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?
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!
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.
Comments (1)