Department of Commerce

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• Department of Commerce Consumer Affairs
• Business Registration Division
• Office of the Securities Commissioner

Investor Education Program
12/28/09
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Investment Fraud
The Ponzi Scheme
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What is a Ponzi Scheme?

• The Ponzi Scheme, named after the 1920s
  swindler Charles Ponzi, is a ploy or a fraudulent
  investment operation where earlier investors are
  paid with funds given by subsequent investors.

Source NASSA Raid Response 2 Madoff A 21st
Century Ponzi Scheme
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Understanding a Ponzi Scheme
Ponzi Promoter
Investor A invests
Source NASSA Securities 101 Handbook For Law
Enforcement Officials
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Understanding a Ponzi Scheme
Ponzi Promoter
Investor A invests
Investor B invests
Source NASSA Securities 101 Handbook For Law
Enforcement Officials
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Understanding a Ponzi Scheme
Ponzi Promoter
Investor A invests
Investor C invests
Investor B invests
Source NASSA Securities 101 Handbook For Law
Enforcement Officials
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Collapse of a Ponzi Scheme

• As the number of total investors grows and the
  supply of potential new investors dwindles, there
  is not enough money to pay off promised returns
  and cover investors who try to cash out.
• The scheme starts to collapse with investors
  losing all or most of their investment.

Source NASSA Raid Response 2 Madoff A 21st
Century Ponzi Scheme
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Burst of a Ponzi Scheme

• The Ponzi bubble bursts when the con artist
  simply cannot keep up with the required payments.

• In many cases, the promoter or con artist has
  spent the investment money on personal expenses,
  depleting funds and accelerating the bursting of
  the bubble.

Source NASSA Raid Response 2 Madoff A 21st
Century Ponzi Scheme
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How to Protect Yourself Against Ponzi Schemes

• Beware of promises of unrealistic returns.
• Diversify everything.
• Dont rely on reputation or word of mouth alone.
• Understand your investments.

Source NASSA Raid Response 2 Madoff A 21st
Century Ponzi Scheme
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How to Protect Yourself Against Ponzi Schemes

• For large investment schemes, ask who the auditor
  is and check out the auditors on the internet.
• Check registration and background of individual
  selling the investment by contacting the
  Securities Compliance Branch at 586-2722.
• Report investment fraud by contacting the
  Securities Enforcement Branch at 587-2267.

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Red Flags for Ponzi Schemes

• The investment is exclusive for only a special
  group of people.
• Poorly written information on the investment
  product and the business.
• Vague or overly complicated explanations of how
  the business runs and how money is made.
• Investments promoting no downside or risk.

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Red Flags for Ponzi Schemes

• Pressure to sign now and get your copies later.
• High or unrealistic returns in a short period of
  time.
• Not registered with the State Office of the
  Securities Commissioner Compliance Branch.

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Recent Ponzi Cases in Hawaii

• Billion Coupons, Inc. (BCI)
• Marvin Ray Cooper
• 3.9 million
• WeCorp Inc.
• Stuart William Jones Payton Jones Lowe
• Over 2.2 million
• The Swiss Group
• Joseph W. Sullivan
• 8.1 million

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How We Can Help

• DCCA Securities Branches
• Regulate Call 586-2722 To check on
  your broker/adviser registration
• Protect Call 587-2267 To report
  securities fraud (Toll Free) 1-877-477-2267
• Education Call 587-7400 To request
  educational information and presentations

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Beware
Bernie Madoff 65 billion 2008
Charles Ponzi 10 million 1920
Whos next? How much? When?
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Contact Information

• DCCA Office of the Securities Commissioner
• 335 Merchant Street, Rm 203
• Honolulu, HI 96813
• Office Hours
• Mon- Fri/745am 430pm
• Website www.investing.hawaii.gov

To report investment fraud call our Scam Line
587-2267 or Toll Free
1-877-447-2267