If
It’s Too Good To Be True… Massive Ponzi Scheme Proves Age-Old Adage
If a respected member of your community
offered you an investment opportunity, you might consider it. Especially if
it’s a man of the cloth.
For nearly a decade, Martin Sigillito—a
bishop in the American Anglican Convocation and a St. Louis attorney—convinced
200-plus people to do more than just consider it: they actually entrusted him
with their money to invest in a financial venture. But this venture turned out
to be an old-fashioned Ponzi scheme, and in April of this year, Sigillito was
convicted of leading a conspiracy that swindled $52 million from victim
investors.
How the scam began. In late 2000,
Sigillito opened a law office but didn’t actually practice law—instead, he
advertised his “international business consulting services.” One of the
“services” he offered was participation in the British Lending Program (BLP),
transformed by Sigillito into a Ponzi scheme. Through the BLP, investors could
“loan” money to a real estate developer in the United Kingdom for short periods
of time, mostly one year, at high rates of return—between 10 and 48 percent.
This real estate developer, according to
Sigillito, had a knack for spotting undervalued properties he could flip for a
profit, had options on land that would become valuable when re-zoned, and had
inside connections with British authorities. It sounded like a win-win for
investors.
Unfortunately, this British developer
was not the wunderkind Sigillito made him out to be—he was just another link in
the criminal conspiracy.
How did Sigillito convince his investors
to part with their money? He exploited his personal ties to people and
particular groups he was affiliated with—like his church, social clubs,
professional acquaintances, family, and neighbors—in a technique known as
affinity fraud. He also held himself up as an expert in international law and
finance and claimed he was a lecturer at Oxford University in England (when in
reality he had simply taken part in a summer legal program at Oxford).
Sigillito, who also conspired with
another American attorney, insisted that his investors’ funds initially be
placed into his trust account, from which he would take exorbitant fees for
himself and his co-conspirators. Even though he told investors he would then
transmit the money to the U.K., Sigillito actually kept most of the funds in
one or more American bank accounts he controlled.
How the scam ended. Eventually, an
increasing number of investors meant increasing payout requirements, which
resulted in the BLP making late interest payments or missing interest payments
all together. Then investors began clamoring to withdraw their funds. And
finally, Sigillito’s own assistant became suspicious of his activities and
contacted the FBI.
The takeaway from this case? Fully
investigate any investment opportunity before handing over your hard-earned
money—see our sidebar for tips on how to avoid being victimized.
How
to Avoid Investment Fraud
- Don’t believe claims that there is no
risk—there is always risk in any investment.
- Be careful of any investment
opportunity that makes exaggerated earnings claims.
- Get all details about an investment
opportunity in writing.
- Steer clear of “offshore” investments.
These are often promoted as a way to avoid taxes, but you may still be liable
for taxes, plus the investments can be very risky.
- Consult an unbiased third party, like
an unconnected broker or licensed financial advisor, before investing.
- Take the time to check out investment
offers by contacting your state’s securities regulator.
- Never put all of your “eggs”
(investments) in one basket.
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