You Can't Cheat an Honest Man - James Walsh [63]
“There’s a long tradition of ambivalence about ‘protecting’ people who get involved in con schemes,” says another West Coast prosecutor. “You have to be a lot greedy and at least a little stupid to get sucked into a chain letter or Ponzi scheme. If you lose money, that’s the price you pay. You’re not going to be on the top of anyone’s victims list.”
On the other hand, it’s hard to tell someone who’s just lost her life savings that she was greedy and stupid. This is especially true if the scheme involved her family or church.
This is why other law enforcement types give the Ponzi investors a break, drawing an important distinction between greed—which perps and investors both may have—and dishonesty—which usually only the perp has.
Arthur Lloyd, director of investigations and financial risk management with Control Risks Group, says that there are important differences between a greedy person and a dishonest one. He says, “An honest person can still be greedy, and you could fool him. A bank that sees profit in fees may be greedy, but it does not come by the money dishonestly.”
Applying the Greed-vs.-Dishonesty Distinction
In late 1995 and early 1996, an illegal pyramid scheme swept across southern California’s Coachella Valley. All kinds of people got involved—from the country club set in resorts like Palm Springs to working-class families in dusty desert towns like Cathedral City and Indio.
Most believed the scheme, known as “Friends Helping Friends” and the “Gift Exchange,” was no more dangerous than an office football pool. But a number of lower-middle-class people invested thousands of dollars that they couldn’t afford to lose.
The scheme’s participants rented banquet rooms in local hotels to hold their meetings—and recruiting campaigns. The meetings had the feel of a pep rally. As players forked over $2,000 in cash, a hundred-dollar bill at a time, giddy participants shouted aloud: “One hundred! Two hundred....”
Charts decorated with foil stars showed the structure of four-tiered pyramids: eight places on the bottom, then four, then two, then finally one at the top. When the bottom eight people each paid $2,000 to the person at the top, the recipient “retired,” the pyramid split in two and everyone moved up a level. Eight new participants then had to be recruited to sustain each new pyramid.
“It was amazing how much these people were motivated by greed,” said one undercover police officer who attended several of the meetings. “These were supposedly upper-crust people acting like junkies. Screaming and whooping for the money.”
The people running the meetings seemed to understand that the scheme had a problematic relationship with the law. Promotional material handed out at the meetings touted the scheme’s supposed legality. One brochure said vaguely and rather lamely that a player’s neighbor who was “a judge” had looked at the plan and concluded, “Go for it!”
Players were warned to pay “all appropriate income taxes” on their profits from the pyramids. Brochures announced an ending date of December 31, 1996. By that date, new players would be “weaned off.” This deadline, the promoters said, made the scheme legal.
Even if it were legal (a big if), the scheme wasn’t any more financially sound than any other pyramid or Ponzi scheme. It collapsed during the summer of 1996.
People at the top of the pyramid had taken out as much as $100,000 while people at the bottom lost between $5,000 and $6,000. Of more than 1,000 people who allegedly exchanged an estimated $1 million during the scheme’s lifespan, nine were eventually indicted by a Riverside County grand jury. They were charged with enticing people to pay money into an endless chain. “Many Riverside County residents lost thousands of dollars