$80 MILLION PONZI SCAM - Even Friends Got Fooled

It sounded like a smart idea: investing in automated teller machines (ATMs) located in high-traffic retail locations around the country. The investors would recoup their money, plus an incredible 20-24 percent return, through the fees charged to the ATM customers. Seemed like a deal too good to pass up.

But investors should have done just that—because it was a fraud…a Ponzi scheme, to be more precise. The $80 million in investor funds raised over time weren’t used to purchase ATMs, they were used to fuel the ruse and line the pockets of the two masterminds behind the scheme.

So says a federal indictment unsealed in the Southern District of New York last week against Vance Moore, II and Walter Netschi, charged with wire fraud and conspiracy after an investigation by the FBI.

The scam. According to the indictment, Netschi and others convincingly sold the scheme to thousands of investors—mainly small private equity/hedge fund investment companies, small businesses, retirees, and even friends. Through his front company, Netschi would “sell” individual ATMs or groups of ATMs placed in areas with a lot of foot traffic—like convenience stores, gas stations, malls, and hotels.

Netschi then allegedly had the investors sign agreements with Moore’s “company” to service, process, and maintain the ATMs.

At first, investors were happy. Moore’s company allegedly sent them not only monthly financial statements listing transaction histories and fees for the ATMs, but it also wired them their share of the profits. (Little did investors know that these profits were coming not from ATM fees but from subsequent investors recruited by Netschi.)

Approximately 4,000 ATMs were supposedly purchased and serviced by Netschi and Moore, but in reality—according to the indictment—about 90 percent of these machines “sold” to investors either didn’t exist or were owned by other companies.

Then, the money to pay investors ran out—like it usually does in Ponzi schemes as they grow larger and larger and are unable to sustain themselves. For months, Netschi and Moore allegedly gave investors various explanations for the non-payments, blaming various banks and software glitches. They even went out and recruited more investors, said the indictment. But they couldn’t raise the funds they needed, and ultimately, an unhappy investor notified authorities.

And turnabout is fair play—last week’s indictment seeks $80 million in forfeiture from the alleged con artists.

How can you avoid being victimized by a Ponzi scheme? Here are a few tips:

• Be careful of any investment opportunity that makes exaggerated earnings claims.
• Exercise due diligence in selecting investments and the people with whom you invest—in other words, do your homework!
• Make sure you fully understand the investment before you hand over your money.
• Consult an unbiased third party, like an unconnected broker or licensed financial advisor, before investing.
• Don’t be fooled into believing an investment is safe just because someone you know recommended it. So-called “affinity scams” are one of the favorite methods used to lure people into Ponzi schemes

Source: www.fbi.gov - 02/10/09