You Can't Cheat an Honest Man - James Walsh [65]
Despite the ostentatious spending, Douglas hadn’t come from poverty. He was born and raised in the suburbs around Milwaukee. His father owned a successful company that made plastic containers for household use. The future Ponzi perp went to good private schools— but he wasn’t a keen intellect. He fumbled his way through several colleges, finally dropping out and marrying his high school sweetheart.
The newlyweds moved to Chicago, where Douglas worked in several local banks while attending night school. He had his first brush with financial trouble in 1980 when, as a commercial loan officer at a community bank, he was fired by supervisors who accused him of stealing a $2,000 cash deposit a customer had left on his desk. The charge was never proved.
Later that year, a grand jury indicted Douglas on charges of theft by deception. In a crude confidence swindle, he’d written two bad checks totaling $99,000 to a former Chicago Bears football player. He pleaded guilty and served 18 months in prison.
On his release from jail in 1983, Douglas took a job as a sales manager for a retail outfit called Lake Shore Computers in yet another Chicago suburb. The job was a chance for Douglas to go straight. But his greed got the better of him. Within a few months, he was running another crude con scam—stealing customers’ credit card numbers and using them to buy computer equipment which he would sell on the black market. Again, the scheme wasn’t particularly smart. Douglas was back in prison for two years in 1985.
A few months after his release from prison in 1987, Douglas landed a job writing software programs for a trading firm that was a member of the Chicago Board Options Exchange. The programs that Douglas was hired to write tracked the firm’s trades and generated client statements. This was considered basic back-office administrative work by the firm; but it was a revelation to the felon. It taught him the operational details of how stock option trading worked.
Though Douglas hadn’t been much of a student at school, he learned enough in six months to embark on a new level of criminal activity. He left the trading company, teamed up with a veteran con man he’d met in prison and started D&S Trading.
Douglas refined his pitch with D&S Trading. He offered investors huge returns through an arbitrage strategy exploiting differences between prices in blue-chip stocks and options on those stocks. He’d learned enough about computer programs and options trading to sound expert. And as one family friend put it, “[Douglas] is brilliant with numbers, so options would really be his niche, and that’s partially why he was so convincing....He really dazzled people because of his command of numbers.”
What sold D&S Trading even more than the technical jargon were the guarantees Douglas made. The firm would receive a management fee equal to 25 percent of monthly profits, which was high by industry standards. The trade-off: Douglas personally guaranteed to cover any losses.
This was a hollow promise, since his net worth was only a few thousand dollars. But it worked. By the middle of 1988, less than a year after he’d started D&S Trading, Douglas had taken in about $6 million from more than 100 investors. Instead of segregating customer funds, as required by law, Douglas kept all of the money in just two bank accounts—a D&S Trading account and one under his name. (This is a common sign that an investment firm is running a Ponzi scheme.)
Like many Ponzi perps, Douglas made great claims of religious piety. Though he was raised a Roman Catholic, he had become an evangelical Christian during one of his prison stays. He used the connections he made through church donations to lure ministers and members of their congregations to invest in D&S Trading and ATS. “He used the cloak of Christianity to lure these investors to their financial slaughter,” one lawyer representing investors would later say.
Almost from the beginning, D&S Trading had problems making