Federal Officials Arrest Darren Berg for Wire Fraud, Money Laundering

[00:00:00] Will Johnson: This week on AARP - The Perfect Scam.

[00:00:03] Kenneth Hines: Somebody's always going to be trying to come up with a new scheme. It's just, it's just too much money to be made easily.

[00:00:10] Gerri Walsh: He felt like he was working on a drug case rather than a white collar crime case.

[00:00:15] Will Johnson: Welcome back to the second part of our two-part story about Darren Berg who over the course of almost a decade, convinced hundreds of investors to trust him with their retirement savings. By 2010, some investors were wary of where their money was going, and investigators were digging into Berg's business, The Meridian Group, and what appeared to be a massive Ponzi scheme.

[00:00:37] Will Johnson: Last week joining us we had Gerri Walsh. She is President of the FINRA Foundation, and she joins us once again because she knows a lot about this kind of thing. So thanks for being back once again.

[00:00:45] Gerri Walsh: Thanks for having me.

[00:00:46] Will Johnson: Gerri, before we get into this week's story, you are President of the FINRA Foundation. What does FINRA stand for and what is the foundation?

[00:00:53] Gerri Walsh: FINRA is the Financial Industry Regulatory Authority, and we're a not for profit, non-governmental regulator that oversees the brokerage industry. So anybody that sells a stock, bond, mutual fund, variable annuity, has to be licensed by FINRA.

[00:01:10] Will Johnson: Okay.

[00:01:10] Gerri Walsh: But Congress empowered us to do this work, and we're overseen by the Securities and Exchange Commission. So FINRA oversees the brokerage industry and it believes that one of the most important things it can do to help protect investors is to educate them, and that's where the foundation comes in. About 15 years ago FINRA created the FINRA investor education foundation to help Americans, all Americans build financial capability. And we do that through outreach uh, and through research. Um, we've even done some research with AARP Foundation.

[00:01:47] Will Johnson: You know, last week we heard how Darren Berg built this Ponzi scheme, how he convinced a lot of people who he eventually stole a lot of money, and the one, well one of the major themes running through his story, and we talked about this a little bit in terms of how people are persuasive and convincing, but he was just so dang trustworthy, and he had sort of, a little bit of like sort of an awe shucks thing, you know, like this is not complicated, um, I can take care of this for you, but that quality of his personality made him very successful for a while.

[00:02:20] Gerri Walsh: And that's very comforting. When you have somebody who makes you feel at ease, that's one of the tactics that cons use. They want to become your friend, they want to assert their expertise so that you trust them, so that you don't ask very many questions. One of the best things an investor can do is ask questions and to keep on asking questions. Where is my money? How could I lose it? How liquid is this investment? How does it make money? How does it lose money?

[00:02:48] Will Johnson: I want to stress that people should look for a registered broker.

[00:02:52] Gerri Walsh: Absolutely, and this fellow never was.

[00:02:54] Will Johnson: Well Gerri, bear with us, we're going to get into the second part of the story of Darren Berg and his Ponzi scheme, and eventually what happens and, and where Darren Berg is today.

(MUSIC SEGUE)

[00:03:05] Will Johnson: In 2018, Ciara O'Rourke was living in Seattle and working on a story for Seattle Met Magazine. And she was learning a lot about Darren Berg, his business and his past.

[00:03:15] Ciara O'Rourke: For me, investigating this story, what was interesting was that he did either have a lot of luck or there's something about his personality that enabled him to convince people to look past that, so not look at it, to not dig deeper and to confirm that Darren was who he said he was.

[00:03:43] Will Johnson: Darren Berg was convincing and likeable, but his crimes were catching up to him. Kenneth Hines worked as a special agent for the IRS for 25 years. The Berg case naturally came to his office.

[00:03:54] Kenneth Hines: What we do is, is cases like we'll talk about today, where we have victims that have been either part of a Ponzi scheme or victims that have been defrauded through identity theft, or um, mortgage schemes, investment fraud; fall victim to a whole host of different things that involve someone trying to take someone's money from them uh, illegally.

[00:04:15] Will Johnson: When lawyers and investigators started knocking on his door, Berg seemed to want to help, or at least that was the act.

[00:04:21] Kenneth Hines: Well, as, as he put forward through his attorney was that uh he started a legitimate investment uh firm, uh, you know (inaudible), and what he did was the first few years everything was going great, things were going uh, according to plan, as his plan, or as he was trying to tell us was his plan, and then around '08, '09, when the housing market started to go down and, and had the financial crisis un--, unraveling in the US, he tried to use that as an excuse why he started using later investor funds to pay previous investors, uh, and that as his excuse why the Ponzi scheme started.

[00:04:58] Will Johnson: That's pretty much the definition of a Ponzi scheme.

[00:05:01] Will Johnson: And at the end of the day, is the smoking gun in some respects that you know, if no investments, real investments were actually made with his, with the money that was being given to him, that's proof of the crime.

[00:05:13] Kenneth Hines: In some, there, there are some real investments, it's just that they're, they're not all real investments. You do some, uh to establish the, the, the illusion of, of a viable company, right, but then you just start making things up. And as you bring in more money that you don't invest and you spend, you have to bring in even more money, so you've got to start doing more things. So it just becomes this uh, just snowball effect where it just grows, grows, grows, grows, grows to the point where you can't bring in enough money to keep it going.

[00:05:40] Will Johnson: But Berg seemed to be downplaying any sort of big time criminal strategy. It was more like he had good intentions, made legitimate investments for his clients, but then things went a little sideways. This was far from the truth. Among the hundreds putting money into The Meridian Group was a well-known best-selling mystery writer.

[00:05:59] J.A. Jance: My name is J.A. Jance. I started writing in the early '80s. I write murder mysteries, primarily, and mostly police procedurals.

[00:06:08] Will Johnson: Over time, Jance invested close to half a million dollars with Berg and The Meridian Group.

[00:06:13] J.A. Jance: I never met the man in person. We had our investment advisor, who stood here in our living room and told us what a great guy he was, and how wonderful Darren Berg was doing, and how much fun it was to play golf with him, four months before the whole thing blew sky high.

[00:06:32] Will Johnson: But as investigators went to work digging into his business, Jance and her husband didn't know anything about what was going on with their money. The case was complex and tangled. Berg was pretty skilled at moving his money around.

[00:06:44] Ciara O'Rourke: In some ways this Ponzi scheme is just a Ponzi scheme that investors are giving Darren Berg their money, and then he is using new investor's money to pay back his original investors, or to pay them interest. He is operating all of these different businesses and subsidiary companies and funding his lifestyle. Money is just moving between all of these different silos at such a pace that the case seems like it's a drug case rather than a Ponzi scheme case.

[00:07:16] Will Johnson: But the missing dollar amounts were piling up, and investigators were realizing the astonishing amount of money that Darren Berg stole from investors.

[00:07:23] Ciara O'Rourke: More than 100 million through The Meridian Group.

[00:07:27] Will Johnson: IRS agent, Kenneth Hines, was getting to know many of the investors, now victims of Berg's scam.

[00:07:32] Will Johnson: We talked to an author, you may be familiar with her in Washington State, who, you know, she invested 500,000 dollars. Were there people who invested, others that you're aware of that had invested that much?

[00:07:42] Kenneth Hines: There were some investors that were that high and, and some were a little bit less, uh, but you figure it was 180 million dollars, and there's a lot of investors. Some people lost everything. Investing 500,000 dollars or losing 500,000 was a horrible thing to do. It's just a horrible thing to happen to you. And you know then you look at someone might lost 100,000 uh, invest everything to them. I'm not cheapening what happens to someone who loses 500,000 but if you lose everything, it's devastating. You know, it's just, regardless of amount, right? Uh, and I think that's the impact that sometimes doesn't get the attention it needs to get to in a white collar crime. I think we look at the big dollar amount, you know, we look how much was taken, and then we look at the top investors that lost a lot of money, and then there's, they are devastated as well, and then there's the whole host of people that lost everything, uh, that now can't pay for their assisted living bills, [00:08:42] or have to go out and get a job uh, in the job market because they can't, they can't live. They have nothing to live on, 'cause they lost everything.

[00:08:49] Will Johnson: You know, your point is, is well made, uh, we do, I think, you're right, focus on those you know people that, that again, it's a horrible thing to have happen, but might be able to deal with the impact of it in, in a way that's very different from someone who, you know, a nest egg is all relative, right?

[00:09:04] Kenneth Hines: Yes, exactly. You know, if you, if you lose uh, 10,000 dollars in a bad investment, not even talking about fraud, just you lose 10,000 dollars in a bad investment at 25, you've got time to recover that. You lose 10,000 dollars in a bad investment at 75, your likelihood of recovering that is, is, is not likely, right? It's just, it's all about a, who gets victimized, not one victim is more important than another, it's just, I think when there's a sensing impact, or the impact of the overall fraud, what is the economic impact for the, for the individual person involved?

[00:09:38] Will Johnson: I'm always struck by two things when I interview people about Ponzi schemes. One is that you know, how much harder would it be to go legit and actually invest some of this money over the years into something that would, you know, grow money legally? That's one thing. And then the other is, Ponzi schemes always, there's, there's no real end game, it seems like eventually they're going to get caught, hopefully.

[00:10:00] Kenneth Hines: Um, yes, it's just hopefully they're caught before it's devastating. And in some cases, you know it dries up when the money dries up. When you can't bring people in anymore, and you start missing interest payments because at one point it grows so big, uh, you have to bring in so much money, you just can't possibly do it anymore, and then in 2008, 2009, a lot of people stopped investing in mortgage securities, or mortgage backed securities, because the housing market was tanking. So people were running to other ways. There was uh some studies that show how much money came out of the mortgage industry and went into like bonds or into um, money market accounts. There's so much was going on that people didn't want to invest to that type of investment anymore, so if he's not getting new money, he can't pay the people back that are already there.

[00:10:47] Will Johnson: And there's only so much moving money around and aw shucks-ing his way out of things Berg can do. The police finally put the handcuffs on him.

[00:10:54] Ciara O'Rourke: Prosecutors charged him with 9 counts of wire fraud and one count of money laundering, and he was arrested. And well the judge decided to detain him before trial because they were worried that he would be a flight risk, as did the victims to this Ponzi scheme. They feared that he would um, run, that he would not return whatever money that was still available, but use it for his own escape and livelihood going forward.

[00:11:21] Will Johnson: Like many of the investors who lost a fortune investing in The Meridian Group, the writer, J.A. Jance heard about Berg's arrest on the news.

[00:11:28] J.A. Jance: I found out about it in a newspaper article. It felt like my stomach went through the floor. It was a shock. And my husband and I sat here and stared at one another and said, "Can this be true?" But of course, it was true.

[00:11:43] Will Johnson: As it turns out, prosecutors didn't have to prepare for a lengthy trial.

[00:11:47] Kenneth Hines: Well, he pled guilty, so everything gets wrapped up pretty quick when someone pleads guilty. Uh, even to the court process. Uh, investigations can take uh, years to put something together like this. It, it all, all depends on uh, what was going on, and he was cooperating, he was meeting with the US attorney, he was meeting with the investigators, uh, yeah, supposedly he was helping them with uh tracking the assets, uh, but that wasn't always going well. He wasn't, was he completely truthful or not? That's what uh, the government was looking at, and so was the sentence hearing that was brought up, you know, that they don't think he was completely honest. He was helping some, but they don't believe, might have been completely honest.

[00:12:27] Ciara O'Rourke: He was ultimately convicted of wire fraud, money laundering, and bankruptcy fraud.

[00:12:31] Will Johnson: It was up to a judge to decide Berg's fate. Ciara O'Rourke read letters that Berg's mother and sister wrote to the judge.

[00:12:38] Ciara O'Rourke: Uh, she and her daughter, Darren's sister, also have uh their own testimony, letters that they had sent to the judge, I believe it was, explaining what they thought they knew about Darren, and why he did what he did, and uh, ultimately, they were asking for leniency.

[00:12:57] Will Johnson: Surprising though, in asking for a lighter sentence, Berg's mother didn't put all of the blame on Berg.

[00:13:02] Ciara O'Rourke: She suggested that some of that blame lay with the investors, that it was their greed that enabled Darren to do what, what he did. So there was some apologizing for his actions, and some um, refusing to acknowledge, perhaps, uh what had happened or, or thinking that some other people other than Darren were to blame.

[00:13:26] Will Johnson: Ciara O'Rourke also read the letter Berg's sister wrote that looked further into Berg's past into that imaginary world that Berg created as a child.

[00:13:34] Ciara O'Rourke: His sister wrote that she thinks that his childhood really shaped uh, who he turned out to be, that back when there was this tumultuous household, when their father was um, railing at his children, when there was violence and Darren just seemed to sleep through it, sometimes literally, that his mind was shutting down and that's when it started, and it was too scary for him as a kid to navigate that world and so what he did was he created one, and he invented Rod Taylor, and continued to invent and reinvent himself in the years since.

[00:14:15] Will Johnson: The investors and retirees who lost their life savings got their chance to tell their stories too.

[00:14:21] Kenneth Hines: During sentencing some made comments to, letters to the court where people are going to have to move out of you know ass--, assisted living locations or nursing homes, because they don't have the money to pay that anymore.

[00:14:34] Will Johnson: I mean that's horrible to think about it, that where a family member or someone that you, you know, you were familiar with, to think that they would have to move out of an assisted living home.

[00:14:41] Kenneth Hines: Yes.

[00:14:42] Will Johnson: The judge handed down 18 years in federal prison and ordered Berg to pay back the lion's share of the money he stole.

[00:14:48] Kenneth Hines: He was sentenced, and he was ordered to pay restitution of 140 million dollars, uh, so you know there was, there was, there was heavy punishment for him on this.

[00:14:58] Ciara O'Rourke: The victims in this case felt that that sentence was not strong enough, that it did not uh, honor the loss they felt, and the loss of trust and the pain that they felt, and that it wasn't punitive enough to this person who had um, who had lied for, for years. And that they were collateral as a result.

[00:15:23] Will Johnson: It was unlikely the victims would ever see anything close to the amount of money that had been stolen.

[00:15:28] Ciara O'Rourke: At one point, Mark Calvert estimated that investors could recover between 9 and 20% of the original money he said that they, of the original amount that they had given to Darren. Uh, and more recently, he had, was estimating that it might be as much as 26 to 28% that they could get back, but still a fraction of what they had invested.

[00:15:47] Will Johnson: Darren Berg was sent to a prison in Atwater, California. The story's far from over.

[00:15:53] Ciara O'Rourke: Where Darren was incarcerated in Atwater, California, was not the high security prison that was surrounded by razor wire and had six guard towers surrounding the perimeter, even though I understand that the towers were unoccupied. He was in a camp where about 1200 inmates were serving their sentences, and that camp had minimal fencing and security because the prisoners were considered so low risk, so um, there were basketball courts and the track and field, and the softball diamond, and all of the prisoners were generally required to work, so that could mean serving food in the cafeteria or maintenance at the, at the uh site, working for prison wages. He had been there since 2016, and one day when all of the inmates lined up to be counted, the corrections officers were conducting what's called a standup count, and men must wait outside of the cubicles where they sleep [00:16:53] as the guards tally up and make sure that everybody was there, and Darren Berg was gone.

[00:16:59] Will Johnson: Berg wasn't just missing from the inmate count. He had vanished.

[00:17:03] Kenneth Hines: All I know is I got an email from a former agent that used to work for me, uh sent me an email saying, "Hey, did you hear about Berg escaped from prison?" So, or "walked away from prison." I guess escape sounds like you had a to dig a tunnel or something, just kind of walked away from this one.

[00:17:17] Ciara O'Rourke: I thought, how do people escape from prison, really? Of course you see news items about it from time to time, and often these people are caught, but um, but that he was just able to walk off of the grounds, and that was it? It just seemed remarkable and um, kind of an incredible parallel to what he had done with The Meridian Group, making investors' money disappear, and then all of a sudden just like that, Darren Berg is gone too.

[00:17:47] Will Johnson: I asked Kenneth Hines more about Berg's escape, and what he knows today.

[00:17:51] Will Johnson: And did you, or have you in the past year, I mean not officially obviously, it's not your case, uh but heard, you know, talk or rumors or whisperings of where, of where the heck this guy's gone to?

[00:18:02] Kenneth Hines: Just that he's got money somewhere. That's, that's kind of the one, back and forth between people, he's got money somewhere and that's where he went to.

[00:18:08] Will Johnson: But suffice to say, a guy with money like that has the means to hide out for, in some way or another, for a while.

[00:18:14] Kenneth Hines: Uh possibly, yeah.

[00:18:15] Will Johnson: Possibly.

(MUSIC SEGUE)

[00:18:16] Will Johnson: If you think that Hines seems less than forthcoming about the possible whereabouts of Darren Berg, you're right. This is an active manhunt after all, and while he might not be a dangerous criminal, he is wanted and on the run.

[00:18:28] Ciara O'Rourke: Federal authorities are reluctant to talk about um, what they know about his escape. Uh, the US Marshall Service put out a wanted poster for him, and the Federal Bureau of Prisons alerted the agency to his escape, and so deputies uh, I believe, are still trying to track down him among other fugitives. So, they asked residents in California, in Oregon, in Washington, if they had any information about his whereabouts and asked them to contact him.

[00:18:57] Will Johnson: J.A. Jance has her own theories about how Berg escaped, where he is, and what's happening with the search.

[00:19:03] J.A. Jance: He escaped with some kind of help. And he, I've heard rumors that he's in Cuba or someplace that doesn't have extradition anyway. Well you don't get; you don't get to fly on a private jet. I know something about private jets, and private jets cost a lot of money. He had help, he had money, he had assistance, and they, nobody cared. Nobody's really trying to catch him. Nobody's trying to get our money back.

[00:19:32] Will Johnson: We have to assume that's not the case; that there are investigators on the hunt following whatever leads they have. I asked Kenneth Hines about his personal feelings about Berg's escape after working to put him behind bars.

[00:19:43] Kenneth Hines: My, my personal reaction is, I, I feel for the victims because once they hear something like this, it all again brings up all that bad memory. I think, I think the impact of the victims is, is more important to what I feel personally.

[00:19:56] Ciara O'Rourke: So there are people who think that Darren's going to get bored wherever he is, and pop his head out or want to gloat, or um, show himself. Others thing that there's no way that he's ever going to turn up again. Some people think that he's going to make a mistake, and that is how he's going to out himself. Other people think that if he shows up again, it's because he wants to show up again and there's no way that he could make a mistake. And today, there is just still that mystery about who he is and what he thinks and how much is calculated, how much is folly, and how much is him?

[00:20:35] Will Johnson: J.A. Jance deals with her anger and feelings about the case by writing. Her novel "Clawback" deals with a Ponzi scheme, and she doesn't let the bad guys off the hook.

[00:20:45] J.A. Jance: Well the wonderful thing about rea--, being a mystery writer, is you can get even with people. You know, I think where people who have been um, victimized like this, I know it was good for me to write this story, but it might be good for them to read the story as well.

[00:21:04] Will Johnson: There's a weird Hollywood twist to Berg's story. Along the way, Ciara O'Rourke talked to a former Berg employee. He was able to tell her a lot about the culture of The Meridian Group. He also told the story of a lavish party Berg threw with A-list musicians.

[00:21:19] Ciara O'Rourke: This employee was also uh, witness to a big party that Darren threw. He rented out what was then the EMP Sky Church during uh, an association meeting, and it was an event that he hoped would win over business for his bus company, and he paid Ben Folds and John Mayer to perform at what was a rather intimate gathering. John Mayer later appeared in the movie "Get Hard," and in that movie Will Farrell plays a fraudster, and Will Farrell's character is arrested mid-set when John Mayer is performing at his birthday party. It seems like it's a nod to reality, but I wasn't able to confirm with John Mayer myself.

[00:22:03] Will Johnson: The scene is funny, but there's nothing funny about the millions of dollars and hundreds of victims wondering where Darren Berg is today. People like J.A. Jance.

[00:22:11] J.A. Jance: How can this be? How could this have happened? How could I have been so stupid, and, and you go through all kinds of self-flagellation, but the truth is, what's gone is gone, what's done is done, and you need to pick up the pieces and go on.

(MUSIC SEGUE)

[00:22:31] Will Johnson: Jance admits it's been easier for her to move on than other people, at least financially. Retirees who've gone back to work in their '80s to try to make ends meet. So what can you do? How can you avoid an investment scam like Darren Berg's? Kenneth Hines says there are red flags you can look out for.

[00:22:47] Kenneth Hines: You know it's, it's, I wish there was the silver bullet to take care of this, but there's not. It's due diligence on your part, uh, be careful, you know what kinds of things are being promised to you. Some of the things that I heard from victims that uh, I, Ponzi, Ponzi schemes I investigated, um, was one, one victim said to me, "Well, you know, 20% was a little high, I believe, but if I got just half that, I'd be happy." You know, it's like, you're rationalizing an unrationalizable comment from somebody, so you know and they're like, yeah, I should have realized that, but that's the thing is, you know, you get to know somebody, you trust them, and that's what a lot of victims say, is they got to know the person, they were likable, or an employee for him, or her, was likeable and people like to do business with people they like. And that, and that's, I'm not saying you don't do business with people you like, just to say [00:23:47] you have to be careful. Uh, look behind the numbers. Ask them questions, ask follow-ups. Uh, see what else is going on, see what else is out there. Uh, there's a lot of red flags that you can look for, um, people that say, hey, don't tell anyone else about this, this is a super-secret investment, or if the government hears about this, they'll shut it down and none of us will get our money back. Those are the kind of things you hear people say. Uh, and sadly enough, sometimes when these type of schemes happen, uh, I've gone out and interviewed people and they wouldn't want to talk to me because they were told by the person, hey, once the government's involved, they're not going to let get this money because the government doesn't want you to have this money, but they were just telling them, you know, they were trying to hide their own tracks, and, and then it comes out later that there was a big Ponzi scheme, and then the people want to start talking to the government and start helping the investigators. So there are so many different little nuances to this.

[00:24:41] Will Johnson: And while there are certainly those red flags, when it comes to someone like Darren Berg, it seems that almost anyone can get tangled up in his web of lies.

[00:24:51] Ciara O'Rourke: I think Darren Berg's Ponzi scheme was so successful, because he not only won over the trust of his investors who found him likable, outgoing, charismatic, relatable, everything that they wanted to see in him, but that he also maintained control of everything. He didn't, uh, delegate in a way that would open himself up to risk, that would leave him vulnerable of detection, that his deception was really rooted in uh how much he was doing. And perhaps that led to this sort of um, burst of anger that would happen in the office, that he was doing so much all by himself trying to keep this afloat until one day he couldn't anymore.

[00:25:37] Will Johnson: There are a lot of people who want to find Darren Berg today. I can imagine a wall with a map and clues and leads and agents passing information back and forth. J.A. Jance isn't so sure.

[00:25:47] J.A. Jance: There hasn't been any indication from on, in the uh media here in the Seattle area, where most of the victims were, than anyone is bothering to track that guy down. As for, if you're not, you're not somebody who was personally bilked, it's all water under the bridge. He flew away on a private jet somewhere and is gone for good, and still spending our money. He was, he had that money hidden, and nobody gave a rat's ass about getting it back.

[00:26:26] Will Johnson: All right, I'm back with Gerri Walsh. She is President of the FINRA Foundation, and we conclude our rather shocking story of Darren Berg. You were just telling me that you actually checked to see if he's been caught. We have not heard anything, but you, you looked as well.

[00:26:41] Gerri Walsh: I did, I looked on the website of the Bureau of Federal Prisons, and uh a lot of people might not know, but all of your listeners should be aware that there is a federal inmate locator, and you can look up somebody by name and find out where they are, and it says that he escaped in December 2017, and he's not back in custody.

[00:27:01] Will Johnson: He is not, and where he is, apparently no one knows. There may be some law enforcement who has, has an idea or, or something going on that we don't know about, but...

[00:27:12] Gerri Walsh: Most state uh bureaus of corrections also have uh inmate locators, and in addition, you know, one of the things we talked about last week was that you want to do business with a registered professional and to use Broker Check, FINRA's tool, but you know, you can look up those federal and state prison databases to see whether the person you're doing business with, or thinking of doing business with, has been uh, in the big house.

[00:27:37] Will Johnson: So you could look up Broker Check, and hopefully that would have already covered off any issues of, of prior arrests, but if you want to be really sure, do what you're saying. Do some cross checking.

[00:27:47] Gerri Walsh: Use, right, right-right. And just to clarify though with Darren Berg, he was never in Broker Check, so he doesn't even show up, because he wasn't registered, either by the state or by the Securities and Exchange Commission, or by FINRA to sell investments.

[00:28:02] Will Johnson: Along the way, you have in, in your line of work, uh I'm sure you've talked to a lot of people who have lost money with financial fraud. It is a real tragedy.

[00:28:13] Gerri Walsh: It's a tragedy, it is one of the most difficult things, um, you know, one of the things that the foundation has been working with AARP and the Fraud Watch Network on, is really kind of changing the conversation about victims, because you know, encouraging people to come forward with their story is hard enough, but when they're vilified, or told that they were stupid or greedy, and that that's why they lost their money, the reality is that the profile of investment fraud victims, you know, most of us can look in the mirror and see that profile. It's intelligent, often married individuals who are college educated, who have some knowledge about financial matters.

[00:28:52] Will Johnson: And maybe some money that you've made in your career along the way.

[00:28:55] Gerri Walsh: Especially if they're older and nearing retirement, they've got a nest egg that they can invest.

[00:28:59] Will Johnson: We heard an interesting point, uh that J.A. Jance, the author made in the first episode last week of this story. She lost around half a million dollars and that amount is shocking, but she very graciously pointed out that people might lose $50,000 and that their nest egg. She was able, you know, and is able to build back what she lost. She's a successful author, but uh the amount of money while it gets headlines, doesn't always uh, doesn't always make clear how devastating it's been to people who have lost a certain amount of money that is still everything.

[00:29:33] Gerri Walsh: Exactly, and it's not only the money that they lose, it's the sleepless nights, it's the failed marriage, it's the emotional distress. It's the inability to concentrate. Um, the FINRA Foundation has done some research into the, the effects of fraud, and what we see is that you know people who have been challenged with these losses of money, it's, it's not just loss of the money, they lose faith in themselves. They lose faith in the industry. They lose faith in their fellowman.

[00:30:01] Will Johnson: And you hear about lives really just falling apart? I mean...

[00:30:05] Gerri Walsh: Shattered.

[00:30:05] Will Johnson: Yeah. Health, you mentioned sleepless nights, but you know, I'm sure health is one thing that can suffer greatly when you're worried about your finances, we all know that.

[00:30:14] Gerri Walsh: Especially depression. That's one of the um, the, the consequences of this kind of engagement in a financial fraud.

[00:30:23] Will Johnson: Have you had the, maybe I shouldn't say, had the opportunity or the, the misfortune to uh, talk directly to people who have been the fraudsters, or people who are fraudsters and interviewed them at all?

[00:30:34] Gerri Walsh: We have, um, and in fact, we've, we've done some collaboration with um, Doug Schadel out at AARP Washington State, uh to interview fraudsters and to hear firsthand how they do it, and they will tell us straight out of the gate that they fire every arrow in their quiver at their targets. They will use every persuasion technique and they will change tactics depending on what works, and so if somebody responds to kind of that angry, beating up, don't miss this opportunity, don't you wear the pants in the family, can't you make a decision, you have to make the decision now...

[00:31:08] Will Johnson: Wow, you sound really convincing. You have heard them.

[00:31:11] Gerri Walsh: I have heard them, but sometimes they'll be like, you know what, don't worry. I've got this. Your check is coming next month, your next, your check is coming next week, and you know what, it'll come the next day and then you feel even better about it.

[00:31:24] Will Johnson: Every, every trick in the book, right, they're not going to leave any of that unturned, and so in some cases it's a hard sell and in some cases it's a soft sell, and we should stress, like a lot of really successful scams that last for a while, and make a lot of money, they're in it for the long haul. Darren Berg was in it for quite a long time.

[00:31:43] Gerri Walsh: And clearly a master of persuasion.

[00:31:45] Will Johnson: Yeah. Other Ponzi schemes, maybe they're considered smaller, but like we pointed out, a certain amount of money might be a lot of money, it doesn't, the, the dollar amount doesn't matter, but there are some where people it, it seems are more willing to sort of jump in and then quickly leave town. They're, it's not the long haul Ponzi scheme.

[00:32:02] Gerri Walsh: Right, that happens quite a lot and sometimes it's in a, a much less sexy investment, maybe a promissory note, um, which sounds a lot like a certificate of deposit. It's often pitched that way, and it's pitched as being as safe as that. Um, but that kind of an investment, you're always encouraged to you know roll it over, so that you're not um, ever cashing your money out. Um, you’re just buying a new note, but the reason you're being encouraged to buy a new note is because the con behind it doesn't have the money to pay you back.

[00:32:35] Will Johnson: All right, Gerri Walsh, it's been really helpful having you here telling us all about the world of Ponzi schemes, investment fraud. It is, it is an awful reality for a lot of people out there who have lost uh, a lot of money, and I know there are a lot of investors with Darren Berg who are certainly hoping that someone catches up with him somewhere, wherever he is. Any final uh tips or advice you can give to people who uh, who want to invest some money?

[00:33:03] Gerri Walsh: Absolutely.

[00:33:04] Will Johnson: I mean you should be able to make money, right, and then have like, you know, a successful investment plan.

[00:33:08] Gerri Walsh: And a great way to do it is to work with investment professionals. The truth is that most investment professionals are hardworking, honest individuals who put their clients first. Um, so some of the ways that you can protect yourself are to check out the individual that you are trusting your money to. Make sure that they're registered, either as a broker or an advisor, go to FINRA.org, use Broker Check, that's the tool that we have where you can make sure the person is registered. If they're not, that's a big red flag, but another thing that you can do is make sure you are staying diversified. You always want to start with investment goals, uh and then tailor your investments to those goals, but make sure that you're spreading out your risk by spreading out your investments.

[00:33:57] Will Johnson: But couldn't one fraudster have a very nice diversified portfolio that he's telling you about? He or she?

[00:34:02] Gerri Walsh: Potentially, but most of the cons that we've encountered tend to have one fund, right, or one, one investment. It's, it's a gold coin or it's a real estate fund, or it's some sort of you know, pipeline to you know riches. Um, and so you want to make sure that you've got a mix of stocks and bonds and uh, people often mix that up by investing in mutual funds that are traded on exchanges. Um, and you also want to have an amount of cash. You want to make sure that you've got some liquidity in your portfolio, that you're able to tap the money if you need it now. A lot of these investment schemes, they tell you that it's a long term investment. And that's something, not necessarily to consider a red flag, but make sure that you've got a portfolio that's diversified enough that if you need to take money out now, you can do it.

[00:34:56] Will Johnson: You can do it.

[00:34:57] Gerri Walsh: Yeah, and another resource that might be helpful um, for your listeners is um, we have a, a helpline; it's called the Securities Helpline for Seniors, although we've heard from people ages 18 to 102 years old, um, it's staffed from 9 to 5, Monday to Friday, Eastern Time, um, and it's a toll-free number where you can call if you've got questions about your investment accounts, and I can give you that number.

[00:35:21] Will Johnson: And you're there answering it personally, right, Gerri?

[00:35:24] Gerri Walsh: Not me personally, but my colleagues, like my colleagues who are examiners actually who, who are skilled in knowing what broker dealers are supposed to do to comply with the law, so it's actually a terrific service.

[00:35:36] Will Johnson: Yes, please give us the number.

[00:35:36] Gerri Walsh: Absolutely. It's 844-574-3577, toll-free 844-57HELPS, H-E-L-P-S.

[00:35:50] Will Johnson: Great. Gerri Walsh is President of the FINRA Foundation. Thank you so much for being here this week and last week talking about Ponzi schemes. This particular one and in general, a lot of great advice, thank you.

[00:36:01] Gerri Walsh: Thank you.

[00:36:02] Will Johnson: For information and resources on how to protect yourself or a loved one from becoming a victim of a scam, you can visit AARP.org/fraudwatchnetwork. As always, thanks to my team of scambusters, producers Julie Getz and Brook Ellis, our audio engineer, Julio Gonzales, and of course, my cohost, Frank Abagnale. Be sure to find us on Apple Podcast or wherever you listen to podcasts. For The Perfect Scam, I'm Will Johnson.

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