October 2020

Fraud lurks in dark corners and hidden spaces.  It’s often found where one would least expect it, whether a Ponzi scheme perpetuated through a religious organization or other strong affiliate network, a caretaker pilfering from a family member’s asset accounts via financial elder abuse, or when a trusted employee realizes he can exploit his position to provide himself with “deserved” additional income.  Yet it gets especially unsettling when it delves into the occult.  Such was the case with a $20 million fraud scheme perpetuated through a supposed luxury sportswear company, which ended with the perpetrator attempting to cast spells to deter authorities from the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).

For over two years Dawn Bennett, a former financial advisor and host of “Financial Myth Busting with Dawn Bennett” courted investors for her supposed luxury apparel company DJBennett.com.  But instead of putting the money toward the business, she used the money largely to repay other investors, while also enriching herself with personal purchases of jewelry, clothing, hotels, a luxury sports box, cosmetic treatments, and mortgage payments on her penthouse.  Hundreds of thousands also went towards mystics and astrological gems.

The scheme followed a typical Ponzi scheme formula (as described more fully in this related article on avoiding Ponzi schemes), by targeting elderly and/or financially unsophisticated investors, offering them unusually high returns of 15% on promissory or convertible notes, and downplaying any financial risk.  Investors were provided with false financial statements to make the company appear profitable and encourage them toward further investment.  Those who instead demanded payment were paid with other investors’ funds. When there were insufficient funds to meet investor demands for payment, the company obtained a $750,000 line of credit by falsely claiming an investment portfolio of millions when the true value of the reported account was $35.  That line of credit was also partially repaid with an investor’s funds before falling into default.

An investigation was triggered by a bank employee who was asked by an elderly woman to help wire her investment.  The bank employee was concerned that the investment was too risky and further bank inquiries into Ms. Bennett uncovered that she had previously been charged with fraud by the SEC for making false claims regarding the amount of her assets under management and misleading assertions that she was achieving investment returns in the top 1 percent of firms worldwide.  Those false claims also led to a fifth-place ranking in Barron’s 2009 “Top 100 Women Financial Advisors”.  At that time, the SEC barred Ms. Bennet from the securities industry and required her to disgorge profits of approximately $650,000.

In this new investigation, Ms. Bennett instructed an employee who was fielding questions to “Be nice but be incompetent”.  An FBI search of her offices and residence uncovered evidence of the scheme, an “excuse list” for investors who wanted their money, large quantities of personal luxury items and instructions for putting people under a “voodoo” spell intended to keep people from talking about her.  The “Beef Tongue Shut Up Hoodoo Spell” was written out, describing the splitting of an animal tongue followed by the incantation “I cross and cover you.  Come under my command.  I command you to hold your tongue.”  There were two freezers of mason jars filled with beef tongues, with initials on each jar. The initials belonged to the SEC attorneys investigating her.

However, the spells had no effect except to turn this typical Ponzi scheme story into a more memorable tale.  Ms. Bennett was sentenced to 20 years in prison after a jury convicted her on 17 counts of securities fraud, wire fraud and bank fraud.  CFO Brad Mascho was also sentenced to 30 months in prison for his role in the fraudulent scheme.  Ms. Bennett was further ordered to pay $14.5 million in restitution to the victims of her fraud.  However, recovery for these investors is highly unlikely.  Ponzi victims are often lucky to recover even a portion of their investment but generally cannot recover promised profits because such profits do not exist and the scheme is destined to ultimately collapse when the fraud can no longer sustain investor requests for payouts.

Even those who get out before the collapse are not as lucky as they might seem.  Those with a 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 investigations of fraud and related damages calculations as part of its forensic accounting and financial investigations practice.