You Can't Cheat an Honest Man - James Walsh [76]
In this way, politics and politicians are drawn to the same combination of money and secrecy that attract Ponzi schemes and their perps.
The blind trust deed scheme works especially well when the mutual acquaintance is a public official who’s prohibited by law from knowing the details of his finances. A variation on this premise is what got the Clinton Administration in trouble for illegal fundraising leading up to the 1996 U.S. federal elections.
And there are other political stories that connect with Ponzi schemes more bluntly.
In the early 1980s, San Diego County Supervisor Roger Hedgecock was laying the foundation of a campaign to become Mayor of San Diego. His prospects looked good, except for one thing: Hedgecock was encountering serious financial difficulties. Concerned about the effect this might have on his political future, he asked several supporters for advice.
One of his supporters suggested that Hedgecock contact Nancy Hoover, an old acquaintance from local politics. Hoover was the girlfriend and business partner of J. David Dominelli2, who was running a massive San Diego-based Ponzi scheme that claimed to be investing in pre
2 For a more detailed discussion of Dominelli’s scheme, see Chapter 20.
cious metals and securities. Dominelli was spending hard to buy support within the San Diego political and social establishments.
Hoover invested $120,000 in the political consulting firm of one of Hedgecock’s main advisers. Hedgecock also received a number of smaller checks—in the $3,000 to $5,000 range—directly from Dominelli. This money allowed Hedgecock to build the foundation of a political machine.
Between early 1982 and the end of 1983, Dominelli gave Hedgecock and his advisers more than $350,000. This paid for everything from a car phone for Hedgecock to blocks of tickets to Hedgecock fundraisers. On May 3, 1983, Hedgecock was elected Mayor of San Diego.
After he was elected mayor, Hedgecock wanted to make improvements on his home in north San Diego County. He explored several options for financing these improvements, finally deciding that Hoover and Dominelli would buy the house, lease it back to him and pay for the improvements. Contractors started on the work. Then Dominelli’s scheme collapsed.
The deal for Hedgecock’s house was never completed. The contractors working on the house were never paid. A series of lawsuits followed, which resulted in the details of Hedgecock’s fundraising coming to light.
In October 1985, a San Diego jury found Hedgecock guilty on a single count of conspiracy and 12 counts of perjury. The offenses involved violations of local election ordinances and the state laws requiring complete and accurate personal and campaign accounting.
Hedgecock appealed the conviction, which was eventually overturned on a technicality having to do with testimony of several prosecution witnesses. By that time, in the late 1980s, he had gone on to become a popular radio talk-show host in San Diego.
Secrecy Turns Critics into Supporters
Investors who are burned in Ponzi schemes should be the most vocal critics—eager to have some vengeance, if not their money back. They rarely are. As often as not, they defend the Ponzi perps who’ve taken their money. And smart Ponzi perps complete the illogical circuit their investors begin. They imply—though they’ll rarely say—that because their schemes involve the secrets of wealth, they must be built on trust. An investor who is inclined to believe this will be receptive to the pitch, however loopy it may be.
When the SEC first investigated AYM Financial, the New Jerseybased precious metals Ponzi scheme, it met resistance from the trader/ investors in the company—exactly the people the investigation would have helped. One of the investors said that AYM traders had bought in to more than just the company; they imagined themselves aggressive capitalists—the kind of people that small-minded government bureaucrats