You Can't Cheat an Honest Man - James Walsh [67]
People want to know how I slept nights. It was easy, because I am a winner. I’m goal oriented, and in my mind I’m saying, “One more trade. I can make up the difference. I can be all things to all people.” I tried to trade my way out of my losses.
That statement could be part of a psychological profile (egocentrism, insecurity) as easily as a legal tactic. In any case, it didn’t have the intended effect. Douglas was sentenced to 12 years in prison by U.S. District Judge William Hart, who called the fraud “a cruel crime.”
By early 1995, Scholes had recovered $12 million, consisting mainly of real estate that Douglas had bought with stolen money. Scholes was also trying to recover about $2 million in charitable donations, another $1 million in undocumented personal loans that Douglas had made (including money he’d given his first wife) and some money early investors had taken out of the scheme.
Citing fraudulent conveyance laws that bar giving stolen money to someone else, a federal district court and an appeals court both said the charitable groups had to turn over the contributions. One lawyer involved in the case called the charities to whom Douglas bestowed donations “the real victims,” because they ultimately were “the ones that had to pay the money back.”
But the court ruling was a fitting close to the Douglas story. His greed overwhelmed and obliterated his charitable acts.
CHAPTER 11
Chapter 11: Family Ties
One of the most surprising—but most telling—factors that control the size and shape of pyramids and Ponzi schemes is the involvement of family members. Many pyramid schemes actively encourage investors to recruit family members. This recruitment serves several purposes. It provides an easy source of new investors. But, in a more Machiavellian sense, it co-opts the most likely critics of someone pouring hard-earned money into a scatter-brained scheme.
On the flip side of the family structure, a consistent theme among Ponzi perps is to divorce long-time spouses as the stolen money begins to roll in. A spouse who’s been around long enough often falls into the thankless role of the conscience to his or her significant other. A perp who’s decided to throw morals to the wind will often decide to throw the potentially most incriminating witness out with the morals.
Finally, and most perversely, some families actually seem to cultivate scams as a common activity. These people usually share a cynical view of money and business—passed from a parent or spouse to other family members.
It’s a cliché of the 1990s that many families are dysfunctional. Ponzi schemes offer some of these families the chance to project their eccentricity—and, sometimes, malevolence—on the wider population.
Father-and-Son Ponzi Perps
Sidney and Stuart Schwartz were father and son—but they were also partners in Schwartz & Topper Co., an accounting firm in Nassau County, New York. They also ran STS Acquisition Corp., which set up bridge loans for small businesses and financiers in the midst of mergers, acquisitions or other transactions.
Bridge loans are short-term financing mechanisms that most traditional lenders find too risky to make. For this reason, lenders who are willing to make the loans—most often Wall Street investment banks— make a lot of money from them.
The father and son used their social setting to create a sense of legitimacy in potential STS Acquisition investors. The Schwartzes were regarded as pillars of the community in their section of Long Island; the focal point of their business and social circles was The Old Westbury Club. Sidney was the club officer in charge of membership and former president of his synagogue. (Old Westbury was a “Jewish club,” opened in reaction to other country clubs that excluded Jews as members.) Stuart, with his good looks, wit and gregarious personality,