You Can't Cheat an Honest Man - James Walsh [121]
WMC moved to San Diego and continued to operate for a while under a court-approved reorganization plan. “Building a criminal case was still going to be difficult,” said one federal regulator. “We had a team of people from the FBI, CFTC, SEC and the U.S. Attorney’s office. So many Ponzi crooks get away....we were determined not to miss the chance to nail this guy.”
In July of 1992, after a five-year investigation of WMC’s practices, the government indicted Kennedy and numerous employees on charges of racketeering, mail fraud, wire fraud and money laundering. Kennedy himself was charged with 109 separate criminal counts related to operating “a Ponzi scheme in the unregulated sale of precious metals.”
Because Kennedy was broke (he and his wife had declared personal bankruptcy in 1990), the court appointed a lawyer to defend him. At trial, the government relied in part on the testimony of Douglas Campbell, from the National Futures Association, as an expert on precious metals and commodity markets. Campbell concluded from reviewing WMC’s records that WMC had not purchased enough metal to cover its obligations to numerous investors and had lost money speculating in metals futures trading.
The centerpiece of Kennedy’s defense was that he lacked the criminal intent necessary to be convicted of the charges. He admitted that his poor business judgment had caused investors to lose millions—but had never intended to defraud anyone. Kennedy’s lawyer called him an “eternal optimist, too inept and untrained to see what was going on under his own nose.”
The jury didn’t believe Kennedy’s stupidity defense. In fact, while it acquitted most of his co-defendants, the jury convicted Kennedy on the most serious charges.
The judge ordered Kennedy taken into custody, noting that because his family lived in San Diego the felon was a flight risk. In January 1994, Kennedy was sentenced to 20 years in prison by U.S. District Judge Lewis Babcock. “His victims were elderly, trusting,” Babcock said. “They invested retirement funds, the fruits of life-long labors.” Babcock also ordered Kennedy to complete three years of supervised release after his prison term. Because Kennedy had been declared indigent, Babcock waived $18.5 million in restitution and $750,000 in fines.
Kennedy’s attorney had tried to lessen the sentence by arguing that the felon would be targeted for attacks in prison because he was “a formerly rich, white, Republican conservative who had every advantage the other inmates never had.”
Babcock wasn’t moved. Kennedy never acknowledged that he had intentionally defrauded investors. But he did make a tearful statement after the sentence was announced. Among his conclusions:
Whether I agree with the jury’s decision or not, in operating the company I was reckless and arrogant. And I’ve caused a lot of pain.... I hope some day to clear my name and pay these people back. I know this sounds crazy under these circumstances, but this is my heart.... I don’t want my children to be bitter toward this country or this system because of what has happened to me.
One of the lawyers who worked on the case noted, “It’s not surprising that this guy was a crook. He was a major egomaniac. The court’s sending him to prison for 20 years and all he can talk about is how he’s really a stand-up guy. But look at how he said it. I this, I that. Me. My.”
CHAPTER 19
Chapter 19: Go After the People Who Got Money Out
It’s difficult to define the relationships of the parties involved in a Ponzi scheme by traditional legal or business principles. Many of the most distinguishing features of a Ponzi scheme have little to do with either business or law.
One the most painful parts of being burned as an investor in a Ponzi scheme is the conclusion that you’ve been taken advantage of by someone that you thought was a compelling entrepreneur