You Can't Cheat an Honest Man - James Walsh [82]
Stealing Becomes More Natural than Earning
Another question that burned investors often ask is: “Why did they commit this crime? They could have worked straight and gotten as much money.”
This is a natural but flawed assumption. Yes, many Ponzi perps hang around the rich and famous...and seem to work close to legitimate business. But, in most cases, it’s their fraud that got them even that close.
With a very loose sense of loyalty or obligation, the Ponzi perp is always susceptible to thieving temptations. That’s why so many are repeat offenders. They don’t feel the constraints that most people do. Ponzi perps are usually loners by preference, inevitably drawn toward the action or situation that leads to their break with people around them.
This impulse away from others may be connected with the fact that Ponzi schemes have a certain element of class envy to them. Repeatedly, the perp is someone with notably less education or a weaker financial background than the people with whom he or she lives and works.
In this sense, the scheme may be a slightly-thought-out insult to the relatively rich and mighty.
This is the biggest refutation of the hack screenwriters, magazine journalists and commentators who argue that Ponzi perps are Nieztschean supermen. A Ponzi scheme is the tool of a relatively weak criminal. It’s indirect, takes a while to collapse and is non-violent. And—in the ultimate affront to Nietzsche’s machismo—many Ponzi perps offer whining rationalizations for their crimes, when they come to light.
The weakness and feeling of isolation are two reasons that so many Ponzi perps are comfortable going on the lam when their schemes collapse. The huge 1980s Ponzi scheme Lake States Investment Corp. illustrates the full range of a perp’s loneliness, fear and desperation. Beginning in 1984, Lake States founder Thomas Collins began soliciting customers to invest money into a pool which would be used to trade commodity futures.
One problem: Collins was not registered with the CFTC or any other securities regulator and—consequently—could not legally solicit, accept or pool customer funds. He also couldn’t trade funds on the commodities market. And Lake States never did any legitimate business as a futures commodity merchant—nor did it operate as a legitimate trading pool. Nevertheless, Collins attracted money like a pro.
The scheme went something like this: Lake States maintained an office in Rolling Meadows, Illinois. Inside the office, most of the commodity pool sellers and other employees could watch electronic commodities tickers and call investors. Collins convinced investors to put their money in his commodity pools by showing them the substantial returns early investors were making—without any reported losses. He showed them account statements that seemed to confirm the promises. Existing investors reported no difficulty in withdrawing money from their pool accounts.
To seal the deal, Lake States salespeople would offer investors “Promissory Notes.” They said the notes were a “legitimate way to structure investments to save on commissions.”
Most Lake States investors came into the situation inclined to believe the sales pitch. They were often steered there by friends and relatives. “Investors would get great reports every month and would tell their friends,” said Art Aufmann, a lawyer who represented about 250 investors in a federal lawsuit against Lake States employees. “People would say, ‘Geez, I’m nuts if I don’t get into this.’”
Lake States operated as an individual investor, trading commodities in several accounts at Geldermann Inc., a legitimate trading company. Geldermann received commissions on every trade Collins conducted, and thus had an incentive to assist the Lake States fraud.
Geldermann provided Collins with a desk and a phone at the Geldermann booth