April 2018

Roughly 7,000 victims in a Ponzi scheme perpetrated in the UAE recently had their day in court, to an extraordinary result.  Sydney Lemos and Ryan D’Souza, respectively the owner and senior account specialist of Exential Group, were sentenced to over 500 years in jail each, generally at a rate of 1 year per individual case brought against them.  By way of comparison, Bernie Maddoff, organizer of the largest Ponzi scheme in history at an estimated $65 billion, received a 150 year sentence.

Exential Group promised investors annual returns of up to 120% on their individual $25,000 investment contracts, purportedly invested in foreign exchange markets.  Profits were initially paid to early investors to maintain the appearance of success and induce continued investment, but payments eventually ceased entirely.  It is now known that the invested money was largely transferred to an Australian brokerage house owned by Mr. Lemos’ wife (who was also sentenced in absentia).

The scheme in many ways followed a typical Ponzi scheme blueprint (as described more fully in this related article on avoiding Ponzi schemes):

  • Promises of excessive investment returns at low risk
  • Use of complex jargon and descriptions of investment strategies that investors do not fully understand
  • Reliance on social networks such as work connections and church congregations to enlist new investors
  • Encouragement to borrow additional funds to invest further and take advantage of this “opportunity”
  • Excuses involving regulatory tie-ups and offers of incentives to stay invested when return funds are requested
  • Frustrated investors who have been denied repayment contact regulatory authorities

Although certain investors expressed their hope that the criminal conviction would lead to a recovery of at least some of their contractually promised profits, that is highly unlikely.  Ponzi victims are often lucky to recover a portion of their investment but generally cannot recover promised profits because such profits do not exist.  In a Ponzi scheme, investment returns achieved by earlier investors are not funded by real gains, but by using later investments. The scheme can continue so long as new investments arrive in sufficient amounts, but is destined to ultimately collapse when the fraud can no longer sustain investor requests for payouts.

In the U.S., not only are Ponzi investors generally not made whole on their agreements, but those early investors who were paid profits before the collapse are not as lucky as they might seem.  Those who have obtained net payouts in a Ponzi scheme are known as “winners”.  Subject to the statute of limitations, a court-appointed receiver or bankruptcy trustee can attempt to clawback a winner’s gains for re-distribution to other victims who lost their investment.  While this can cause a terrible burden on winners who may have already spent their gains (such as by funding a child’s college education) and may not have available funds to return, the idea is to achieve a more equitable result across all victims.  Some measure of further relief is available to victims as a theft loss deduction, as described in this related article “Tax Relief Available to Ponzi Victims”.

Fulcrum Inquiry performs fraud audits, and other financial investigations.