You Can't Cheat an Honest Man - James Walsh [5]
Amtel Communications, a San Diego, California-based telephone equipment leasing company, had a Great Idea to pitch to investors. The premise was simple: Amtel would sell pay phones to investors for several thousand dollars and then lease them back, locate them and service them.
The investor never had to take possession of the pay phones. He’d just get leases, a description of where the phones were located and a check for $51 per phone each month. The monthly payments worked out to an 18.5 percent annual return.
The pitch worked well...and for a long time. From 1992 to 1996, Amtel took in more than $60 million. But, as early as 1993, salespeople hired to bring in investors were complaining to Amtel management that delays in getting the pay phones placed were causing problems. One salesman wrote Amtel’s sales manager: “Listed below are phones that I sold [recently] for which no phones have been provided. Some of these participants have purchased additional phones since and are apprehensive that we are conducting a Ponzi scheme.”
The salespeople—and the company’s on-time monthly payments— were persuasive enough that Amtel stayed in business for more than three years. The company was placing some pay phones...just not enough to generate income to cover all the investment money it was taking in. This is a common tactic in larger Ponzi schemes: Do some legitimate business in order to ward off the most skeptical inquiries.
By mid-1996, though, the scheme was collapsing. Amtel filed for bankruptcy protection and regulatory scrutiny followed. In October 1996, the SEC and a California bankruptcy examiner determined that Amtel was, in fact, a Ponzi scheme.
Lawsuits were filed from various sides in late 1996. The bankruptcy court allowed investors to vote on a reorganization plan proposed by new management. Although the plan would mean waiting even longer to recoup money, most investors supported it. The alternative was to accept a two-cents-on-the-dollar settlement that would protect the company’s previous management from liability.
Minor Schemes Can Do Major Damage
Ponzi schemes don’t always have to be as big and official-sounding as Amtel. Greensboro, North Carolina, interior designer Cynthia Brackett had a simpler story.
Brackett made as much money selling antique furniture to yuppies moving to the area as she did in actual design fees. The mark-ups on old furniture were plenty rich. Her only problem was that, while she had plenty of clients, she didn’t have much capital. So, she was having trouble getting as many Queen Anne chairs and Chippendale dressers as she needed.
Short-term financing would help her buy the right things at bargain prices from estate sales, dealer close-outs and other sources that required a buyer to move quickly and pay in cash. She’d pay well—as much as 10 percent for a 30-day note.
A lot of Brackett’s story checked out. She did have a design firm that seemed to be doing well. She was charming, attractive and traveled in the right circles. There were a lot of yuppies moving into the area. And banks did shy away from lending to “creative” businesses like interior decorators. So, some wealthy locals invested. However, “no money was used to purchase antiques,” an FBI agent would tell a federal court some time later. “It went to pay back investors and finance her own lifestyle.”
That lifestyle included a Mercedes, a home in Greensboro’s high-end Irving Park neighborhood, a vacation house in nearby Myrtle Beach and tuition for her children at the tony Greensboro Day School.
Like most smart Ponzi perps, Brackett was careful to repay her loans on time and with full interest. She was so conscientious that lenders were happy to increase their loans with her when she came back to them.
But the most impressive