You Can't Cheat an Honest Man - James Walsh [74]
In June 1996, Breeden filed a $1.65 billion lawsuit to recover the money lost by creditors and punitive damages. $650 million of the damages covered the actual money lost by creditors who invested in equipment leases or loaned money to Bennett companies; $1 billion was to punish the Bennetts. Breeden said:
The company was much more than troubled. It was massively insolvent. Apparently, someone decided it was too dull selling leases once, so quite a few were sold to more than one person. [The scheme] was reminiscent of some of the S&L guys who...had to move money around to pay other debts.
Specifically, Breeden’s lawsuit focused on Patrick’s Comfort Suites project at the Vernon Downs Racetrack. Breeden claimed that Patrick had improperly taken $8.5 million from lease-backed bonds to fund construction of the hotel. In August 1996, Breeden added BFG’s former auditors to the lawsuit—and increased his damage request to $2.2 billion.
Breeden said it had taken 72 accountants and staff members 12,391 hours over four months to piece together the companies’ finances. Lawyers spent another 8,723 hours sorting through the wreckage. “It was an accountant’s nightmare and a lawyer’s nightmare, too,” said Mike Sigal, who led the team of lawyers representing Breeden.
As the smoke of a burning business cleared, it became clear that the family involvement applied to all sides. An attorney representing some of BFG’s investors admitted, “My whole family was in it, my girl friend was in it for seven figures.” In an attempt to excuse the involvement he added, “They didn’t think it was a scam. The Bennett family had a good reputation.”
CHAPTER 12
Chapter 12: Secrecy and Privacy
The Supreme Court Justice Louis Brandeis once wrote: “The right most prized by civilized man is the right to be left alone.” This is a noble sentiment that Ponzi schemes often twist on its ear.
In the United States, the law goes a long way to protect people’s right to privacy. And that’s a good thing. The commitment to privacy has some strange and unintended results, though. One of these is that it allows some people to be overtaken by their impulses for a baser mutation of privacy—secrecy.
Secrecy and privacy may be similar, but they aren’t the same. Privacy entails sheltering your own thoughts, acts and possessions from public scrutiny. Secrecy entails sheltering the fact you’ve shared thoughts, acts or possesions you’ve shared with someone from public scrutiny.
The social element of sharing private things marks a secret. And, to be sure, money is one of the most common social elements that turns privacy into secrecy. The urge for secrecy gets a strong boost from capitalist systems. There’s no doubt that anonymity offers some level of protection. This is why old-line moneyed families used to repeat the mantra: “Foolish names and foolish faces find themselves in public places.”
The Foundation for New Era Philanthropy1 Ponzi scheme that collapsed loudly in 1994 relied on a group of “anonymous donors” who would match charitable contributions filtered through the scheme. Several dozen of America’s richest and most sophisticated philanthropists gave money to the scheme. They were so familiar with the no
1 For a detailed description of the New Era case, see Chapter 16.
tion of anonymous giving that they didn’t stop to think—and check out the proposition.
The secrecy that money can breed explains many mistakes, eccentricities and moments of bad judgment.
“People are just strange about their money. They delude themselves, so they bullshit everyone else. You know the type—the big-mouth brother-in-law who’s always talking about how he bought Microsoft at three. But he never talks about all the money he’s lost on crap he bought for 30 or 100,” says one federal investigator who has little sympathy for Ponzi investors. “He doesn’t talk about the losses because he doesn