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Golden Opportunity

Fraud Type: 
Ponzi Scheme

Note: Below you’ll find a fact pattern, using entirely fictional people, that illustrates a type of securities fraud.

John was enjoying his retirement in Florida. Looking for ways to stretch his retirement savings, he attended a free seminar sponsored by an independent “financial education” firm.

During the seminar, he was encouraged to invest in a gold mining operation promising 18% to 36% annual returns. He was told there was no risk to him since all of the investments were fully backed by the company’s gold reserves.

After investing, John received dividend checks indicating that his investment was performing extremely well. Bolstered by this early success, he invested more. Several months later, he tried to get his investment back. The company stalled and stalled. Last week, John found out that the firm has been closed by the SEC, which claimed it was running a Ponzi scheme. His money is gone!

So where did his money go?

  • It was invested in shell companies to make it appear that John was buying shares of a successful and profitable gold mining business.
  • The money was transferred multiple times through overseas bank accounts to hide the fraud from investors and authorities.
  • Ultimately, John’s funds were used to pay dividends promised to other investors, continuing the Ponzi scheme.
  • Millions of dollars went into the pockets of the perpetrators who bought homes, ranches, recreational vehicles, and even a luxury fishing resort, at the expense of the investors.

John wasn’t alone. The scheme lured more than 3,000 investors across the U.S. and Canada.

Lessons Learned

  • If it sounds too good to be true, it is.
  • All investments carry risk.
  • You should be especially wary of investments claiming large annual returns.
  • Be vigilant when researching an investment. Some scam artists work hard at disguising their fraud.

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