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Ponzi Scheme Protection

As financial markets fluctuate, fraud risk rises

by Sid Kirchheimer, AARP Bulletin, May 21, 2018

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In a time of market turmoil, a "don't miss out!" mind-set creates more potential victims to Ponzi schemes.

Tony Decillis’ initial exposure to a $13 million Ponzi scheme, he says, was through an endorsement by his then-favorite radio personality. 

Decillis, 72, was a regular listener of  Tampa-area talk show host Drew Garabo. “Each day, Garabo would be promoting this investment. He said, ‘You get a minimum 12 percent return on your money, no matter what. It’s the greatest.’ ”

Turns out, it wasn’t. Despite receiving regular statements showing double-digit gains, “I learned my money was gone — or, more likely, never invested,” says Decillis, one of at least 119 people whose retirement savings funded a lavish lifestyle for Patrick O. Howard, head of Dallas-based Optimal Economics Capital Partners, according to the U.S. Securities and Exchange Commission (SEC). 

“I never would have gotten involved in this scam if it wasn’t for the personal endorsement of Drew Garabo,” says Decillis, a retired car dealership service manager who lost $51,000. Neither Garabo nor radio station executives responded to our questions.  

A Ponzi scam is a form of fraud in which money from new investors generates returns for early investors, creating the false sense that everyone is profiting — right up until the scheme collapses. The scam was around long before the 1920s, when it took its name from a con man named Charles Ponzi. 

In a time of market turmoil, a “don’t miss out” mind-set creates more potential victims. Plus, today there is a new twist to this old scheme. “Finding targets used to come mainly through mail and phone. Now social media is a hotbed for investment fraud,” notes Lori Schock, director of the SEC’s Office of Investor Education and Advocacy. 

Here’s how to protect yourself.

  • Do your homework. Only 20 percent of investors ever do a background check on brokers or products before buying. Some good starting places are the SEC’s investor.gov (800-732-0330) and the Financial Industry Regulatory Authority’s brokercheck.finra.org (800-289-9999). 
  • Look at the investor or firm. Check out the SEC’s EDGAR database for free corporate information, the fee-based pacer.gov to search federal lawsuits and bankruptcies, or your local courthouse for scams by area predators. 
  • Run from red flags. Language like “risk-free,” “guaranteed returns” and “everyone is doing it” should scare you off. 
  • Be careful even in “safe” places. Churches, country clubs and community organizations are happy hunting grounds for those pitching Ponzi schemes. Rely on research over referrals from friends and relatives. 
  • Don’t be fooled by credentials. Those letters after the names of brokers and investment counselors can be meaningless. Some are outright fakes, and some are gained by paying a fee or taking a short class. 
  • Don’t be starstruck. Celebrity endorsements don’t mean an investment is legitimate. If you have questions or need to file a complaint, call the SEC at 800-732-0330. Or reach out to FINRA toll-free at 844-57-HELPS, or the North American Securities Administrators Association at 202-737-0900. If scammed, alert your local police, district attorney and state attorney general. 

Sid Kirchheimer is the author of Scam-Proof Your Life, published by AARP Books/Sterling.

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