Since the financial crash in 2008, the Securities Exchange Commission (SEC) has brought dozens of Ponzi scheme cases. Some investors who invested in Ponzi schemes have lost money and gone into bankruptcy. Some people are driven to invest in Ponzis because of greed, not finding other investments where they think they can make as much money. Most Ponzi schemes are similar with promises of guaranteed returns. The promoters end up with most of the money, leaving the investors with little or nothing.
One example is SEC v. Fox, Case No. 11-CV-211 (Filed April 8, 2011). This is a financial fraud case against Brian Fox, Chairman, CEO and CFO of Power River Petroleum International, Inc. The investment was made to Asian investors over a four year period commencing 2004. Fox raised over $43 million by conveying interests in the oil and gas company. Investors were guaranteed an annual return of 9%.
There actually were oil and gas interests, but Fox allegedly enhanced the holdings of Power River by recording in the financial statements oil and gas reserves on properties that the company did not own. He inflated the net realizable value of reserves.
Fox promised not just a return but to buy back investors’ interests. In reality, Fox sold no interests to the investors. The transactions were loans. However, Fox booked the investor funds as revenue in the company’s financial statements. Pre-tax income was misstated on a quarterly basis by amounts which ranged from zero to 2,467%. Assets were misstated by amounts which ranged from zero to 48%.
At first, Power River and Fox paid investors the promised returns from the operations of the oil and gas properties. By mid-2007, operations proceeds failed to match the obligations to the investors. New investment money was used to pay investor obligations. Fox and the company represented in SEC filings that investor proceeds would be used to purchase and develop oil and gas properties. The company ended up filing Chapter 11 bankruptcy, which later converted to Chapter 7 liquidation.
To avoid investing in a Ponzi or New York bankruptcy, care less about return on capital, and more about getting rich slowly.
Before filing bankruptcy, consult an experienced New York bankruptcy attorney.