Among the most common white-collar crimes prosecuted by the Department of Justice (“DOJ”) are Ponzi schemes.  An “investor” uses false promises and creates unfounded expectations to entice others to entrust him with their money – their paycheck, their tax return, and sometimes their life savings.  In reality, the “investor” may have no expertise and no grand plan to generate the incredible returns promised to his patrons.  Instead, the investor converts the funds to his own use and also uses the funds to pay back previous investors that have been the target of the scheme.  Generally speaking, Ponzi schemes tend to rely on promised investments in securities, but with the rapid rise of cryptocurrencies as a form of investment, individual investors have begun to view cryptocurrencies and foreign currencies as opportunities to see substantial gains from their investments.

One Georgia man was recently sentenced for preying on the newfound appeal of foreign exchange (FOREX) investments.  What makes this case especially interesting is that the man sentenced in the case, Kevin Perry, was not a seasoned and experienced investor that could use his purported experience to attract victims to the investment scheme.  Rather, Perry is a mere 23 years old and, amazingly, his scheme began when he was still a teenager.  In that time, Perry’s FOREX scheme resulted in over $430,000 in losses to his patrons.  Perry promised investors huge returns on their investments through trading on the FOREX markets, buying and selling foreign currencies.  

However, Perry was not generating the promised returns.  He was merely paying off old investors with the money from new investors, a typical Ponzi scheme.  But some investors caught on, and the Commodity Futures Trading Commission filed a civil complaint against him. Still Perry persisted, and he was caught falsely promising an undercover FBI agent that an investment of $10,000 would return a profit of $19,000 to $25,000 per month.  Perry was sentenced to three years and five months in prison and three years of supervised release, and he was ordered to pay $438,799 in restitution.

There are lessons to be learned from Perry’s simple scheme.  First, investors need to do their due diligence before investing with an investment advisor or investment company, including understanding the plan and ensuring the investment advisor is reputable.  Second, investment advisors and investment companies must be transparent, ensuring that investors are fully informed of the investment plan and understand the risks involved so that there are no misunderstandings.  In fact, investment advisors and investment companies should make no promises regarding the amount of returns – after all “past performance is no guarantee of future results.”  Most importantly, investment advisors and investment companies must endeavor to keep client funds segregated, ensuring that one client’s funds are not used to pay another client, as such actions may draw scrutiny from DOJ, SEC, or CFTC and may lead to protracted litigation.  

The attorneys at Chilivis Grubman represent clients of all types and sizes in connection with white collar criminal investigations and related litigation.  If you need assistance with such a matter, please contact us today.