You Can't Cheat an Honest Man - James Walsh [36]
Loan Programs
One common variation on the standard investment Ponzi scheme is the loan program. In these schemes, investors are encouraged to put money into a fund which, in turn, makes profitable loans. The only problem: Often these loans are made to other investors in the scheme. The whole situation quickly becomes just one more pretense for spinning money.
In the late 1980s and early 1990s, Melvin Ford ran an operation called the International Loan Network. ILN’s pretenses were few and flimsy. It was a scheme to move money around quickly, so that a lucky few could siphon off enough to get rich quick.
Ford’s scheme shouldn’t have lasted more than a few weeks. Instead, it lasted several years. In revival-like assemblies targeting black and Asian-American investors, Ford promised huge returns on investment in foreclosed real estate properties around the country. Among other blustery things, he said, “ILN is a financial distribution network whose members believe that through the control of money and through the control of real estate you can accumulate wealth and become financially independent.”
True enough. But most people have to work for years in order to control enough money and real estate to be considered wealthy. Ford’s short-cut? The ILN mantra: “The movement of money creates wealth.” This was daring. The slogan came close to admitting ILN was a Ponzi scheme.
To become a member of ILN and have a chance of obtaining “the organization’s stated goal of financial independence,” a person had to pay a $125 basic membership fee. The basic fee entitled the investor to a variety of “benefits and services”—consisting mostly of discount coupons for travel, car rental and high-ticket consumer goods. It also allowed the person to become an Independent Representative of ILN.
Of course, the basic fee was only the beginning. ILN encouraged inverstors to join one of its select clubs. For an additional fee of $100, $500 or $1,000, an investor could become one of the cream of ILN’s sucker crop.
Club membership entitled a person to the benefits provided to basic investors plus newsletters and seminars on money management. As a member of the $500 or $1,000 Club, a person could participate in ILN’s Property Rights Acquisition program (PRA), which offered real estate investment training courses. And, finally, there were the bonus programs.
By recruiting friends and family to join, ILN investors could participate in the Capital Fund Bonus System and the Maximum Consideration program. These programs directed portions of new investors’ fees to the people who’d recruited them.
For each new investor recruited, an Independent Representative received 50 percent of the new member’s fee for whichever club he or she joined. The Independent Representative also received a descending percentage of the club membership fees paid by new investors recruited “downline” through recruits (and recruits of recruits) to the fifth level of recruitment.
ILN summed the recruitment process up in a slogan often repeated in its literature and at its meetings: “First you join. Then you bring your wife and kids.” Investors would invite potential recruits to so-called “President’s Nights.” These were the meetings that looked and felt like revivals.
Ford was always the featured speaker. He’d enter a crowded hotel ballroom to the soundtrack from the movie Flashdance. Then, he’d deliver a lengthy presentation—part motivational speech and part financial evangelism—rousing the crowd with chants like “I will not accept defeat” and “I’m the captain of my ship.”
In a complaint it filed during the peak of Ford’s activity, the SEC summed up his appeal with typical understatement: “He is both engaging and persuasive.” The engaging and persuasive man called