Ponzi Schemes

For investors in the New York – New Jersey area, high taxes, traffic congestion and crowded suburbs are part of everyday life. Unfortunately, all too often unscrupulous financial advisors, money managers or brokers (or those who claim to be) are also part of everyday life. Countless scams are perpetrated by hoaxers selling shares of unregistered securities, promissory notes promising high interest payments or shares of “funds” with above market returns.

For all the regulations and investor safeguards in place in the financial services industry, if a person with evil intent is determined to defraud unsuspecting and trusting senior citizens, unsophisticated investors, etc., they can succeed. What can stop them, or prevent them from starting, however, are vigilant investors who take the time to review and understand account statements, track their deposits and withdrawals, etc. Investors who are sensitive to warning signs of improprieties, such as:

• does your broker ever hand deliver or email you statements when you usually get them in the mail?
• does your broker ever ask for checks made payable to him or the company whose stock/bonds you are investing in, as opposed to your brokerage firm?
• does your broker refer to what he describes as errors or inaccurate information on account statements as “computer glitches”?
• when you request a withdrawal from your account, does your broker ever pay you with a personal check, again blaming those darn “computer glitches,” saying you can settle up next month?

Any of the above should be a red flag to investors, causing them to make further inquires directly with branch management (not their financial advisor). Clients should also routinely make use of FINRA’s BrokerCheck site to be aware of their financial advisor’s employment and complaint history in the securities industry.

One only has to do a search of “Ponzi schemes” on NJ.com to come up with numerous recent examples of quasi or actual criminal schemes devoted to separating hard earned savings from unsuspecting investor. All of the individuals and schemes described below were recently reported on NJ.com:

• George Bussanich, Sr., his wife Wilma and son, George, Jr., along with five others (all from Bergen County), were indicted in March of this year by New Jersey state prosecutors on charges including conspiracy and racketeering, relating to TWO Ponzi schemes directed at elderly investors. The defendants sold unregistered interests in a purported surgical center that, in reality, was simply a holding company. As part of their textbook Ponzi scheme, they made supposed dividend payments to investors which were actually withdrawals from principal payments of other investors. The Bussanichs used the money they stole to buy homes and high priced autos, among other things. They were sued by the State in 2014 and paid $5.5 million to settle the suit, including $4 million in restitution to victims. They then commenced a second Ponzi scheme, targeting some of the same investors they victimized in the first scheme.
• Another northern New Jersey investment advisor pled guilty to one count of wire fraud in federal court, also in March. The Short Hills financial advisor, Mark Moskowitz, started Edge Trading in 2012. Moskowitz claimed to be managing two funds, Edge Trading LP and Edge Trading, LLC. The funds supposedly invested in options, futures contacts and foreign and US equities. Moskowitz misrepresented the performance of the two funds to investors so that they would keep their funds at Edge Trading. Moskowitz diverted approximately $675,000 from the funds for his personal use.
• A West New York couple was recently indicted in federal court for conducting a Ponzi scheme. Alcibiades Cifuentes and his wife, Jennifer Wee Cifuentes, created Cifuentes Fund Management. They told investors that the fund would be investing in foreign currencies and commodities markets. In the meantime, the Cifuentes used the funds deposited to buy personal items, such as an Audi R8 and jewelry. Earlier investors were paid “returns” with funds deposited by later investors. The indictment alleges 20 investors lost $500,000.
• A former NBA player for the New Jersey Nets, Tate George, a Newark native, lost his appeal of his January 2016 conviction for running a $2 million Ponzi scheme. George had been sentenced to a nine-year prison term for defrauding investors in a real estate development company he created. In actuality, the way Tate ran his company could serve as a template for a successful Ponzi scheme. He traded on his name as a professional athlete to attract investors (including other professional athletes). He used funds from new investors to make interest and principal payments to prior investors. In the meantime, he stole investors’ cash for his personal use, including making mortgage payments and filming a self-promotional video on YouTube.

If you have questions regarding the handling of your brokerage account, or any investments you have made in promissory notes, funds, private securities transactions and the like, you can consult for free with the experienced securities attorneys at Lubiner, Schmidt & Palumbo.