest is in collecting cash; he doesn’t care about his victims or worry about the moment when they discover they’ve lost everything. The worst of these rotten apples are the con artists who prey on the most vulnerable and develop phony friendships with their victims. To me, these types are even worse than the fat cats of Enron – executives whose greed and senses of entitlement were off-the-charts.
For example, take the two scoundrel brokers who were barred from the Financial Industry Regulatory Authority (FINRA) on Aug. 31. First, there’s Oren Eugene Sullivan, Jr., of Rock Hill, SC, who allegedly ran a $3.7 million Ponzi scheme for 20 years. According to the FINRA press release, his more than 30 clients include: 15 widows, two people who had Alzheimer’s, and an individual with a developmental impairment. Many of the victims “considered Sullivan a close family friend,” reads the release.
A second broker was barred: William Walter Spencer, Sr., of Franklin, TN. For his part, Spencer allegedly “borrowed” about $2 million from members of his church, many of them elderly and all of them individuals of modest means. One of his victims is said to be a 62-year-old who drove a school bus for children with special needs; after her husband’s death, she regrettably loaned Spencer $60,000.
How could a person do such a thing?
Amongst our infamous gallery of con artists, there are a few who seem especially cold-hearted. Take Gerald Payne, who the judge called a “wolf in sheep’s clothing.” He earned that title by preying on the religious faith of his victims, bilking them of their savings to bulk up his wallet.
Then there’s the most infamous of our inductees: Bernie Madoff. The size and reach of his con, and the way he had everyone fooled for so long, touches off a singular rage. Before his sentencing, I mentioned his name to an acquaintance; this calm and cheerful man declared that Madoff should be “guillotined on Madison Avenue.” He said it without a smile (as if he meant it).
Have you read about a con artist who shocked you with his amorality? We’re looking ahead to the next batch of inductees and would love to hear from you. Please nominate a con artist to the Hall of Infamy.
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