Tuesday, November 24, 2015         


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If it sounds too good to be true, it’s most likely a scam

By David Butts


Question: You work on exposing Ponzi schemes and other investment fraud in Hawaii. What are some of the major cases the FBI has uncovered in recent years in Hawaii?

Answer: Patrick Rako­ta­na­na­hary was a citizen of Madagascar and a resident of Florida when he came to Hono­lulu and hosted seminars claiming to be an expert in foreign currency trading.

He guaranteed a 6 percent weekly profit to his investors, and about 100 Hawaii families gave him a total of $10 million.

Of course the whole thing was a big scam, and none of the money was ever invested. Patrick spent the money on himself and paid some investment returns to create the illusion that his program was legitimate. Word of mouth spreads quickly here, and news of Patrick’s program spread virally throughout Hawaii. After the Ponzi scheme collapsed, we arrested Patrick in Florida, and he is currently serving a long prison sentence that will be followed by deportation to Madagascar. Sadly, cases like this are not uncommon in Hawaii.

Joseph Sullivan was another big case with millions of dollars lost to local investors. He had a company called The Swiss Group that offered investments in certificates of deposit from offshore banks paying 18 percent per year.

The investigation revealed that he was cranking out these CDs on his home computer, and these offshore banks existed only in his imagination. We arrested Mr. Sullivan when he was trying to flee the country by obtaining a passport under a fake name. He’s also serving a long prison sentence, but the victims’ money is long gone.

The case of Perry and Rachelle Griggs was another notorious scam that cost Hawaii residents millions of dollars. They formed a fake commodities company called Aloha Trading and preyed on the family members of federal prison inmates from Hawaii.

At the time they offered these investments, Perry was actually serving time in federal prison for operating an earlier Ponzi scheme.

Meanwhile, Rachelle was spending the investors’ money on luxury cars and renting a house on Hawaii Loa Ridge.

After Perry was released from prison, they disappeared and became the subjects of a nationwide manhunt. The FBI caught them in Arizona at the end of 2010, but the money was all gone.

Some Hawaii families lost their homes as a result of this fraud.

Q: What lessons can be learned from these cases?

A: Investors need to take a close look at investment opportunities that appear too good to be true. There is no such thing as a high rate of return coupled with low risk. If I could get that message through to the people of Hawaii, I’d be a lot less busy.

I think we are also too trusting of others in Hawaii. The aloha spirit means that we treat each other with kindness and compassion, but when it comes to our investments, we need to have the discipline to ask the direct, probing questions and confront those who seek to financially ruin our local families. I’ve grown weary of seeing good people lose their life savings because they trusted their investments with the wrong person.

Q: How does Hawaii rank among states in terms of investment fraud cases?

A: Hawaii is experiencing an absolute epidemic of investment frauds. Hono­lulu FBI investigations have resulted in criminal charges or convictions of 21 people over the past four years. For a state with about a million potential victims, that is astoundingly high. Furthermore, the investment scams offered to Hawaii victims are just outlandish, and the dollar amounts are staggering. I’ve seen con men offer investments that guarantee you’ll double your money in 90 days. There’s just no such thing in the real world, but there doesn’t seem to be any shortage of victims in Hawaii eager to pour their life savings into these scams.

Q: Are investment fraud cases in Hawaii on the rise or on the decline?

A: I keep waiting for the flood of investment fraud complaints to slow down, but they’ve continued steadily over the past four years. This constitutes millions of dollars siphoned from our local economy each year into the pockets of thieves. I used to think that after the first few high-profile Ponzi schemes hit the news, things would slow down. Unfortunately, the Hono­lulu FBI financial crimes team is busier than ever. Investment fraud is the Hono­lulu FBI’s top financial crime priority because these scams keep hitting our local economy so hard.

Q: What is the best way to avoid becoming a victim of investment fraud?

A: Most of the defrauders in Hawaii are not licensed by the state to offer investments or securities. A simple check with the DCCA (state Department of Commerce and Consumer Affairs) licensing authorities is a good starting point.

Also, does this investment pass the common-sense smell test? Financial opportunities guaranteeing a rate of return higher than the market is currently offering should be regarded with deep suspicion. Finally, con men take advantage of the lack of financial sophistication among our local population and offer complex-sounding investments — commodities, FOREX, bridge loans — as part of the scam. If you don’t fully understand what will be happening to your money, it’s probably best to walk away from the opportunity and keep your cash in the bank. Save the gambling for Las Vegas.

Q: What should Hawaii residents do if they believe they are the victim of investment fraud?

A: Obviously, I’d prefer that the FBI get the first call because I have a passion for these kinds of cases and really want to help. That said, the Hono­lulu police has put together a solid financial crimes team that continues to make great cases. The DCCA’s Securities Enforcement Branch is also a tremendous resource for the people of Hawaii who believe they’ve been defrauded.

The important thing is that victims get over their personal shame and call some enforcement authority to ensure that no one else gets financially ruined.

Q: What are the penalties for perpetrating investment fraud, and how likely is it a scam artist will get caught?

A: On the federal side, investment fraud cases are generally charged using the wire fraud and mail fraud statutes, which carry a statutory maximum penalty of 20 years in prison. We have an excellent track record of collecting the evidence required to ensure that investment defrauders are held accountable for their actions.

The federal system also allows for the FBI to seize any assets — cars, boats, houses, bank accounts — that may have been purchased with the proceeds of the fraud. After those assets are forfeited, they are generally sold with the money going back to the victims.

If the investigation results in a criminal conviction, the federal judges always order the defendant to pay restitution to the victims.

Unfortunately, by the time we learn about these cases, the money is usually already gone.


Interviewed by David Butts

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