Simon 0:04

Welcome back to Fraud files. This podcast brings you real life case files and forensic insights into a number of white collar frauds, financial crimes and misdemeanours that your host Edward has personally encountered, and in some cases brought to light, during his financial, corporate and business career. He shines the spotlight on both the frauds and the perpetrators. So Edward, in the second part of The Ponzi Nice Guy, what have you got in store for us.

0:33

Well, I will be delving into the files and giving the details behind the fraud and the fraudster.

Simon 0:41

To start with, can you tell us a little bit more about the individual, called Paul for the purpose of the podcast, and his background.

0:48

Sure. During the proceedings, it was mentioned that Paul had a privileged childhood. He had been a student at a leading university, had a stint working abroad, and had set up a number of businesses over the years. Some successful, some not. It would become clear that he couldn't hack it in the world of big business. His defense counsel said he became obsessed with investing, but the prosecution portrayed him as a fantasist.

Simon 1:22

Tell us more about Paul the fraudster and what he did to commit the fraud.

1:26

Paul deceived friends, family associates, longstanding acquaintances, and people who were part of his social circle into investing in bogus property deals, which he said were in locations such as Paris, Manchester, and Hamburg. He also said the funds would be invested in a number of trading schemes, which were fictitious. Paul admitted in the court proceedings that he would invent the bogus deals, get money from an investor, and when the time came to pay the investor, he would convince them to reinvest in yet another made up deal. If he couldn't convince them, he would just find someone else who was willing to invest and pay the initial investor off with that cash. And he used money from new investors to pay fictitious profits to earlier investors. A process described in the case as quintessentially characteristic of a Ponzi scheme. He ran a classic scheme convincing people he knew to put down large deposits for business ventures that didn't exist. He deceived them into believing that he was linked to a number of ventures, but it was all lies. The initial money was not used for the stated investments, but rather to fund his lavish lifestyle and to keep the scheme afloat. Paul held himself out to be an investment advisor. He would give clients exclusive rights to buy or sell properties within a set time at a set price. The prosecution summed up his modus operandi as seeking money from investors on the basis that it would be retained in his deposit account. It would not go anywhere, but that it would be used as leverage to demonstrate his capacity to acquire assets and to acquire options to buy assets that he said he would eventually flip on. But the funds were not retained in the account. Instead, they were used for a myriad of other purposes. From time to time, he paid some of the investors returns using other investors' money. The prosecution team called this grooming.

Simon 3:41

What was the magnitude of the fraud and who were the investors that were duped.

3:46

Over a five year period, Paul stole around 8.5 million from five main victims. With total losses to other investors and creditors potentially doubling that amount. The investors who lost money included an old friend from college days. A friend Paul met on holidays and had remained friends with for 25 years, an individual who was introduced to Paul through a mutual friend, a number of individuals who were introduced to Paul by a financial advisor who was also an old friend of Paul's. And numerous others. As previously mentioned during the court proceedings, Paul referred to his investors as suckers.

Simon 4:33

Were any family members defrauded.

4:35

Yes. To add insult to injury. Paul had also obtained funds from his sister's husband, a wealthy and successful financier. The real deal compared to Paul's deceitful character. Although not one of the injured parties in the criminal action, Paul's brother-in-law had also invested in some of the schemes and had lost money and sued him when it all fell apart. Subsequently, the breakdown of his sister's marriage was deemed to be not unconnected to Paul's deceptions. The court was told

Simon 5:12

What was the impact on some of the other investors.

5:15

During the criminal proceedings, the court was told a little of what those affected by Paul were going through. One individual found it a terrible burden to try to continue in business. Another was unable to provide a proper education for his children. Another had lost a considerable sum of money and was trying to more or less put these events behind him. One investor, a friend of Paul's, took comfort that Paul, by pleading guilty, was not putting them through a lengthy trial.

Simon 5:53

So what did Paul do wih the money that he stole from the investors.

5:56

Well, Paul was a prominent social figure who used his ill-gotten gains to fund a luxurious lifestyle, which included an extension to his upmarket family home, a penthouse apartment, a golfing villa abroad. Extensive luxury travel and holidays, a sports car for himself, an expensive car for his wife, and so on. During the course of the scheme, one investor had transferred 1 million to Paul's bank account, and within two days that million was as good as gone. Paul had spent it on buying an investment property in his own name. Another investor had invested a total of 685,000 in what he thought was an option to buy a valuable property in Paris, but the funds were used to pay some investors to keep them sweet and money for Paul himself. He used some of the money to pay a construction company and a firm of architects who were working on the refurbishment of his house, and he transferred monies directly to his wife's bank account.

Simon 7:04

You say Paul was described as a fantasist by the prosecution team. What did they mean by that.

7:09

Well In order to facilitate his fundraising, Paul often name dropped genuine business people that he said he was connected with in order to add weight to the investment schemes. At a New Year's Eve party, he sat at the same table as a successful businessman. Who at the end of the night gave Paul his business card out of courtesy. They never met or even spoke again, but the businessman became an unwitting tool to extract more money for Paul's Ponzi scheme because he used the businessman's name to persuade other investors to put cash into a bogus business scheme. He even invented meetings with the businessman and reported back to investors how well those meetings had gone. On another occasion, Paul told one of the investors that a major property developer was interested in buying a prominent site that had good planning potential, and he persuaded the investor to invest in it. But that too was a lie. Paul also name dropped various other individuals such as a high profile solicitor and a high profile banker, but in each case, he lied about their involvement. The most poignant betrayal was of his father himself, a prominent businessman whom Paul used to add credence to his fantasy business schemes. For one of the investments, an investor had asked Paul for a guarantee on the sum of over 2 million that he had agreed to invest in a property in Hamburg, and Paul turned to his father for a letter of comfort. He reassured his father that there was sufficient money in his bank account to meet the funds to cover the guarantee, so his father agreed. It turned out that there were no funds in the account. The guarantee that had been presented to the investor unbeknownst to Paul's father was worthless. On another occasion, Paul prepared a fictitious bank statement. Purported to be from a major bank to say that he had in excess of 4 million in a joint bank account with his father. He gave the bank statement to an investor for reassurance, but the bank subsequently confirmed to investigators that there was no such bank account.

Simon 9:29

Can you tell us more about the criminal trial itself. Paint a picture of Paul at the trial. How did Paul plead and what was the sentence imposed by the Judge.

9:38

The judge who presided over the civil cases referred Paul's case for criminal proceedings and compared his actions to a confidence trick. The fraud squad raided Paul's family home taking his art collection and his sports car. His mother put up his bail to get him out of jail, and he was subsequently put on trial for fraud. During the criminal legal proceedings, Paul didn't show much emotion. It is reported that sometimes he looked detached as though the legal teams were talking about someone else. He wore a Smart Navy blazer, gray slacks in an open neck, crisp white shirt. For the most part, he was hunched over a notebook. His spectacles on his nose scribbling down bits of evidence being given about his various offenses and about his changed personal circumstances. During the criminal hearing, Paul's counsel said that Paul believed in his own mind that he would be able to pay back the money, but the money was never paid back. Paul eventually pleaded guilty to 14 charges of theft and deception. He was sentenced to seven years in prison. He was released on parole having served approximately half his sentence.

Simon 11:00

What was the impact on Paul of the conviction and can you tell us more about his fall from grace.

11:06

Yeah, sure. Paul's defense counsel noted that he was shunned. Financially ruined and socially ruined. Following the revelation of the fraud at his sentencing hearing, the gloss was scratched away to reveal a tragedy that went far beyond financial loss. Paul was declared bankrupt. His wife divorced him after the fraud came to light, and he has had limited access to his children. He's estranged from his father. Who has not spoken to his son now for many years, former friends. Some of them duped into investing in his bogus financial schemes, have mostly deserted him. The only family member that attended the criminal court proceedings was his mother. She sat dignified and composed listening to the story of her son's duplicity. The fall of Paul has been cast as a colorful morality tale. A dashing entrepreneur who moved in high society drove an Aston Martin, attended charity balls with his socialite wife, and lived Opulently until this Ponzi scheme collapsed and a life built on deception was exposed. The court heard how after his house of cards had collapsed, Paul went for therapy where he was encouraged to apply his mind to the impact of the events on him and those around him. His counsel told the court, he acknowledged there were things he had done but shouldn't have done.

Simon 12:48

So what are some of the red flags that investors need to be wary of when considering investment opportunities presented to them.

12:55

Red flags would definitely include promises of high

Simon 12:58

returns

12:59

with little to no risk. Lack of transparency about how the investment works, pressure to recruit new investors and promoters who are unregulated. It would also be important to do thorough research and consult with financial professionals before investing. Ask questions. Investigate the facts. Take nothing at face value. Corroborate what you're being told. Be skeptical. Look through the blue sky that is being painted for you.

Simon 13:31

And in conclusion, what are your final thoughts and do you have any warnings to give our listeners.

13:36

Of course, I reflect back on the time I was introduced to Paul at the corporate hospitality event and on our conversation over the lunch, what I would say to others is. Ask yourself, who was I sitting next to and talking to last weekend at that social or business lunch, or on the train or at the last sporting event? Who was the last guy who paid for lunch, who offered me two tickets to the Rock concert? The guy who asked me about my pension, about my business, about my family, holidays and destinations, picture that face, the face, that can disappear tomorrow and take your 200,000 with it, not because it's the face of someone evil, because it's probably just the face of a nice guy. And the next time you're at lunch with a nice guy offering you an investment opportunity, that's too good to be true. Enjoy the lunch, but don't be his meal ticket.