posted on: Friday, June 12, 2009

Gary Snyder

About a decade ago, we were in the midst of unraveling one billion dollars of fraud as a result of two of the largest Ponzi schemes in the history of the charitable sector. In the intervening years we have seen the pyramid plans explode and affect the nonprofit sector far beyond anything anyone expected in 1999. Few lessons were learned.

The nonprofit Baptist Foundation of Arizona and the Foundation for New Era Ponzi schemes, coupled with bad taste that grew out of the American Red Cross and United Way’s handling of September disaster funds, caused a public outcry for change.

The for-profit Enron and Adelphia scandals joined in the public’s calling for strengthening corporate ethics and nonprofit responsibilities. The public pleaded for more accountability in how public and private institutions husband their resources. They were simply asking for good stewardship and some discipline.

Since then, the public and private sector---the nonprofits as well as the for-profits alike---have had a challenge defending their reputations.

Enforcement and regulatory agencies were ill prepared to face the onslaught of what was to come. As recently as a few decades ago, most Ponzi schemes were relatively small. The Washington Post notes that they have grown exponentially. The FBI has almost 500 open Ponzi investigations nationwide -- up from about 300 in 2006. Law enforcement officials with other agencies have noticed similar trends, and authorities said they expect to turn up many more cases in coming months. As the economy and the financial markets went into a nosedive, Ponzi operators couldn't find new investors to keep their fraud apace. Investors began demanding for their money and turned to law enforcement to get it.

The godfather of the Ponzi schemes is that which Bernard Madoff perpetrated. Estimates suggest that Madoff wiped out a generation of Jewish wealth and philanthropy resulting in several hundreds of millions dollars of much needed services lost. (See previous article on religious-related Ponzi schemes)

Madoff’ $65 billion fraud was just one of many that either used nonprofits as part of their ruse or had a direct effect on a charity.


• In the mid 1990’s more than 11,000 people, predominantly elderly, were caught up in an opportunity to invest in the Baptist Foundation of Arizona. It cost investors about $590 million. The BFA had a cozy relationship with its legal counsel as well as it accounting firm with both party to the hoax. In June, the appeal court upheld the perpetrators convictions.
• As early as 1993, the Foundation for New Era was rolling with more than $400 million in investor’s money but victimized the entire lot, including universities, museums, Christian organizations, churches and colleges. In addition, this Ponzi scheme initially stumped regulators (including PA’s attorney general) and securities firms with virtually no one looking at its IRS Form 990.

Here are some very recent Ponzi schemes (it isn’t small potatoes!):
• The Thomas D. and Elizabeth S. Hooper Foundation were totally drained of its assets by an $80 million Ponzi scheme by Joseph Forte who recently pleaded guilty
• The Alexander Dawson Foundation had entrusted $13.5 million to Mark Bloom (North Hills Management) only to find he used the money to purchase a $5.2 million Manhattan triplex and $300,000 for his daughter’s bat mitzvah.
• Two Fort Lauderdale, Fla., attorneys, one of whom was chairman of the University of Florida Law Center Board of Trustees and the Fort Lauderdale Chamber of Commerce's downtown council, were indicted in a nearly $1 billion Ponzi scheme known as Mutual Benefits. They fleeced the terminally ill, elderly and people with AIDS.
• A Los Angeles lawyer was in-house counsel for an elaborate real estate Ponzi scheme in Orange County that conned $52 million from mostly elderly investors.
• Two California men ran an $80 million Ponzi scheme promising Korean-American investors a 36-50 percent return.
• Two arrested Northern California men steered proceeds to senior care and assisted living facilities with $200 million “callously swindled” in a Ponzi scheme, according to the state attorney general.
• Playing on a relationship with the CEO of United Way (Charlotte) and as a former employee, she took in about $11 million in a Ponzi scheme defrauding 200 investors, many of them elderly. She pleaded guilty. The United Way was not involved.
• Using members of their church--- Church of Jesus Christ of Latter-Day Saints in Lake Arrowhead (CA)--- as investors and leads the husband and wife Tuckers got $31 million in its Ponzi scheme.
• Terence Mayfield defrauded his fellow parishioners at the Tom’s River (NJ) The Church of Grace and Peace of more than $1 million through two real estate investment Ponzi schemes.
• Northern Californians Anthony Vassallo and Kenneth Kenitzer orchestrated $40 million investment fraud many of whom he met through Vassallo’s church in this classic Ponzi scheme.
• Targeting members of the Chinese-American community in Dallas and in California, Weizhan Tang, a Canadian, defrauded investors of up to $75 million with his and his partner’s Ponzi scheme.
• Dennis Bolze of Gatlinburg who operated a commodity pool in a manner akin to a Ponzi scheme took in up to $21 million from about 100 investors, nearly half of whom live in Europe or other places outside the U.S. some of whom were Foundations.
• Paul Greenwood and Stephen Walsh who ran WG Trading Company LP and Westridge Capital management Inc. of Connecticut and California left little of the nearly billion dollars that were invested by mostly of charitable and university foundations, and retirement and pension plans. The University of Pittsburgh and Carnegie Mellon University, have sued the defendants seeking to recoup the $114 million they invested in the funds.
• Clelia A. Flores who operated a $23 million investment scheme targeted at California’s Hispanic-American community. She solicited investors through word of mouth at churches and others places throughout the Hispanic- American community.

The effect of these scams cannot be overstated. As corruption in the charitable sector skyrockets, the confidence in the nonprofit sector has sunk to new lows. The exploitation of trust and hope has lead to devastation for the victims. Confidence is becoming an increasingly hard commodity to recapture in these troubling times.

Gary R. Snyder is the author of Nonprofits: On the Brink. He is a frequent lecturer and author of articles in numerous publications and blogs. His email is gary.r.snyder@gmail.com; website: www.garyrsnyder.com, phone: 248.324.3700.