You Can't Cheat an Honest Man - James Walsh [59]
Two or three of the clients asked for their money back. Foos continued to behave suspiciously, taking several weeks to cut the checks. Which promptly bounced.
By early November, the collapse had begun. First a few—and, within days, dozens—of Foos’ clients took their complaints to federal prosecutors. Foos turned his assets over to a bankruptcy specialist on the day before Thanksgiving. A week later, he was forced into bankruptcy court when four investors filed an involuntary bankruptcy petition.
When the scheme collapsed, more than 100 investors lost $7.2 million. In a telling twist, the ones who pressed Foos the hardest weren’t his traditional entertainment people; they were a group wealthy professionals who’d been attracted late in the game by promises of 100 percent annual returns.
In December, Foos had started cooperating with federal prosecutors. But, at a January 1994 creditors meeting, his attorney read a letter from a therapist saying Foos suffered from “clinical depression” and couldn’t attend. Among the disbelieving moans from the angry crowd was a clearly audible protest, “Save us the bullshit.”
In April 1994, the Illinois Attorney Registration and Disciplinary Commission began disbarment proceedings against Foos. In May, after several delays, Foos finally faced his former clients—as required under federal bankruptcy law. Although he apologized for his actions, he often turned testy under questioning. He talked about living under the “daily strain of perpetrating this fraud.” After 1988, “I didn’t expect to get out of it.... I lived in fear of it being exposed for years.”
In January 1995, the Securities and Exchange Commission sued Foos—to keep him out of the investment business for the rest of his life. The SEC asked that he be permanently barred from future transactions, repay his “ill-gotten gains” with interest and be assessed unspecified civil penalties.
In February, Foos accepted a plea agreement with the government in which he admitted that he “retained and used for his own purposes” between $6.8 million and $7.2 million. Four months later, he was sentenced to five-and-a-half years in prison. Foos opened his presentencing remarks by saying, “When a man loses his honor, he’s a dead man. That’s me, I’m a dead man. I chose the coward’s way out.”
Judge Ruben Castillo also ordered Foos to pay $500,000 in restitution and perform 300 hours of community service. The judge placed him on five years of supervised release after he completed his prison term. Castillo went on to say, “You betrayed the [legal] profession, you betrayed your clients and their trust, you did something incredible in betraying your family and ultimately you betrayed yourself.”
Using a Legitimate Business to Build Trust
Some Ponzi perps will do something which only makes sense to an especially avaricious criminal: They’ll set up legitimate businesses to camouflage their schemes. When the schemes collapse, investigators and burned investors are left wondering why someone who could build a real business resorts to theft.
The answer usually has something to do with bad impulses overwhelming good skills. It’s a psychological variation of Gresham’s Law. In this context, the urge to steal money devalues legitimate efforts—which the perp considers only a means to the thieving end.
Or, as one New York prosecutor says, “It’s really amazing how much work some of these [Ponzi perps] will put into their schemes. They’re smart and make a good impression. You can’t help wondering what they could do if they put the effort into honest work.”
Ponzi perps know they have to build at least