Here’s a typical pitch: “I can guarantee you will receive a minimum of a 10 percent rate of return if you invest your funds with me.” In today’s environment, a guaranteed 10 percent rate of return may be a sign that you are being asked to invest in a Ponzi scheme. Usually, the scam promises that your funds will be invested in some manner that no one else knows about — such as construction equipment in Puerto Rico; certificates of deposit in Antigua; real estate in England; hedge futures; offshore investments; or some other exotic investment. In fact, the funds are not really invested and the initial investors are paid interest and principal from new investors instead of from actual returns. Eventually, the scheme collapses when new investments are insufficient to service interest and principal payments. As demonstrated by Bernie Madoff and Allen Stanford, as long as new investors can be recruited, Ponzi schemes can continue for many years before collapsing.
Recently, the Florida Attorney General obtained an injunction and froze the assets of a company called Botfly LLC. Botfly and its principals allegedly promised investors up to a 10 percent return on a promissory note. The Attorney General subpoenaed Botfly’s bank records and learned that the defendants collected more than $23 million from more than 550 investors, many of whom were residents of Florida. According to the judge hearing the request to freeze Botfly’s assets — the Botfly scheme appears to be a “ridiculously obvious Ponzi scheme” because investment funds were spent on personal items and used to pay off prior investors.
The Botfly injunction was obtained after an investigation conducted under the Florida Securities and Investor Protection Act, a new law “championed last year by the Attorney General and bill sponsors Representative Tom Grady and Senator Garrett Richter.”
According to the attorney general, the company may have been appropriately named as “A botfly is an insect whose larvae burrow under the skin of mammals and eat their flesh until they mature into an adult fly.” If you would like more information about the attorney general’s lawsuit, please call the AG’s office at 850-414-3990 or its fraud hot line at 866-966-7226. And remember, if it sounds too good to be true — it may be a Ponzi scheme.
Bill Martin is a former B-52 and B-B pilot and senior attorney for the Federal Deposit Insurance Corporation. He is currently a partner in the law firm of Keefe, Anchors & Gordon in Fort Walton Beach, Fla.