September 18, 2014

Tallahassee Trend

Two Legislators Crack Down on Ponzi Schemes

Amy Keller | 4/1/2009

“People are, I think, particularly vulnerable because people have lost so much in their retirement plans and stock portfolios.”

— Republican Rep. Tom Grady
[Photo: Florida House of Representatives]

Freshman Republican Rep. Tom Grady, a securities lawyer who represents coastal Collier County, knows well the uphill battle that victims of Ponzi schemes typically face. Nine years ago, Grady represented more than two dozen people in the Naples area conned by David Mobley, a local hedge fund manager who bilked his investors out of at least $59 million over seven years in the 1990s.

As is often the case in a Ponzi scheme, there was little money to be recovered from the crook. Mobley had squandered his ill-gotten gains on a lavish lifestyle, several failed business ventures and some charities. So Grady went after Morgan Stanley Dean Witter, the brokerage where Mobley had maintained his investors’ funds and trading accounts. Grady argued that the firm should have detected Mobley’s fraudulent scheme — that brokers there should have been able to see that his Maricopa fund’s 50%-plus annual returns didn’t mesh with his underlying stock trades.

While that lawsuit ultimately was unsuccessful, Grady says he plans to employ a similar strategy on behalf of several victims of Bernard Madoff, the infamous Wall Street financier at the center of an alleged $50-billion Ponzi scheme. Grady, who says he’s received calls from people owed more than $1.5 billion, isn’t planning to sue Madoff. Rather, he’ll try to pursue claims against others who may be liable — investment advisers or hedge funds that may have recommended or hired Madoff without conducting due diligence.

More than 2,000 Floridians are estimated to be among Madoff’s casualties, including state Rep. Franklin Sands and his wife, Leslie, who live in Weston. The Democratic leader, who is 68 and made his living in the jewelry business, first began investing with Bernard Madoff Investment Securities more than a decade ago, based on the advice of “professional advisers.” He told the South Florida Sun-Sentinel that he and his wife lost nearly their entire savings to Madoff. Another public official, Venice Mayor Edwin Martin Jr., lost about 60% of his net worth to Madoff.

A rash of other recent Ponzi schemes in Florida has come to light as the economic downturn has dried up the inflows of cash on which the schemes depend and more investors attempt to withdraw their money.

» In December, the Securities and Exchange Commission filed an emergency action to halt an alleged $23-million Ponzi scheme operated by George Theodule, a self-proclaimed minister from Haiti, who solicited other Haitian-Americans through a network of purported investment clubs in south Florida. Theodule’s company, Creative Capital, guaranteed a 100% return on investments within 90 days and promised that some of his companies’ proceeds would be used to benefit the Haitian community in the U.S. and Haiti and others in Sierra Leone, the SEC said.

» In January, Arthur Nadel, a prominent Sarasota philanthropist and money manager, was charged with securities fraud and wire fraud. Through his company, Scoop Management, Nadel managed six private investment funds that he claimed were worth $342 million but in reality were valued only at about $500,000. He was arrested in late January after two weeks on the run.

» R. Allen Stanford, the Texas financier who is at the center of an alleged $8-billion investment scam, operated an office in Miami and also had offices in Boca Raton, Vero Beach and Longboat Key.

Tags: Politics & Law, Banking & Finance, Government/Politics & Law

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