Scammers often earn victims’ trust through shared hopes, dreams, beliefs

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Scammers often earn victims’ trust through shared hopes, dreams, beliefs

‘Scam the scammers’ plan not so rare

The judge seemed incredulous at Fred Baker’s confession that he had set up a Ponzi scheme to invest unwitting victims’ money in other Ponzi schemes in an attempt to “scam the scammers.”

Baker thought he knew how Ponzi schemes worked – luring investors with high initial paybacks until they inevitably collapse. Baker thought he could reap the rewards and get out before losing all the money.

U.S. District Judge Philip Brimmer seemed incredulous at Baker’s thought process during his sentencing hearing.

“I mean, most people who understand Ponzi schemes do so for purposes of avoiding them. Mr. Baker got involved because he understood them,” Brimmer said.

But Baker is not unusual. In fact, an online industry has grown around “post-modern Ponzi schemes” where many of the victims are aware of the fraud from the start.

The schemes bill themselves as high-yield investment programs, of HYIPs. The country’s top securities regulator, the Financial Industry Regulatory Authority, warned about them in 2010.

“The reality is virtually every HYIP we have seen bears hallmarks of fraud,” FINRA’s website says.

Investors trade tips on websites such as Money Maker Group and Talk Gold, websites like hyip.com rate the “best” prospects for paybacks, and a book called “Riding the Ponzi” sought to teach people the “smart” way to invest in Ponzi schemes.

The scams use online banking tools such as Liberty Reserve, a Costa Rican company that provides financial services to many shady schemes. A disclaimer on Liberty’s website all but invites scammers to use its services by saying the company is powerless to stop them.

“Liberty Reserve is not qualified, nor does it have the investigative tools or legal permissions, to conduct criminal or civil investigations of any Liberty Reserve merchant or user,” the disclaimer says. It goes on to say that Liberty Reserve account holders must follow the policy of “buyer beware” when investing in Ponzi schemes or HYIPs.

Many of the websites operate openly, although sometimes authorities shut them down.

Federal authorities shut down Baker’s preferred Ponzi bank, a California outfit called Goldfinger. But before investigators could unravel much about Goldfinger’s involvement in financial crime, the case took a dark turn.

Goldfinger’s founder, James Fayed, hired killers to murder his wife, who was divorcing him. Fayed is now on California’s death row, and the fraud investigation took a back seat to the murder case.



jhanel@durangoherald.com

In this series

Sunday: Fred Baker is serving time for his part in a Ponzi scheme, but he was just one player in a worldwide network of fraud.

Today: Four mysterious $100,000 checks to Baker’s victims coincide with another fraud case in Utah.

Tuesday: The money trail from Baker’s victims, and many others, leads to a company with ties to Panama, New Zealand and Europe.

Wednesday: Victims often fail to heed advice for spotting financial fraud.

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Scammers often earn victims’ trust through shared hopes, dreams, beliefs

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