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?