Monday, September 5, 2005

SEC halts alleged Ponzi scheme in Boca Raton - 2005-09-05

The SEC has alleged that a Boca Raton company sold $8 million in unregistered securities to at least 120 investors since November 2003 in a Ponzi scheme. In a Ponzi scheme, funds from new investors are used to pay interest to earlier investors. Ponzi schemes ultimately collapse under their own weight as the promoter is unable to find enough new investments to continue to pay earlier investors their interest.

The SEC alleges that the "investors" purchased nine-month "accounts receivable purchase notes" and were promosed 2 percent guaranteed monthly interest. Some larger investors received promises of 3 percent or 4 percent monthly returns, and were also offered a monthly ½ percent referral fee on any new investments.

The SECo claims that the defendants made undisclosed payments to sales agents and misappropriated investor funds to purchase a yacht, automobiles, jewelry and real estate, as well as diverting newly invested funds to pay interest.

This is simply amazing. In this information age, how can anyone make an investment which promises 24 percent a YEAR, without realizing that the investment has an excellent chance of being a scam? The interest rate at a bank is less than 3%, and these guys are offering 24%. Does anyone not know that this is either the riskiest investment on the face of the earth or a scam?

It is one thing to be in an investment and to have a 24% return. That certainly does happen, and can happen with a savy securities professional managing the money or with some luck. But to invest based on a representation of 24% a year in the future is simply foolishness.

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