You Can't Cheat an Honest Man - James Walsh [115]
In the same order, Judge King also froze the assets of four Cash Systems and WEG executives. These people were: Charles Rietz of Mesa, Arizona; Robert Parrish of Gilmer, Texas; Robert Struth and Stephen Edgel of southern California.
Rietz had a long history of trouble with the law. In 1978, he had been enjoined from selling securities by the SEC for fraud allegations in an offering of investment contracts. (He’d tried the “it’s not an investment” argument then, too.) In 1982, he’d paid a fine to the Commodity Futures Trading Commission for running what one CFTC investigator said was “pretty much a Ponzi scheme.”
Edgel denied that Cash Systems and WEG were a Ponzi scheme. “We vigorously deny each and every allegation of the SEC’s complaint,” he said. “We deny that the investment is a security—we have two qualified securities attorneys who say it is not a security. It is our opinion that the SEC has no jurisdiction in the matter.”
The Feds weren’t impressed. “We were able to stop this offering at a point when it was still growing,” said one SEC lawyer. “A lot of times you only catch these schemes after they collapse.”
CHAPTER 18
Chapter 18: Make Friends with the Regulators
Ponzi schemes are investigated and prosecuted by various local authorities and federal regulators. In 1995 alone, the Securities and Exchange Commission has discovered 24 Ponzi-inspired frauds, each of them multimillion dollar rip-offs.
In a related market, the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) oversee commodities trading. These groups serve as a good model of a regulatory system that deals with a fair number of Ponzi schemes.
Although the CFTC does not place stringent requirements on those who trade their own funds in the market, it does require anyone who handles customer funds to register with the NFA, the self-regulating body of the commodity futures market.
Anyone who accepts orders, money or securities for the purpose of making a purchase or sale of a commodity futures contract must register as a futures commission merchant (FCM). Anyone who operates a “commodity pool” of third-party funds in order to buy and sell commodity futures contracts is required to register with the NFA as a commodity pool operator (CPO).
Direct participation in trading is not required to fall under the purview of the CFTC. Anyone who advises others—for a fee—about trading futures contracts must register as commodity trading advisors (CTA). Anyone who solicits orders or customers on behalf of a FCM, CPO or CTA must register as an associated person (AP). The law also offers a higher level of protection for what it calls “vulnerable victims.” A Ponzi perp who steals from such investors—and gets caught—faces harsher punishment than the average crook.
In this regulatory sense, vulnerable means a person whose “age, physical or mental condition” makes him or her weak. Of those three terms, age is the most difficult to define. The government has identified investors who are over 50 as “elderly” individuals...and vulnerable victims due to their age and their special financial needs.
But this definition is somewhat vague. As one court, when sorting through a collapsed Ponzi scheme, wrote: “it is logical to assume the intended victims of any premeditated offense will be selected because something in his or her persona or circumstances will make successful the intended criminal act.”
The Federal Government’s Ponzi-Fighting Tools
Rule 9(b) of the Federal Rules of Civil Procedure outlines the requirements for making fraud claims. The fraud allegations in the complaint must be specific enough to allow the defendant “a reasonable opportunity to answer the complaint.”
In order to satisfy the Rule 9(b) pleading requirement for fraud, most courts require that the person making the charges state:
• precisely what statements were made in