Ponzi schemes flourish with vulnerable victims

McClatchy Newspapers

NEW YORK — Sam Antar is a fast-talking former accountant who wears snazzy suits and eye-catching silk ties.

With a twisted, toothy sort of grin, he especially likes to greet a room full of perfect strangers with: “Hi, I’m Sam Antar, and I’m a crook.”

Antar wants you to understand how Ponzi operators and fraudsters steal money by taking advantage of “nice people” for years, only to be arrested after their schemes collapse and lives are wrecked.

“Criminals like me consider your humanity a weakness to be exploited in the execution of our crimes,” Antar told participants at a recent conference at the John Jay College of Criminal Justice. “We can steal more money with a smile than we can steal with a gun.”

His unvarnished message is an unnerving but timely one: it seems a new Ponzi scheme is unraveling every day, a Bernie Madoff lurking at every turn.

Securities and Exchange Commission enforcement director Robert Khuzami said the SEC has halted more than 75 Ponzi-related schemes since 2007.

Police, lawyers and academic experts say Ponzi schemes flourish undetected for years for several reasons: securities regulators and law enforcement agencies are underfunded, auditors are undertrained, while victims are vulnerable to get-rich-quick pitches.

But William Black, a University of Missouri law and economics professor, suggested there’s so much accounting fraud going on these days, the authorities can’t keep up.

Nationwide mortgage fraud — about 80 percent of it “induced” by corrupt lenders, Black said — went unaddressed only partly because the FBI shifted 500 agents to its counterterrorism squads from its fraud squads after the 2001 terrorist attacks.

Lenders and borrowers were complicit in mortgage fraud in many instances, he said, so it’s no surprise that investment bankers who were repackaging and marketing the loans as securities referred only 34 cases to the FBI from 2003 to 2007.

Patrick Carroll, a supervisory special agent who oversees the securities and commodities fraud squad in the FBI’s New York office, denied that the agency’s focus on counterterrorism has allowed Ponzi schemers and mortgage frauds to thrive unchecked since 2001.

Carroll said Ponzis have always existed and “will continue to be there.”

Stock market and economic downturns expose many Ponzis, Carroll added, because anxious investors often try to cash out their money, triggering a liquidity crisis for the criminal that ends when investors learn their money is gone.

The FBI has run proactive, undercover operations into major securities and commodities frauds, Carroll said, adding that the agency has “responded effectively and efficiently.”

Black disagrees. “They have just been completely overrun,” he said.

(The FBI recently said it will hire 850 special agents and 2,100 professional staff members by fall, one of the largest hiring blitzes in its 100-year history.)

Walter Ricciardi, who became a partner at a New York law firm in 2008 after a stint as a deputy director of the Securities & Exchange Commission’s enforcement arm and head of its Boston office, said the SEC and FBI both lacked resources. Many fraud investigations were shelved or never launched, he said.

Ricciardi described an earnest, dedicated SEC staff that was technologically backward.

SEC staff obsessed with amassing statistics in smaller, easier cases instead of developing bigger, more complex fraud cases, he said. It was about “the stat,” he said.

Though the SEC lacked resources to investigate fraud, Ricciardi said he was warned never to admit that publicly.

“I was told if we said we had insufficient resources, that would not be good. Congress would be upset. ‘Do the best you can with what you have,’ I was told,” Ricciardi said.

SEC spokesman John Heine offered no comment.