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Ponzi scheme cases are now a staple of SEC enforcement.
Over the last year or more the Commission has brought dozens of these cases.
Most have the same common elements. The promoter has a trading or investment
system. The investment is safe potential investors are told. It also has good
returns. A good history reassures investors. The returns are spectacular for
some schemes while for others they are steady and reliable regardless of the
market conditions. Above average returns holds their interest. The investors
flock in. Millions of dollars flow to the promoter. In many cases investors are
told about their good returns. Some investors are even paid part of the
returns. Life is good, particularly for the promoter who is living large with
part or all of the investor cash. The end is predictable. The scheme crashes
and law enforcement cleans up the scam. By that date of course there is little
to nothing left for the investors.
Prior to Madoff SEC and other law enforcement officials
use to claim that these schemes were very difficult to detect. Few cases were
brought. One of the early actions which now has a better ending for investors
than most is SEC v. HKW Trading, LLC, Case No. 8:05-cv-10767 (M.D. Fla.
Filed June 9, 2005).
The fraud differs little from most. Howard Waxenberg was
alleged to have run a Ponzi scheme through his control of Downing &
Associates Technical Analysis, Howard Waxenberg Trading, LLC and HKW Trading
LLC. Over a fifteen year period beginning in 1990 Mr. Waxenberg and his
controlled entities raised over $70 million from about 200 investors. The
scheme Mr. Waxenberg sold investors was "day trading." This trading technique
yielded 20% returns according to Mr. Waxenberg. During its operation investors
were sent account statements depicting their returns as promised by Mr.
As with other similar schemes the account statements were
false. The day trading was false. In fact the money was put in low return money
market funds - at least in part. Mr. Waxenberg took over significant portions
of the money for his personal use according to the complaint.
The Commission's action started shortly after Mr.
Waxenberg committed suicide. At that point the scheme crashed. The SEC filed
suit and obtained a freeze order and the appointment of a receiver, Florida
attorney Burton W. Wiand. Over the last several years Mr. Wiand and his firm
have traced the assets and litigated clawback suits. Now, with recent court
approval of the final report prepared by Wiand Guerra King P.L., investors will
receive at least part of their money back. That is a far better result than in
many similar cases.
For more cutting edge commentary on
developing securities issues, visit SEC Actions, a
blog by Thomas Gorman.
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