You Can't Cheat an Honest Man - James Walsh [11]
Since, in most Ponzi schemes, the answer to that question is Yes, the court concluded that the perps don’t have a right to Grandma’s $20,000.
Case Study: Elliott Enterprises
From 1980 to 1987, Charles Elliott managed a collection of investment companies that included Elliott Real Estate, Inc., Elliott Securities, Elliott Mortgage Company, Inc., and Elliott Group, Inc.
Elliott Securities was a stock brokerage. The other companies marketed investment vehicles created and managed by Elliott. The brokerage operated primarily as what one former employee called “a fish pond.” Clients with the money to buy and sell large amounts of stock were invited to meet Elliott. The sales pitch was simple: “We can get you 7 percent down here but if you want 18, you’ll have to go upstairs to see [Elliott].”
Most of Elliott’s 1,400 investors were retirees who believed they were gaining a high-yield tax haven for their life savings.
In fact, they were being sucked into a Ponzi scheme. Like many smart Ponzi perps, Elliott made a big show of religious devotion. In his newsletters, he often quoted the scriptures. “Every letter we got from him made me think this is one of the most religious men I’ve ever dealt with,” recalled one investor.
In his first newsletter of 1987, Elliott wrote floridly:
I am reminded of my strong commitment and relationship with God. I believe that spiritual strength is the only strength because it is capable of infinite renewal....I personally approach 1987 inspired to be honest, humble, courageous, clean-hearted, patient and noble.
In the meantime, he was using gullible investors’ money to collect conspicuous signs of God’s favor—flashy things like rare jewelry, vintage cars and trendy art. He threw lots of parties, including a big Christmas party every year for employees and investors.
Less piously, Elliott decorated his offices with photographs of himself with politicians and celebrities. He’d boast especially about his ties to Republican power-brokers. Some potential investors were told that Elliott was one of Ronald Reagan’s “personal financial advisers.”
The political boasts weren’t Elliott’s idea. He’d grown up in rural North Carolina and still saw most things—including confidence schemes— from a farm boy’s earnest perspective. William Melhorn, chief executive officer for Elliott Enterprises, was the man who saw the obvious connection between power and money.
Melhorn had begun as a special assistant to Elliott and quickly worked his way up to chief executive officer. The two men had met in the mid-1970s. Melhorn was out of a job, following the collapse of an earlier enterprise, and Elliott needed people with...particular...experience.
In public, Elliott said his special expertise was municipal bonds and other tax-advantaged investments—and that investments with his firms were insured by the Securities Investor Protection Corp. In private, though, the most common investments he peddled were socalled “repurchase agreements.” Essentially, these agreements were loans made by investors to Elliott (and, therefore, not insurable by SIPC). The loans may have been collateralized by municipal bonds— but investors never actually participated directly in the investments.
The SEC would later charge that most of the loans weren’t really collateralized at all. (Elliott kept a small portfolio of muni bonds, which he pledged dozens...and possibly hundreds...of times as collateral.)
Free to use investment proceeds any way he chose, Elliott tended toward speculative start-ups and boneheaded real estate deals. But he was disciplined about keeping payments current with investors. “Elliott