Seven-Year Ponzi Scheme Targeted Veterans and Retirees

How to avoid becoming a victim and how your advisor can help

Ric Edelman: Welcome back to The Truth About Your Future. Well, if we didn't have enough to worry about with everything going on in the world, we've got to worry about the stuff we've always had to worry about in the world of personal finance. And that is, in a single word, scams. Scams have been with us since the beginning of time, and scams are going to continue to be with us. And we must always remain diligent, and we always get discouraged and distressed when we hear of scams that have been uncovered and fortunately shut down.

The government has shut down a Ponzi scheme that has been running from 2011 through 2018. This particular Ponzi scam is particularly nefarious because it targeted military veterans and older investors. 2,300 retirees, 13,000 veterans collectively lost over $300 million over the 7-year period. The defendants got so many people scammed, amounting to so many hundreds of millions of dollars, because they didn't merely go after the retirees and the vets. They tricked hundreds of financial advisers and insurance agents who unwittingly perpetuated the fraud, which raises questions about the due diligence efforts and quality of those advisors and insurance agents.

Scott Cohen, 68 years old, has been sentenced to 10 years in prison, and he's got to give back all of the money. He was giving veterans a lump sum payment for their military pension. You know how it works. You get a pension, you get a monthly check. Well, a lot of folks didn't want the monthly check. They wanted a single lump sum payment right now. And that's what he was promising to give them. Well, where did he get the money to give them their lump sum payment? Well, he was making exploitative loans and he was providing the money from money he got from other investors. The whole thing was a Ponzi scheme, says the Justice Department. He's now in prison. The question is whether anybody is going to get any of their money back. He supposedly has to repay it. The question is, how much of it does he have left? Where might he have hidden or spent it?

We've got to be on the lookout if you get a deal that sounds too good to be true, you need to check it and then double check it. Even when your financial advisor is offering the idea. This Ponzi scheme tells us that you can't necessarily depend on that. The key is this: ask your financial advisor or your insurance agent. Are you being compensated for referring me to this investment opportunity? Because that's what was happening. And second, are you a fiduciary? Because if the advisor is acting as a fiduciary, they're serving your best interest. They are going to be much more likely to be providing the due diligence, the research independently, to verify whether or not this investment opportunity is really something you should look into. Scams are with us in every variety offered, by all kinds of different sorts.

Let's make sure we keep our guard up, especially during environments like this, where the markets are so volatile, where there's so much worry about market valuation, people looking for stability, they're looking for guaranteed income. They're looking for certainty. And scam artists are too happy to make those promises when your guard is down.