Most people have heard of it before. In fact, just a few years ago Bernie Madoff practically became a household name after being caught running one of the biggest in history. The Ponzi Scheme, where a financial consultant promises great returns on investment, when there really is no investment. They simply use the money from one investor to pay off a previous investor. It is an unsustainable scam, yet it continues to happen. Why does it continue? Those who run these scams can make a lot of money very quickly, and they usually get caught up in the greed as the whole thing crashes down around them.
This happened recently when a group touting investments in the Cay Clubs Resort and Marinas were recently charged with participating in the scam. The executives were in charge of running a business that was promising a 15% return on investment, and future income streams to those who would invest their money in the company. They claimed that the money would go toward the development and renting of the resort, but what ended up happening was the top executives took a significant portion of the $300 Million that was raised, and then abandoned the “plans” for the resort.
Back in 2004 the Cay Clubs claimed they were buying distressed, undervalued properties in both Florida and Las Vegas. The company would then fix them, and begin to rent them out. Their pitch was they would put $30,000 worth of work into the property and significantly increase its value, and then continue to make money on the deal as the property provided rental income. Their financial statements reported that the company was worth billions of dollars, when in fact it was struggling financially. A big reason was that there was never any plans to fix and rent resort property. The plan was for the top five executives (the CEO and the manager/sales agent were later married) to glean millions of those dollars into offshore bank accounts. After the operation was abandoned, the couple moved to the Cayman Islands and continued to filter more than $2 million into their offshore accounts.
While the scheme has been discovered and put to an end, the damage has been done. The SEC is seeking recovery of assets plus interest; the more than 1,400 investors will likely not see much of their money returned to them. And this is not just an isolated incident, these schemes continue to pop up, and it is not until years later that the general public even knows what is going on. Unlike a petty crime, such as robbing a convenience store, these plots that require years of planning. In order to not get caught for many years, many prior years of planning must be done. What happens is that when the web is finally untangled, the scam has already done a lot of damage, and unfortunately for those defrauded; there is not much chance of their money being recovered.
If you feel something is wrong with your investment, or if you have been promised amazing returns and you have not seen anything, you may be a victim of investment fraud. Take some time to get in touch with the SEC fraud department. You might just stop something before thousands of people lose millions of dollars.