Scam alert: Investment fraud on the rise in Florida
By Richard Burnett
SENTINEL STAFF WRITER
June 1, 2009
orlandosentinel.com
Some friends turned John and Betty Manke on to Wealth Pools — a "can't miss" investment, or so the couple was told. Multiple sales pitches and revival-style testimonies eventually wore through their resistance. The Lake County retirees jumped in, to the tune of nearly $10,000.
Two years later, the money is gone and the founder of Wealth Pools International Inc. — Orlando businessman Robert E. Lane — is accused of securities fraud in what federal regulators call a multimillion-dollar international Ponzi scheme.
"We should have known it was a problem," said John Manke, a 77-year-old retired insurance salesman from Oregon. "They always wanted us to bring in more people, and send more money. And they made out like they were all so religious. It was a real hypocritical situation."
Investment fraud has been growing in Florida and across the nation during the recession, regulators say. Complaints about suspicious investment activity more than doubled last year in Florida to 425, according to the state Office of Financial Regulation, which has received another 112 complaints so far in 2009.
The U.S. Securities and Exchange Commission has opened nearly 300 cases of suspected securities fraud so far this year, up 32 percent from last year's pace. And the agency has already obtained emergency orders to freeze the assets of about 30 fraud suspects, compared with only seven at this point a year ago.
For every high-profile case — such as the $50 billion heist perpetrated by Wall Street money manager Bernard Madoff — hundreds of other, smaller schemes are siphoning savings from unsuspecting investors.
"Only days after the big underdog Mine That Bird won the Kentucky Derby, I got an e-mail trying to get me to put my clients in some venture supposedly making money hand over fist in thoroughbred-racehorse breeding," said Roger Johnson, a financial planner with Certified Financial Group in Altamonte Springs. "Some of these things just have to make you laugh. But they think someone out there will fall for it."
And usually, someone does. In April, the SEC seized the assets of a Sarasota hedge-fund manager, Arthur Nadel, and accused him in a securities-fraud lawsuit of masterminding a $360 million investment scheme. Nadel was also indicted on criminal charges by a New York grand jury.
In March, federal regulators said they broke up a currency-trading scheme involving investment brokers in Orange and Brevard counties and a Melbourne-based company, Capital Blu Management LLC. The scheme took in $17 million from about 100 investors, according to a lawsuit by the U.S. Commodity Futures Trading Commission.
In Orlando, Wealth Pools founder Lane recently agreed to settle SEC civil fraud allegations. He faces a repayment order that could total millions of dollars. At one point, Wealth Pools said it had raised $132 million from investors, yet investigators have located less than $3.5 million. Lane denies any wrongdoing.
The increase in investment fraud during the current economic downturn is not surprising, experts say. People are still jittery about the stock market, which remains volatile despite its recent rally. And the nation's banks, still shaken by the credit crisis, are paying meager interest rates on customers' savings.
"You have a lot of people, especially retirees, who are more susceptible to the come-ons that promise a safe, sure thing with higher returns," said Mark Mathosian, investigations manager in the state Office of Financial Regulation. "That has made economic crime a growth industry in Florida."
One of the most common investment frauds is the Ponzi scheme, a cash-flow flimflam that pays early investors' temptingly high returns with some of the money raised from later investors — even as the promoter pockets most of the investors' principal. Such schemes collapse once the flow of new investors stops and existing investors try to get all their money back.
Wealth Pools, for example, took money from investors under the guise of selling them language-tutorial DVDs. Participants were supposed to sell the DVDs and/or recruit others to join the ever-growing sales network. Organizers said the program paid out returns, or "profits," based on the number of sales and recruits an investor generated.
In reality, few of the investors sold any DVDs, said Christopher E. Martin, senior trial lawyer for the SEC's Miami office. "Wealth Pools wasn't based on the sale of a product — nobody cared about the product, really. It was just a ruse for people to make an investment," he said. "It all depended on bringing in new people to put in new money."
That meant Wealth Pools was actually selling people an investment security — a financial instrument subject to federal and state regulations, government officials said. If investors had checked out the company before jumping in, those officials said, they would have discovered that nothing about Wealth Pools or Lane had been properly registered with regulators.
Financial-services officials urge people to call Florida's financial-regulation hotline (1-800-848-3792) before investing in anything. The hotline can provide vital information as investors do their due diligence, said Bill Reilly, the state's bureau chief of securities regulation.
"We can tell you anything that is in the public domain involving a firm, individual or investment product," he said. "Are they registered? Are there unresolved complaints? Do they have any disciplinary action on their record? Getting this kind of information can help people avoid a lot of heartache."
Richard Burnett can be reached at rburnett@orlandosentinel.com or 407-420-5256.
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