Specifically, he wrote:
In this court’s view, the crime is more heinous if, as in this case, there are 3,300 [investors] and the total loss is $7 million as opposed to if there were 10 [investors] with the same loss....
CHAPTER 3
Chapter 3: A Better Mousetrap Makes a Good Scam
New technologies have a rich history of fraudulent promotion. Over the last hundred years, crooks have promoted perpetual motion machines, water engines and magic elixirs. In the last 20 years, real technological advances have made outlandish promises seem a little more plausible.
As recently as the early 1980s, few people would have guessed that hundreds of millions of dollars would be made in stock offerings for companies that make Internet web browsers. A few years before that, no one would have known what to think of recombinant DNA drugs. And these issues say nothing of more modest tech advances, like cellular phones and satellite TV.
Like predators sensing a kill, Ponzi scheme perpetrators are drawn to this high tech confusion. “Whenever a new technology comes over the horizon, we see the same types of scams,” says Paul Huey-Burns, assistant enforcement director at the SEC. Though this remark could apply to any high tech issue, Huey-Burns was talking specifically about a favorite Ponzi scheme premise of the early 1990s—wireless cable.
The wireless cable television business centered on a new technology that transmitted television programming signals through microwave relay systems, rather than through wire cables. This eliminated the capital-intense process of connecting homes to cable networks. It removed the cable from cable TV . It also made it possible—at least theoretically—for small, scrappy start-up companies to compete with giant cable companies. And the actual product is virtually unregulated. Ponzi perps didn’t miss the chance to exploit this opportunity. They promise outlandish returns—as much as several hundred percent—in a few months. The pitch will usually have something to do with acquiring licenses for transmission access cheaply and then selling them to an established cable player. It has nothing to do with the truth. The perp takes a big chunk of money out immediately, never puts anything into the cable system and runs the pyramid long enough to blur his tracks.
Other wireless cable deals will have some basis in truth. The perp will actually acquire a license and will use at least some of the investment proceeds to build a system. The rest of the money goes in the perp’s pocket. Then, he’ll operate the company for a while or sell it to a larger company for less than the amount he raised in investments— hoping no one loses enough to sue.
As far-fetched as they may be, these schemes were a booming business in the mid-1990s. In 1997, the SEC was prosecuting more than 20 wireless cable fraud cases, involving more than 20,000 investors and $250 million. In a single 1996 civil lawsuit, the SEC sued four companies and 14 stock promoters who pitched nearly $19 million in investments in wireless cable systems from 1992 through 1994.
Wireless cable is another example of an idea that makes more sense to investors than it should. Many people think they know the cable industry because they watch a lot of ESPN and HBO. “It was the largest mix of people I’ve ever seen,” says a southern California perp who sold bogus wireless cable securities in the early 1990s. “When you’re selling gold or real estate, you get wealthier people who think they know what they’re doing. In wireless cable, you get all kinds. Doctors and dentists, sure. But also truck drivers and people working retail. They’re greedy. They might have heard Peter Lynch or somebody say ‘invest in things you understand.’ And they think they understand TV.”
The State of the Crooked Art: Pre-paid Telephone Cards
As the 1990s wore on, consumer complaints and SEC investigations chased many Ponzi perps out of the wireless cable business.
In this court’s view, the crime is more heinous if, as in this case, there are 3,300 [investors] and the total loss is $7 million as opposed to if there were 10 [investors] with the same loss....
CHAPTER 3
Chapter 3: A Better Mousetrap Makes a Good Scam
New technologies have a rich history of fraudulent promotion. Over the last hundred years, crooks have promoted perpetual motion machines, water engines and magic elixirs. In the last 20 years, real technological advances have made outlandish promises seem a little more plausible.
As recently as the early 1980s, few people would have guessed that hundreds of millions of dollars would be made in stock offerings for companies that make Internet web browsers. A few years before that, no one would have known what to think of recombinant DNA drugs. And these issues say nothing of more modest tech advances, like cellular phones and satellite TV.
Like predators sensing a kill, Ponzi scheme perpetrators are drawn to this high tech confusion. “Whenever a new technology comes over the horizon, we see the same types of scams,” says Paul Huey-Burns, assistant enforcement director at the SEC. Though this remark could apply to any high tech issue, Huey-Burns was talking specifically about a favorite Ponzi scheme premise of the early 1990s—wireless cable.
The wireless cable television business centered on a new technology that transmitted television programming signals through microwave relay systems, rather than through wire cables. This eliminated the capital-intense process of connecting homes to cable networks. It removed the cable from cable TV . It also made it possible—at least theoretically—for small, scrappy start-up companies to compete with giant cable companies. And the actual product is virtually unregulated. Ponzi perps didn’t miss the chance to exploit this opportunity. They promise outlandish returns—as much as several hundred percent—in a few months. The pitch will usually have something to do with acquiring licenses for transmission access cheaply and then selling them to an established cable player. It has nothing to do with the truth. The perp takes a big chunk of money out immediately, never puts anything into the cable system and runs the pyramid long enough to blur his tracks.
Other wireless cable deals will have some basis in truth. The perp will actually acquire a license and will use at least some of the investment proceeds to build a system. The rest of the money goes in the perp’s pocket. Then, he’ll operate the company for a while or sell it to a larger company for less than the amount he raised in investments— hoping no one loses enough to sue.
As far-fetched as they may be, these schemes were a booming business in the mid-1990s. In 1997, the SEC was prosecuting more than 20 wireless cable fraud cases, involving more than 20,000 investors and $250 million. In a single 1996 civil lawsuit, the SEC sued four companies and 14 stock promoters who pitched nearly $19 million in investments in wireless cable systems from 1992 through 1994.
Wireless cable is another example of an idea that makes more sense to investors than it should. Many people think they know the cable industry because they watch a lot of ESPN and HBO. “It was the largest mix of people I’ve ever seen,” says a southern California perp who sold bogus wireless cable securities in the early 1990s. “When you’re selling gold or real estate, you get wealthier people who think they know what they’re doing. In wireless cable, you get all kinds. Doctors and dentists, sure. But also truck drivers and people working retail. They’re greedy. They might have heard Peter Lynch or somebody say ‘invest in things you understand.’ And they think they understand TV.”
The State of the Crooked Art: Pre-paid Telephone Cards
As the 1990s wore on, consumer complaints and SEC investigations chased many Ponzi perps out of the wireless cable business.
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