You Can't Cheat an Honest Man - James Walsh [18]
Gordon and Boula pleaded guilty and their surprise were sentenced to 108 months in jail. Using terms like “incredible greed,” and accusing them of destroying people’s “capacity to express love,” U.S. District Judge Brian Duff told Gordon and Boula, “There will be no tears for the sentence I impose. It will be well deserved.”
Duff ordered a deputy U.S. marshal to lock both men up immediately to begin serving their sentences. But, after court personnel informed the judge that additional time was needed to designate a prison for the defendants, he begrudgingly allowed them to remain free.
Gordon and Boula’s attorneys said they would appeal Duff’s sentence. They contended that he had exceeded federal sentencing guidelines, which would call for a prison term ranging from 30 to 46 months for each man.
A federal appeals court later held that sentences for crimes arising out of a Ponzi scheme were not subject to enhancement on the grounds the defendants specifically targeted elderly investors. So, it asked Duff to reconsider his sentence. He did—and found stronger legal grounds for keeping the same, harsh sentences. Specifically, he wrote:
In this court’s view, the crime is more heinous if, as in this case, there are 3,300 [investors] and the total loss is $7 million as opposed to if there were 10 [investors] with the same loss....
CHAPTER 3
Chapter 3: A Better Mousetrap Makes a Good Scam
New technologies have a rich history of fraudulent promotion. Over the last hundred years, crooks have promoted perpetual motion machines, water engines and magic elixirs. In the last 20 years, real technological advances have made outlandish promises seem a little more plausible.
As recently as the early 1980s, few people would have guessed that hundreds of millions of dollars would be made in stock offerings for companies that make Internet web browsers. A few years before that, no one would have known what to think of recombinant DNA drugs. And these issues say nothing of more modest tech advances, like cellular phones and satellite TV.
Like predators sensing a kill, Ponzi scheme perpetrators are drawn to this high tech confusion. “Whenever a new technology comes over the horizon, we see the same types of scams,” says Paul Huey-Burns, assistant enforcement director at the SEC. Though this remark could apply to any high tech issue, Huey-Burns was talking specifically about a favorite Ponzi scheme premise of the early 1990s—wireless cable.
The wireless cable television business centered on a new technology that transmitted television programming signals through microwave relay systems, rather than through wire cables. This eliminated the capital-intense process of connecting homes to cable networks. It removed the cable from cable TV. It also made it possible—at least theoretically—for small, scrappy start-up companies to compete with giant cable companies. And the actual product is virtually unregulated. Ponzi perps didn’t miss the chance to exploit this opportunity. They promise outlandish returns—as much as several hundred percent—in a few months. The pitch will usually have something to do with acquiring licenses for transmission access cheaply and then selling them to an established cable player. It has nothing to do with the truth. The perp takes a big chunk of money out immediately, never puts anything into the cable system and runs the pyramid long enough to blur his tracks.
Other wireless cable deals will have some basis in truth. The perp will actually acquire a license and will use at least some of the investment proceeds to build a system. The rest of the money goes in the perp’s pocket. Then, he’ll operate the company for a while or sell it to a larger company for less than the amount he raised in investments— hoping no one loses enough to sue.
As far-fetched as they may be, these schemes were a booming business in the mid-1990s. In 1997, the SEC was prosecuting more than 20 wireless cable fraud cases, involving more than 20,000 investors and