Department of Commerce & Consumer Affairs
Business Registration Division
Office of the Securities Commissioner
Investor Education Program
12/28/09
Investment Fraud:
The Ponzi
Scheme
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
What is a Ponzi Scheme?
 The “Ponzi Scheme”,
named after the 1920’s
swindler Charles Ponzi, is
a ploy or a fraudulent
investment operation
where earlier investors are
paid with funds given by
subsequent investors.
Source: NASSA Raid Response #2: Madoff – A 21st Century Ponzi Scheme
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Understanding a Ponzi Scheme
Ponzi
Promoter
Investor A
invests $
Source: NASSA Securities 101: Handbook For Law Enforcement Officials
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Understanding a Ponzi Scheme
Ponzi
Promoter
Investor A
invests $
Investor B
invests $
Source: NASSA Securities 101: Handbook For Law Enforcement Officials
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Understanding a Ponzi Scheme
Ponzi
Promoter
Investor A
invests $
Investor C
invests $
Investor B
invests $
Source: NASSA Securities 101: Handbook For Law Enforcement Officials
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Collapse of a Ponzi Scheme

As the number of total investors
grows and the supply of
potential new investors
dwindles, there is not enough
money to pay off promised
returns and cover investors who
try to cash out.

The scheme starts to collapse
with investors losing all or most
of their investment.
Source: NASSA Raid Response #2: Madoff – A 21st Century Ponzi Scheme
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Burst of a Ponzi Scheme
$$
$ $$$
$ $

The Ponzi bubble bursts when
the con artist simply cannot
keep up with the required
payments.

In many cases, the promoter or
con artist has spent the
investment money on personal
expenses, depleting funds and
accelerating the bursting of the
bubble.
Source: NASSA Raid Response #2: Madoff – A 21st Century Ponzi Scheme
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
How to Protect Yourself Against
Ponzi Schemes
 Beware of promises of
unrealistic returns.
 Diversify – everything.
 Don’t rely on reputation or
word of mouth alone.
 Understand your investments.
Source: NASSA Raid Response #2: Madoff – A 21st Century Ponzi Scheme
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
How to Protect Yourself Against
Ponzi Schemes

For large investment schemes, ask who
the auditor is and check out the auditors
on the internet.

Check registration and background of
individual selling the investment by
contacting the Securities Compliance
Branch at 586-2722.

Report investment fraud by contacting
the Securities Enforcement Branch at
587-2267.
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Red Flags for Ponzi Schemes

The investment is exclusive for “only” a
special group of people.

Poorly written information on the
investment product and the business.

Vague or overly complicated explanations of
how the business runs and how money is
made.

Investments promoting no downside or risk.
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Red Flags for Ponzi Schemes

Pressure to sign now and get your copies
later.

High or unrealistic returns in a short
period of time.

Not registered with the State Office of the
Securities Commissioner Compliance
Branch.
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Recent Ponzi Cases in Hawaii

Billion Coupons, Inc. (BCI)
–
–

WeCorp Inc.
–
–

Marvin Ray Cooper
$3.9 million
Stuart William Jones & Payton Jones
Lowe
Over $2.2 million
The Swiss Group
–
–
Joseph W. Sullivan
$8.1 million
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
How We Can Help
DCCA Securities Branches:
1. Regulate
Call 586-2722
To check on your broker/adviser registration
2.Protect
Call 587-2267
To report securities fraud (Toll Free) 1-877-477-2267
3.Education
Call 587-7400
To request educational information and presentations
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Beware
Charles Ponzi
Bernie Madoff
Who’s next?
$10 million
$65 billion
How much?
1920
2008
When?
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program
Contact Information
DCCA Office of the Securities
Commissioner
335 Merchant Street, Rm 203
Honolulu, HI 96813
Office Hours:
Mon- Fri/7:45am – 4:30pm
Website:
www.investing.hawaii.gov
To report investment fraud call our Scam Line:
587-2267 or Toll Free 1-877-447-2267
State of Hawaii DCCA, Office of the Securities Commissioner – Investor Education Program