Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | Ponzi scheme

Jun/11

16

BOYNTON BEACH MAN CHARGED WITH MAIL FRAUD IN “PONZI” SCHEME

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It was anounced on Florida’s Office of Financial Regulation, that on June 3, 2011 there was a filing of a Criminal Information against defendant Anthony F. Cutaia, 65, of Boynton Beach, Florida.  Cutaia made his initial appearance in federal court, and was released on a personal surety bond.  
 
The news-release states that the Information charges Cutaia with nine counts of mail fraud, in violation of Title 18, United States Code, Section, 1341.  More specifically, the Information alleges that Cutaia was the managing member and beneficial owner of CMG Property Investment Group, LLC, which purportedly engaged in commercial real estate investment.  Cutaia was also the host of “Talk About Mortgages and Real Estate,” a television and radio program. 
 
From March 2003 through December 2006, Cutaia entered into Contract Participation Agreements with investors according to the charges.  These contracts stated that investors’ money would be used solely to purchase real estate contracts in Palm Beach and Broward Counties and that CMG would not collect commissions or fees until the properties were sold and a profit was made.  In fact, however, Cutaia allegedly invested little of the investors’ money in real estate and instead used the investors’ money to make payments to pre-existing investors and to pay his own business and personal expenses.  
Have you or your family members become an alleged victim or Anthony F. Cutaia? Protect yourself and your investments from the unscrupulous brokers and brokerages who turn your investments into Ponzi schemes. Call a Securities Arbitration Lawyer at Soreide Law Group, PLLC, for a free consultation on how to potentially recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

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Jun/11

14

FRAUD CHARGES BROUGHT BY SEC IN SILICON VALLEY REAL ESTATE INVESTMENT SCHEME

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On the U. S. Securities and Exchange Commission’s website, it was announced that the Securities and Exchange Commission (SEC) charged Mountain View, Calif.-based JSW Financial Inc. and five officers for defrauding investors in two real estate funds, alleging that the firm used investor funds to prop up the officers’ own failing real estate development projects while concealing the loss of $17 million of investors’ money.

In the article it says that the SEC alleges that from 2002 to 2008, JSW and its predecessor, Jim Ward & Associates (JWA), created two real estate investment funds – Blue Chip Realty Fund and Shoreline Investment Fund – and told investors that their money would be used to make loans secured by residential real estate. In reality, according to the SEC, the firms’ officers used most of the money to make unsecured and undocumented loans to entities that the officers themselves controlled, which were suffering mounting losses and protracted delays on Silicon Valley real estate development projects. Meanwhile, as the enterprise collapsed, investors continued receiving monthly statements showing steady growth in the value of their portfolios.

In the SEC’s complaint, filed in federal district court in San Francisco, names as defendants founder James S. Ward and Edward G. Locker (both of Ohio) and David S. Lee, Richard F. Tipton and David C. Lin (all Silicon Valley residents). The complaint alleges that JSW and JWA, through these individual officers, breached their fiduciary duties by misusing investors’ money to benefit the officers rather than the funds. The SEC also alleges that the officers concealed millions of dollars in losses from Blue Chip and Shoreline investors by sending fraudulent account statements claiming that the Funds were earning more than 10% in annual profits, until the scheme collapsed in November 2008 and the officers finally revealed to investors that nearly all of the Blue Chip and Shoreline loans were unsecured. The SEC also alleges that Ward and Locker together took $900,000 of investor money to purchase homes for themselves.

On the SEC’s website it was announced that the SEC’s complaint charges JSW, Ward, Lee, Locker, Tipton and Lin with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint also charges JSW with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 (Advisers Act) and Rule 206(4)-8 thereunder, and charges Ward, Lee, Locker, Tipton and Lin with aiding and abetting violations of Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC seeks injunctive relief and disgorgement of ill-gotten gains against JSW, Ward, Lee, Locker, Tipton and Lin, as well as monetary penalties against the five officers. The complaint also seeks disgorgement of ill-gotten gains and appointment of a receiver over Blue Chip and Shoreline as relief defendants.

If you feel you or a family member has become an alleged victim of  JSW Financial Inc., Jim Ward & Associates, James Ward, Edward Locker, David Lee, Richard Tipton , David Lin, or a similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Jun/11

8

Provident Private Placement Paper Trail Lands on Fidelity’s Doorstep

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In an article from InvestmentNews.com, June 7, 2011, Bruce Kelly writes that the litigation stemming from a series of oil and gas private placements that failed two years ago have now ensnared a giant in the clearing and custody business, National Financial Services LLC, a unit of Fidelity Investments.

The trustee overseeing the liquidation of assets of Provident Royalties LLC, which the Securities and Exchange Commission charged with fraud in 2009, last month requested that a federal judge in Dallas issue a subpoena to National Financial. In the court filing, the trustee wants access to retirement account documents of clients of four broker-dealers that sold preferred stock of Provident and used National Financial as a clearing firm.

Bruce Kelly writes that dozens of broker-dealers sold the Provident offerings from September 2006 to January 2009, raising $485 million. Regarding National Financial records, the trustee wants documents of 579 clients who bought $39.1 million of Provident from four firms: J.P. Turner & Co. LLC, Milkie/Ferguson Investments Inc.,National Securities Corp. and Securities America, Inc.

A spokesman for National Financial, said the firm typically does not comment on matters involving its correspondent clearing, broker-dealer clients. Clearing firms do not sell securities but rather hold them for broker-dealers and their clients.

The InvestmentNews.com article goes on to say that calling Provident a “massive Ponzi scheme,” the trustee claimed that the “trustee is entitled to information concerning the relationship between the broker-dealers and their respective clearing houses, and how those funds were transferred, paid for and accounted for by the clearing houses,” the court filing stated.

“As custodial fiduciary, [National Financial] should have agreements with the various broker-dealers they did business with and records for every dollar that went through their controlled account,” according to the filing.

Last year the trustee sued dozens of broker-dealers to claw back revenue and commissions from the sale of Provident.

If you feel you have been an alleged victim of these or other broker-dealers and were sold Provident Royalties private placements, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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May/11

26

Wells Fargo, BNY Mellon Corp., Sue Securities America, & other B-Ds over Medical Capital Holdings, Inc.

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In a May 26th., 2011, article from InvestmentNews.com, Bruce Kelly writes, that adding to the cascade of legal troubles for broker-dealers that sold private placements for Medical Capital Holdings Inc., two banks have now sued several independent B-Ds that hawked the failed offerings.

It was reported that the Bank of New York Mellon Corp. and Wells Fargo Bank NA, were trustees for Medical Capital. In fact, both were sued in a class action in 2009 in U.S. District Court for the Central District of California after the Securities and Exchange Commission charged Medical Capital with fraud. But Bank of New York Mellon and Wells Fargo want the broker-dealers to pay up money if they are found liable in those class actions.

On April 29, the two banks filed separate lawsuits against the broker-dealers, including struggling Securities America Inc., claiming that the broker-dealers “breached their obligation to MedCap investors” by selling the product to investors for whom it was not a suitable investment, and failing to make proper disclosure of the notes’ risks. Bank of New York Mellon has sued 13 broker-dealers, seven of which are no longer in business. Wells Fargo has sued six firms, as well as Ameriprise Financial Inc., which owns Securities America, the biggest seller of Medical Capital notes. Not all broker-dealers that sold the product were included in the suit. “We believe the banks’ actions are unwarranted and baseless,” said Janine Wertheim, a spokeswoman for Securities America. “The wrongdoing in this case lies with the principals of Medical Capital, who have been accused of fraud by the SEC.”

Kelly writes that the plaintiffs in the class action against the two banks claimed in a 2010 amended complaint that the two trustees signed off on a request by Medical Capital executives to take $325 million in fees — despite documents for the Medical Capital notes stating that fees were not supposed to come from investor funds. From 2003 to 2008, dozens of independent broker-dealers sold notes of Medical Capital, which raised $2.2. billion. Securities America sold about $700 million of the product and last month agreed to settle with investors who sued the firm in a class action. Investors have lost more than $1 billion in principal, and regulators and the Medical Capital bankruptcy trustees have said the operation was a Ponzi scheme.

The banks’ suits against the B-Ds is at least the third time in the past year that broker-dealers that sold failed private placements or real estate deals have been sued by outside parties such as a trustee or receiver. Last June, the trustee overseeing the receivership of another failed series of private placements, Provident Royalties LLC, sued almost 50 broker-dealers seeking to claw back $285 million, including commissions.

And in November, the bankruptcy trustee for DBSI Inc., which packaged real estate deals and went bust in 2008, sued almost 100 broker-dealers looking to get back about $49 million from the firms.

If you or a family member have become a victim of the alleged fraudulent sale of private placements for Medical Capital Holdings, Inc. by your broker-dealer, call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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May/11

19

Lawyer Pleads Guilty in Major Insurance Fraud Case

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In a May 18th., 2011 article in the Miami Herald,  Jay Weaver reports that a prominent attorney whose fortune rose with a Fort Lauderdale viatical insurance company at the center of a $1.25 billion investment fraud case pleaded guilty Wednesday to a single conspiracy charge, marking a major development in the long-running prosecution of executives and others at Mutual Benefits Corp.

Fort Lauderdale attorney Michael McNerney, 62, admitted that as its lawyer, he helped the now-defunct company lure thousands of investors worldwide into buying dubious life insurance policies held mostly in the names of people dying of AIDS.

Weaver goes on to say that McNerney’s role was part of an alleged investment scam lasting from 1995 to 2004 that authorities say rivals the $1.2 billion Ponzi scheme of disbarred Fort Lauderdale lawyer Scott Rothstein, convicted last year of selling fabricated legal settlements in a separate criminal case. The Mutual Benefits and Rothstein cases rank as Florida’s largest fraud prosecutions.

The McNerney guilty plea to mail-and-wire fraud conspiracy, which carries up to five years in prison, marks the 10th person to be convicted in the Mutual Benefits prosecution in Miami federal court. He will be sentenced Aug. 26 before U.S. District Judge Adalberto Jordan. With his plea, McNerney avoided a potential sentence of up to 20 years. As part of his deal, McNerney will cooperate with prosecutors on how the alleged life settlement racket was directed by Mutual Benefit’s senior executives

The Miami Hearld reports that the two top executives of the company, Joel Steinger and brother Steven Steiner, along with another Fort Lauderdale lawyer Anthony Livoti, are scheduled to stand trial in early 2013 — but that date could be moved up with McNerney’s plea. He was scheduled to go to trial by himself early next year. Steinger and Steiner were planning on using a defense based on their reliance on McNerney’s legal counsel for all their business decisions regarding Mutual Benefits’ sale of some 30,000 viatical insurance policies to investors who lost about $837 million. But that defense may be in danger now that he has pleaded guilty to being a player in the alleged conspiracy.

It was reported that McNerney, a 1973 graduate of the University of Florida College of Law, admitted that he not only encouraged investors to buy the questionable viatical policies, but he also provided “legal cover” for Steinger and others to perpetuate the alleged fraud, according to a “factual statement” filed with his plea agreement.

Wednesday, McNerney confessed that he schemed with other executives at Mutual Benefits by misleading investors about the life expectancy of insured beneficiaries; the use of funds raised from investors; the risks associated with the investments in viatical settlements; and the payments of insurance premiums on those policies.

“This is a major breakthrough in the prosecution’s case because it shows the defendants were not relying on the advice of an independent attorney,” said Ryan O’Quinn, a former federal prosecutor and Securities and Exchange Commission attorney, who had been involved in the case since 2004. “It shows Michael McNerney was a knowing participant in the fraud, standing side by side with the co-defendants.”

The Herald article goes on to say that in January 2009, the U.S. attorney’s office unsealed the sweeping 25-count fraud indictment against Steinger, identified as Mutual Benefits’ principal executive, brother Steiner, the company’s founder, as well as McNerney and Livoti. The indictment, alleging a conspiracy to commit wire fraud and money laundering, was filed nearly five years after state and federal regulators shut down Mutual Benefits. The company was placed in receivership.

The company, Mutual Benefits, bought life insurance policies of AIDS patients and the elderly and sold the policies to investors, who stood to collect benefits when the insured died. Mutual Benefits promised investors the investments were “safe.” But prosecutors alleged Steinger hired doctors to attest to life expectancies for the insured. By claiming the beneficiaries were near death, prosecutors alleged, Mutual Benefits could sell low-value policies at a higher price. But the longer the insured lived, the more premium payments had to be made to prevent the policy from lapsing and becoming worthless.

According to Jay Weaver of the Miami Herald, prosecutors further alleged that Mutual Benefits was a massive Ponzi scheme, using money from newer investors to pay premium obligations on older policies.

If you or a family member have purchased policies through Mutual Benefits, Corp, or other viatical companies, and become the victim of the life-expectancy predicitons, contact an insurance fraud attorney for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit stockmarketlawsuit.com. 

We stand up and fight for the rights of consumers. Soreide Law Group, PLLC, representing Insurance Fraud Victims in Federal Court, State Court and before the Financial Industry Regulatory Authority (“FINRA”).

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May/11

19

Couple Awarded $265K in Maddoff Losses by FINRA

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Jeffrey and Marisel Lieberman invested $200,000 in 2007, with Morgan Keegan, in what they allegedly felt was a safe and conservative investment. All of their money was deposited into the Fairfield Greenwich Group hedge fund, which was a conduit to Bernie Madoff’s Ponzi scheme.
Recently they were awarded a $265,000 arbitration settlement against Morgan Keegan by FINRA.  Besides the $200,000.00 restitution, Morgan Keegan was also ordered to pay the Liebermans $65,000 in damages and court costs.
The Financial Industry Regulatory Authority (FINRA) arbitration panel called Morgan Keegan “grossly negligent” in its ruling. FINRA stated that “there is clear and convincing evidence that Morgan Keegan was grossly negligent in not performing substantial due diligence and as a result it fraudulently misrepresented the risk of this investment.” The FINRA panel also found Morgan Keegan liable for failing to conduct “substantial due diligence” as required by Morgan Keegan’s own internal procedures. It should be noted that the FINRA arbitration panel also mentioned in their ruling, that not only do Morgan Keegan’s internal procedures require them to perform due diligence, but this obligation extends to all brokerage firms that recommend these types of investments to their customers.
Soreide Law Group, PLLC, is currently investigating potential claims on behalf of investors who lost money through the purchase of hedge funds recommended by  brokers/brokerages. If you invested in these “feeder hedge funds,” such as Greenwich, call a Securities Arbitration Lawyer for a free consultation on how to potentially recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.
Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

28

Recovering Your Investments from a Ponzi Scheme

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We have all heard of Bernie Madoff and his widely orchestrated Ponzi scheme, but his wasn’t the first and it will not be the last. Ponzi schemes have victimized numerous investors for years. Don’t let yourself be caught up in a Ponzi scheme.  Soreide Law Group, PLLC, is here to help you recover your losses and navigate our clients through this very complicated process.

Briefly, Ponzi schemes use the money of new investors to pay old investors, making the investment seem attractive.  A Ponzi scheme will eventually collapse.  The Securities and Exchange Commission (“SEC”) can freeze the assets of the Ponzi scheme before the collapse, ensuring proper distribution of the remaining assets. Also, arbitration and litigation remain an option for recovering the losses in a Ponzi scheme
If involved in a Ponzi scheme, there are also some favorable recovery options available to the investor:

1.)The Investor can file a Receivership Claim in court. A receivership is created by the court at the request of the United States Securities and Exchange Commission (the “SEC”) in a securities fraud case involving a large number of investors and a large  amounts of money.   The SEC will usually ask the court to create a receivership and to appoint a receiver. 

2.)The Investor can file a Fair Fund Claim.  The SEC established the “Fair Fund” to help distribute disgorgements and penalties to victims of financial and/or securities fraud.

3.)The Investor can file a Theft Loss Tax Deduction with the IRS. The victims of financial fraud who have no reasonable prospect of recovery may deduct up to 95% of their investment losses in the Ponzi scheme as ordinary losses.

The Ponzi scheme seems even more difficult when investors receive demand letters and are sued in collection actions by bankruptcy trustees and receivers who seek to “clawback” money that some of the Ponzi scheme investors have already received. 

Protect yourself and your investments from the unscrupulous brokers and brokerages who turn your investments into Ponzi schemes. Call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com.

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Apr/11

19

Carr Miller Accused in $40 million Ponzi Scheme

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It was announced that the New Jersey Office of the Attorney General and the Bureau of Securities filed a lawsuit against Carr Miller Capital LLC and its three principals. Carr Miller is accused of operating a Ponzi scheme and other means to defraud investors of  more than $40 million.

It was reported that the firm and its principals used $13.5 million in investor money for cars, luxury vacations and a skybox to watch the New Jersey Devils hockey team at the Prudential Center in Newark. They also put $16 million into hedge funds, real estate, film production companies and an oil and natural gas venture without telling investors, she said.

The state barred Marlton-based Carr Miller from the securities industry, along with three principals: Everett Charles Ford Miller, Brian Patrick Carr, and his cousin, Ryan Jude Carr. A state judge froze assets held by Miller and his companies, and appointed a receiver.

“These defendants operated a Ponzi scheme for their own enrichment at the expense of investors,” New Jersey Attorney General, Dow said. “Instead of investing funds to produce high rates of return as promised, we allege that the defendants spent investors’ hard-earned money on personal luxuries and indulgences.”

Carr Miller offered nine-month notes that purportedly gave annual returns of 10 percent to 15 percent, according to Dow’s statement.

If you feel you have been a victim of the alleged fraudulent Ponzi schemes of  Carr Miller Capital or the brokers involved, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Mar/11

22

The SEC Charges Three Firms and Four Individuals in Los Angeles-Based Boiler Room Operation

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Washington, D.C. – In an article from the SEC’s website, it says that the Securities and Exchange Commission yesterday charged three firms and four individuals involved in a boiler room scheme operating out of Los Angeles that defrauded investors who they persuaded to buy purportedly profitable trading systems.

Representatives of Spyglass Equity Systems Inc., the SEC alleges, cold-called investors and made false and misleading statements to help raise more than $2.15 million from nearly 200 investors nationwide for two related investment companies – Flatiron Capital Partners LLC (FCP) and Flatiron Systems LLC (FS). However, only a little more than half of that money was actually used for the advertised trading purposes, and much of the trading that did occur failed to use the purported trading systems. FCP and FS wound up losing about $1 million in investor funds. The managing member of the two firms – David E. Howard II – misused almost $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.

The SEC’s Website article goes on to say that along with Howard, FCP and FS, Spyglass and its owners – Richard L. Carter, Preston L. Sjoblom and Tyson D. Elliott – also are charged with fraud in connection with the unregistered securities offerings.

“This operation pressured elderly and unsophisticated investors to entrust their money to purportedly can’t-miss trading systems that were not only unsuccessful, but in many instances unused,” said Donald M. Hoerl, Director of the SEC’s Denver Regional Office. “They kept delivering false claim after false claim until the money dissipated.”

Howard conspired with Spyglass to sell the securities, according to the SEC’s complaint filed in federal court in the Central District of California, and Spyglass earned an estimated $1 million in the deal. The trading systems pitched to investors by Spyglass representatives could only be used if the investor also funded a brokerage account at FCP. However, FCP was not a broker-dealer and thus could not offer brokerage services to customers.

The SEC’s complaint alleges that Howard and FCP provided each investor with instructions on how to fund their “account” with FCP, but included in the instruction packet a copy of the FCP Operating Agreement that indicated the investor was actually purchasing a membership interest in FCP. Many of the investors recruited by Spyglass were elderly and unsophisticated investors who did not understand that they were purchasing a security interest in FCP.

The SEC alleges that Spyglass representatives falsely touted a successful performance history and level of automation of the trading systems, and misled investors to believe that FCP had a positive reputation and solid affiliations in the brokerage industry. To seal the deal, Spyglass offered investors a money-back guarantee if the system did not generate a profit within the first 180 days of trading. However it was only after an investor paid Spyglass a license fee of about $6,000 that Spyglass put the investor in contact with Flatiron, ostensibly to open a brokerage account.

According to the SEC’s complaint, FCP pooled investor funds so Howard and others could trade the funds using various trading techniques. When the trading was not successful and it became clear that Spyglass would have to pay refunds to its clients, Howard provided Spyglass with another trading system and organized FS to purportedly operate the new system. Using false and misleading claims of prior success of this new trading system and Spyglass’s relationship with FS and Howard, FCP investors were persuaded to transfer their investments from FCP to FS. Under the direction of Sjoblom and Carter, Spyglass then began selling the FS trading system to new investors using a sales pitch similar to the one it used to sell the FCP. Investors were again misled to believe they would be opening brokerage accounts, this time with FS. They were later provided with an FS Operating Agreement indicating they were actually purchasing a membership interest in FS. Howard used FS investor funds to trade in equities, futures and off-market securities.

It was noted that when FS ran out of funds in December 2008, the SEC alleges that Howard took steps to conceal the fraudulent scheme by telling members that he had ceased all trading in order to conduct an audit of the trading accounts. However, Flatiron never hired an auditor and no audit was ever performed.

The article states that the SEC’s complaint charges Spyglass, Sjoblom, Carter, Elliott, FS, FCP and Howard with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; FS, FCP and Howard with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933; Spyglass, Sjoblom, Carter and Elliott with violation of Section 15(a) of the Exchange Act; FS and FCP of violations of Section 7(a) of the Investment Company Act of 1940; Howard with violations of Section 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder; and Spyglass, Carter, Sjoblom and Elliott with aiding abetting Howard’s violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC seeks permanent injunctions, disgorgement plus prejudgment and post-judgment interest, and financial penalties.

The SEC acknowledges the assistance of the Commodity Futures Trading Commission (CFTC), which charged Carter and his company The Trade Tech Institute Inc. in a related enforcement action filed in federal court in the Central District of California.

If you feel you have been a victim of the alleged fraudulent schemes of  Spyglass Equity Stystems, Inc., Flatiron Capital Partners, LLC, (FCP), Flatiron Systems, LLC, (FS), or any of the Broker-Dealers listed or anyone allegedly representing them, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Dec/10

13

Tips at Avoiding a Ponzi Scheme

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The Madoff Ponzi scheme happened two years ago this past week.  Ponzi schemes are in the news again. The Justice Department announced this week that it had brought criminal and civil cases against more than 500 people for fraud schemes that involved more than $10 billion in losses.  The reality is that small-time Ponzi schemes have been coming to light with regularity since the financial crisis began and investors started asking for their money back. That’s a big problem when an investment scheme is built on paying out old investors with money brought in from new ones. According to data compiled by Investment News, a trade publication, schemes involving $9.244 billion in losses have been revealed so far this year.

Last week, a former Denver-area hedge fund manager, Sean Mueller, was convicted of running a scheme that bilked some 65 investors out of $71 million. One of those investors, John Elway, the former Denver Broncos quarterback,  lost $15 million.

Small investors who handed over their life savings to Mr. Mueller or other swindlers, will, in all likelihood, not fare well; they will probably never see that money again.

Here is a look at what all investors should consider to keep their money safe.

The people who are most likely to involve you in a swindle are friends and relatives. It has become so common that it now has its own name: affinity fraud.

We have a tendency to trust people we think are like ourselves.

One of the most egregious recent examples of this involved Imperia Invest IBC, whose assets were frozen by the Securities and Exchange Commission in October. According to the S.E.C., Imperia defrauded some 14,000 investors out of $7 million. About $4 million was collected primarily from the deaf.

Another big risk is to associate Ponzi schemes with hedge funds. The reality is that Mr. Madoff and the others who have been caught were not running hedge funds; they were running swindles.

The two most common themes were, “I have a complex strategy that I cannot divulge,”  and, ”I have a strategy that supplies double-digit returns year after year.”

Make sure to do your research before investing. The truth is, few people take the time to really do it.

One of the first things to do is a Google search of the accused schemer. Many people do not even do something as simple as a Google search, because someone they know recommended them or uses them as their broker.  It’s amazing to see the looks on clients faces when a simple Google search reveals previous complaints.

An investor should first ask the manager of the fund what institutions have invested with him. If the manager has been in the business for decades yet has not secured any institutional investments, that should be a warning sign.

Next, people should consider the manager’s background and ask where he learned how to manage money.  Then ask who the manager’s bosses were at those places.

Also, another approach is to make sure that all your investment eggs are not in one basket.  One of the easiest things investors could do was insist that a hedge fund use different firms for the three main services it needs: a clearinghouse to buy and sell securities, a custodian to hold the money and an administrator to ensure that the value of the assets is correct. Having one firm do all three can be a recipe for disaster.

If you have been caught up in a ponzi scheme, you may be able to recover your losses. Call a Securities arbitration lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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