You Can't Cheat an Honest Man - James Walsh [46]
How he planned to use the money is irrelevant...because each time he took money from investors, he put their money “at risk” and left them without a “ready source of recompense.” ...Holuisa did redistribute $8.6 million to many of his victims before his scheme fell apart; but...the money was stolen the day he received it from his victims. Instead of corralling money from a few investors, then skipping town, Holuisa extended his scheme by giving back some money and taking in more. He literally robbed Peter to pay Paul (whom he had defrauded earlier). ...This case is no different than a series of thefts or embezzlements. An embezzler causes loss for the full amount taken, irrespective of his intention to repay.
While many legal experts agree with this dissent, it remains a minority opinion in most judicial circles. The majority opinion—which seems crook-friendly to many wronged investors—holds that Ponzi perps lessen the severity of their crimes by returning part of the money they steal to other people.
Case Study: Robert Johnson’s Peso Scam
In the span of just a few months in 1988 and 1989, hundreds of people—including Oklahoma teachers, Kansas churchgoers and a Texas motorcycle gang—invested in a Ponzi scheme that was supposed to create huge profits by swapping money from U.S. dollars to Mexican pesos and back into dollars again.
The scheme’s main perp, Australian-born Oklahoma resident Robert Leslie Johnson, told investors that he had extensive political connections in Mexico. Using these connections, he said he could buy pesos below the daily commercial exchange rate. Then, he’d convert the money back into dollars at current market rates.
Johnson told people that his plan was profitable; just how profitable was anyone’s guess. He needed more money than he could raise by himself to test the upper limits.
The whole story was bogus. But Johnson’s worldly attitude—and lilting Aussie accent—convinced people he was telling the truth. Political and financial instability in Mexico helped, too.
Initially, Johnson told investors he could get pesos for 5 percent under official exchange rates and that a complete cycle of currency swaps would take about a week to complete. But an annual profit of more than 250 percent wasn’t enough to attract the volume of money his scheme would need. So, Johnson gradually increased his promised returns—to 22 percent per week. At this rate—more than 1,000 percent a year—the money started to flow in.
It was a good thing for Johnson that he could turn on the charm; he’d had a long history of trouble with the law. He’d come to Oklahoma in 1988 from California, where he’d been paroled from prison. But his arrest record dated back to the 1960s. “He was basically a con man,” says one burned investor. “And always had been. I guess most of us kind of knew this. But who could tell? Maybe this was going to be his big strike.”
While most of his currency-swap scheme was a basic Ponzi, Johnson did buy some black market pesos. He’d purchase the currency secretly from Mexican businessmen who embezzled cash from Mexican corporations owned by U.S. companies. These connections—not quite the political movers Johnson’s investors envisioned—sent the pesos to Johnson at a San Diego address. In southern California, Johnson would convert the currency at various exchange bureaus, careful not to draw attention to any single transaction.
He wasn’t very successful. The scheme first caught the attention of the Internal Revenue Service in 1987—just after it started. The IRS initially thought Johnson’s operation was laundering money for central American drug smugglers. But, after watching Johnson for several months, the Feds concluded he wasn’t moving enough currency to be connected to drug runners.
Once the Feds checked out Johnson’s background, they guessed— correctly, as it turned out—that he might be running some kind of Ponzi scheme. But Ponzi perps don’t mean as much to the Feds as drug money