12/28/09 Department of Commerce & Consumer Affairs Business Registration Division Office of the Securities Commissioner Investor Education Program

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program Investment Fraud: The Ponzi Scheme

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program   The “Ponzi Scheme”, named after the 1920’s 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 21 st Century Ponzi Scheme What is a Ponzi Scheme?

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program Source: NASSA Securities 101: Handbook For Law Enforcement Officials Understanding a Ponzi Scheme Ponzi Promoter Investor A invests $

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program Ponzi Promoter Investor A invests $ Investor B invests $ Source: NASSA Securities 101: Handbook For Law Enforcement Officials Understanding a Ponzi Scheme

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program Source: NASSA Securities 101: Handbook For Law Enforcement Officials Understanding a Ponzi Scheme Ponzi Promoter Investor A invests $ Investor B invests $ Investor C invests $

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program Source: NASSA Raid Response #2: Madoff – A 21 st Century Ponzi Scheme 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.

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program   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 21 st Century Ponzi Scheme  The Ponzi bubble bursts when the con artist simply cannot keep up with the required payments. $ $ $ $ $ $ $ $ Burst of a Ponzi Scheme

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program   Beware of promises of unrealistic returns.   Diversify – everything.   Don’t rely on reputation or word of mouth alone.   Understand your investments. Source: NASSA Raid Response #2: Madoff – A 21 st Century Ponzi Scheme How to Protect Yourself Against Ponzi Schemes

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program   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   Report investment fraud by contacting the Securities Enforcement Branch at How to Protect Yourself Against Ponzi Schemes

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program   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. Red Flags for Ponzi Schemes

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program   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. Red Flags for Ponzi Schemes

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program   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 Recent Ponzi Cases in Hawaii

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program How We Can Help DCCA Securities Branches: 1.Regulate Call To check on your broker/adviser registration 2.Protect Call To report securities fraud (Toll Free) Education Call To request educational information and presentations

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program Charles Ponzi $10 million 1920 Bernie Madoff $65 billion 2008 Who’s next? How much? When? Beware

State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program DCCA Office of the Securities Commissioner 335 Merchant Street, Rm 203 Honolulu, HI Office Hours: Mon- Fri/7:45am – 4:30pm Website: To report investment fraud call our Scam Line: or Toll Free Contact Information