LAS VEGAS (KSNV MyNews3.com) -- One financial adviser had $33 million in investments, and all of it was gone.
How did it happen? In this Rip-Off Alert from Cleveland, the answer boils down to too much trust and not enough scrutiny.
According to U.S. Postal Inspector Terrence Sullivan, Monroe Beechi was in charge of a large investment pool for Amish folks who were interested in saving for retirement.
“He invested it in the stock market,” Sullivan said. “Unfortunately, he invested in a lot of high-risk stocks.
“The consumer is less likely to ask those really hard due diligence questions when they have the philosophy, ‘I go to church with them – I bowl with them so I know them and they aren’t going to rip me off.’ “
Postal inspectors call this affinity fraud. BEECHI told investors they were invested in government bonds -- there was no risk, and they always would be guaranteed a return.
“In actuality, Mr. Beechi was investing in a lot of high-risk stocks like the dot-coms, the penny stocks and the junk bond market,” Sullivan said.
Beechi’s high-risk investing took a hit. In the late 1990s he lost 50 percent of the portfolio – more than $16 million.
“Instead of telling people in his community that he made some bad investments, he just continued to solicit new investors into,” Sullivan said. “And he used the new investor to pay dividends to the old investors rather than tells investors he made bad stock investments.”
When he began making unusual bank transactions, the SEC alerted postal inspectors. Once he heard inspectors were talking to victims, Beechi realized he was in trouble and filed for bankruptcy.
“Many of them felt it was internal issue within their community and they were uncomfortable talking with investigators,” Sullivan said.
Postal inspectors say always be wary of guaranteed returns.
“It’s very hard for one person to offer 10 percent when the regular market is offering 3 percent,” Sullivan said. “If they say no risk it’s whoa back up – the only way you get high return is with high risk.”
Beechi was sentenced to more than six years in prison for mail fraud. Usually a crime like this would result in more jail time, but the judge made an exception when it was shown that Beechi did not profit from the scheme or use the money to improve lifestyle He set-up the Ponzi scheme rather than admit he lost his clients’ money.