Monday, May 27, 2013


Nevin Shapiro

Another reason why you must identify possible Ponzi schemers banking with you early on; they tend to lie on the witness stand to improve their chances at sentencing, meaning that their perjured testimony could convict innocent parties, whilst the Ponzi enjoys a reduced sentence, and other benefits.

Nevin Shapiro, whom we have covered extensively on this blog*, is presently serving a 20-year sentence for securities fraud, in a $900m Ponzi scheme; he has now admitted that, during his testimony against the owner of a Miami money service business, he committed perjury. The businessman, Juan Rene Caro, was sentenced to an 18-year sentence in 2009, whilst Shapiro received immunity for his role. Shapiro's own criminal case came a year later, in 2010.  More recently, it was revealed that he cooperated with the NCAA, in its internal investigation into corruption in college sports at the University of Miami. 

T-shirt marketed after Shapiro's testimony

Shapiro has now sent a letter to the Court admitting his misconduct, and has also accused his former criminal defence attorneys, both ex-Federal prosecutors, of knowingly allowing him to lie on the witness stand. Shapiro has filed a Florida Bar complaint against his former counsel. Lawyers who represent Ponzi schemers can find themselves later on the receiving end of professional misconduct, when their client, post-sentencing, and desperately seeking a sentence reduction, lashes out at his counsel, on a wide variety of grounds. Perhaps attorneys should better weigh the risks of representing Ponzi schemers, before undertaking to represent this particular variety of fraudster, lest they live to
regret it later.

The facts represent a casebook illustration of the importance of identifying, and exiting, any client whom the evidence confirms is operating a Ponzi scheme, lest you later get drawn in, due to lies told by your client, who is seeking to save himself from the consequences of his acts, when the long arm of justice descends upon him. 

If several of these red flags are present, they may help you identify a Ponzi scheme in progress:

(1) Was the client's atypical business success on the fast track, rather than over a period of time ? Is "instant" success unknown in the client's business or profession ?

(2) Is the heavy cash flow supported by payments for customary business operating expenses, costs and are there identifiable customers  ? 

(3) Are the client's principal officers keeping the long hours, and supreme effort, typically required by achieve such success ?

(4) Is the client's actual business activity commensurate with the income ?

(5) Is the client flamboyantly spending money, rather than reinvesting it into the business ? Is money going into offshore financial centres ?

Though some of these red flags may indicate merely a successful business, the presence of a number of them could mean Ponzi scheme.

Remember, always seek the expert advice of your outside bank counsel forthwith, if you suspect that a client banking with you is engaged in a Ponzi scheme.
*Published January 24,2013, Jan. 25, 2013, February 1, 2013.

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