White Collar: Ponzi Schemers Usually Target Closest

Many if not most of the Ponzi schemes that have recently come to light appear to have targeted individuals or groups close to the scheme perpetrators. Even Bernard Madoff targeted wealthy individuals and philanthropists with whom he was well acquainted. In particular, smaller Ponzi schemes most often target individuals whom the schemer knows or who are part of an intimate group to which the schemer also belongs. The targets of the fraud are often friends, family, neighbors, members of the same church, students at the same school, and/or persons of the same ethnic background. Such frauds are also known as "affinity" frauds since the schemer has some affinity to or with his/her victims.

A recent New Jersey case illustrates the point. Marcia Sladich is a mother of four whose husband is a teacher. Sladich was a ticket collector at professional sports arenas in the Meadowlands in New Jersey, including Giants Stadium. In her spare time she operated a Ponzi scheme between 2004 and 2007. In that time, Sladich raised more than $15 million from neighbors and members of her church. She promised to invest the funds in risk free real estate investments and to double the investments within a year. Instead, she pocketed most of the money and paid the early investors with monies obtained from later investors, a classic Ponzi scheme. Sladich used the ill gotten gains to make real estate investments, but not the kind anticipated by her investors. She use monies to buy property in Florida and Brazil in her name and the names of family members. Sladich also used the stolen funds for numerous personal expenditures. A New Jersey federal court judge has sentenced Sladich to 70 months in prison for her scheme.

What is most striking about Sladich's fraud is how amateurish it was. Some of the clauses in the investment contract were incomprehensible gibberish. Yet, those close to her willingly invested their money. The important point is probably that the victims trusted her because of this close association. They were her neighbors and fellow church members. In fact, some of the victims from her church urged the sentencing court to show leniency to Sladich.

The lesson to be learned from this and other such affinity schemes is that vigilance and due diligence are necessary before making any investment. It just as important if not more so to investigate an investment proposed by a close associate as opposed to one offered at arms length.

For more information about the Sladich case, please see The New York Times, January 14, 2010, http://www.nytimes.com/2010/01/14/nyregion/14towns.html.