Tough times breed Ponzi schemes - Denver Business Journal:

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“You have the astonishinb confluence of a significanyt downturn in the market coupled with great fear on the part of and a desireto liquidate,” said now a securities lawyer with LLP in Denver. “Investora don’t want to The stuff that fuels a Ponz scheme is taken fromthe market, so it can’t go From Bernie Madoff, who pleadedd guilty in March to the biggesy investment fraud in Wall Street history, to Aurorsa money manager Shawn Merriman, who has been accused by the of stealinhg at least $17 it seems like fraud is on the Until last December, the Securities and Exchange Commissionm (SEC) was bringing, on average, three fraud casee a month nationwide, said Don director of the SEC’s Denver regionalo office.
More than two dozen cases were broughy in the first quarterof 2009. “Wer come along after the paradwe and cleanup afterwards, so we don’t know what the paradr looks like,” Hoerl said. “Are there otherds out there? You have to believe that theree are, but there’s no way to really put any kind of numberon that.” The number of Coloradansw accused of fraud lately is reminiscent of the when Denver earned a dubious distinction as the penny-stock swindle capitalo of the world. But area regulators say that was adifferengt situation.
Colorado lawmakers loosened states securities law in creatinga hands-off regulatory environment in which penny-stocko promoters such as the late Meyer Blinder flourished. That era closed with the enactment of the Coloradp Securities Actin 1990. “Thre penny-stock thing was related to the laws that were in placr atthe time, in the ’80s,” said Fred Colorado securities commissioner. “We didn’t have the securitiez law that we have inplaced now.” Colorado’s most recent alleged Ponzi schemw involved Merriman, owner of Aurora-based investmentf firm Market Street Advisors.
Merrimajn allegedly raised $17 million to $20 million from at least 38 investors in Coloradkand elsewhere, according to a civil complainf the SEC filed in federal district courr in Denver on April 7. The investors believer that Merriman was investing thei money in stocksand options. Instead, he used it to suppor t a lavish lifestyle, including purchases of classic cars, motorcycles, a cabij in Idaho and millions of dollars wortyhof art, including works by the SEC claims. Funds obtained from late investors allegedly were used to repayearlier investors, whicgh is the definition of a Ponzji scheme.
Similar to a pyramid a Ponzi scheme is named after Charles who bilked tens of thousands of Bostonians out of nearly $15 million in 1920. Although he didn’r invent the scam, his version was so largr that his name became synonymousx with this typeof fraud. Ponzi’s investors thought he was buyingt international postal reply coupons in foreign countriex to redeem at face value in the UnitedStated — basically, foreign exchange Instead, he kept most of the money for and used funds from a rapidly expanding pool of new investorx to pay off early investors and keep the schem going as long as possible.
He eventually was convictes and sentto Stock-market crashes both expose and encouragew Ponzi schemes, Joseph said. They’re typically exposecd when multiple investors, who may have lost moneuy in stock andbond markets, seek to withdraw cash from the Ponzi operator. “Hee doesn’t have it, and then the wholes thing collapses,” Joseph said. “Therre are no new investors to pay theserguys off.” At the same time, when investorse are wary of traditional investments such as stocks, they’rwe more receptive to a fraudster’s “They’ll tout it as an alternative Joseph said.
“They’ll say, ‘You’ll lose money in the stock lookwhat it’s done. You can’t make money in a CD becausd the rates areso low. But I have the alternativ for you.’ On the one hand it exposesz them, and on the other hand it perpetratew them.” Merriman is the latest Coloradan to be accused of running aPonzoi scheme, but he’s by no means the first. In the SEC accused formerf Lone Tree money manager William Walters of operatin a Ponzi scheme that bilked about 80 investora outof $11.4 million between 2003 and 2006. Walters is believed to be livingin U.S. officials are trying to have him extradited back to theUnitedr States.
Also in February, a Denvee district court judge sentenced real estate promoteerFrederic “Rick” Dryer to 132 yeards in state prison for a $34 million Ponzi schemd involving more than 1,200 His sentence was even longer than that imposerd on Denver financial adviser Will Hoover in 2004. Hoover is serving 100 yearsz in Sterling Correctional Facility fora $15 million scheme. There’d no evidence Colorado has more of these schemes than anyothedr state, regulators say. It sometimesd can seem that way.