You Can't Cheat an Honest Man - James Walsh [6]
By 1991, when the scheme collapsed, Brackett owed almost $1.5 million to more than 60 investors. In the early part of that year, Brackett had hit the wall. She’d run out of swells willing to loan her more money. Her checks started bouncing and her company declared bankruptcy.
In May 1995, the 46-year-old Brackett pleaded guilty in a Greensboro federal court to one count each of mail fraud and tax evasion. The judge threw the book at her. She was sentenced to 30 months in jail—the maximum time allowed under federal sentencing guidelines.
Ponzi Perps are a Distinct Type
How was Brackett able, single-handedly, to keep her fraud going on for more than five years? As we’ll see through the course of this book, it takes a definite type of personality to organize and execute a Ponzi scheme. Unfortunately, these people usually combine two key characteristics: They’re persuasive and they have few scruples.
Joshua Fry owned a small investment advisory firm near Baltimore, Maryland, called Stock and Option Services Inc. He impressed clients with detailed explanations of the program he’d developed for investing in the volatile derivatives markets. He was also witty and charismatic.
Fry said he had a method for maintaining the profitable upside of derivatives investments while reducing the downside risk. In the years before derivatives investments destroyed the prestigious British bank Barings and wounded giant American consumer products maker Procter & Gamble, this talk was convincing. Nearly 200 investors gave Fry a total of more than $5 million. “There’d always be some risk, but he said he had it down to no more than what you’ve got buying [stock in] General Motors,” said one investor.
In fact, there was no risk at all...because Fry wasn’t buying any derivatives. Rather than investing the money in an ingenious investment program, he spent indulgently on himself. He used more than half a million dollars to start a stable of race horses. He spent almost that much in Atlantic City casinos. (Like many Ponzi perps, Fry loved to gamble and usually lost.)
Throughout the scheme, Fry kept a jokey attitude that disarmed doubters. The vehicle that he used for collecting investors’ money was called the GTC Fund. Fry would happily tell investors that “GTC” stood for Good Till Canceled or Gamblers Trading Consortium.
As often happens in these situations, the insouciant smirkiness made Fry all the more convincing. Who else but someone who knew what he was doing would treat serious money so unseriously?
In the end, the joke was on Fry’s investors. During 1993, dividend checks to investors started bouncing. Angry investors called state authorities who promptly got a court order freezing Fry’s assets, both personal and corporate.
Fry fled, leaving a note which said—in shades of his old form—that he was going to a place where “the weather will be warm and the primary tongue one other than English.” But, again like most Ponzi perps, he didn’t run anywhere exotic. He was arrested in Cincinnati 14 months after he’d left Baltimore.
Fry pled guilty to four counts of theft, securities fraud, lying to the Maryland securities commissioner and willfully failing to file a tax return. In early 1995, he was sentenced to eight years in state prison and ordered to pay restitution of $3.8 million to his investors.
State law enforcement officials seized a little less than $1 million in various assets under Fry’s control. They doubted there was much of the GTC money left.
But the state couldn’t keep an ambitious felon down. Less than a year after Fry moved into a Maryland prison, he posted his resume on an Internet Web site that offered fee-based financial advice. For an annual fee of $500, he would teach investors the intricacies of the stock options markets.
The posting made vague reference to “an unfortunate event” in which a client had defaulted on several hundred thousand