Another Ponzi scheme uncovered in the Caribbean

WASHINGTON, United States, Wednesday June 30, 2010 – The US Securities and Exchange Commission has announced fraud charges and an emergency asset freeze against a financier based in the US Virgin Islands (USVI) who perpetrated a US$105 million Ponzi scheme against investors for the past six years at least.

The SEC alleges that Daniel Spitzer, a resident of St Thomas USVI, used several entities and sales agents to misrepresent to investors that their money would be put in investment funds that, in turn, would be invested primarily in foreign currency. Investors were falsely told that Spitzer’s funds had never lost money and historically produced profitable annual returns that one year reached over 180 percent. 

Spitzer instead used money raised from new investors to pay earlier investors, and misappropriated investor funds to pay unrelated business expenses, the SEC claimed, adding that he concealed his scheme by issuing phony documents to investors that led them to believe their investments were profiting.

According to the SEC, Spitzer conducted his fraudulent scheme, which involved 400 investors, from at least 2004. 

The SEC has obtained an emergency court order freezing the assets of Spitzer and his companies. Among other things, the court order requires that he repatriate all assets located overseas to the US.

“Daniel Spitzer ran an elaborate Ponzi scheme that he disguised by moving investor money through a complex network of foreign bank and brokerage accounts,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “He deceived investors into believing that he was using a sophisticated investment strategy that didn’t really exist.” 

According to the SEC’s complaint, Spitzer only invested approximately US$30 million of the more than US$105 million he raised from investors. Of that amount, Spitzer used approximately US$13.5 million to invest through an offshore entity via a bank account in the Netherlands Antilles. These investments, some of which were placed in a French financial institution, lost money and were subsequently liquidated. 

The SEC said that Spitzer used another US$16 million to invest in money market funds that earned only a few thousand dollars. Spitzer liquidated these investments as well. After the investments were liquidated, the money was returned to Spitzer, and he used it to repay investors in Ponzi-like fashion. To cover up his scheme, Spitzer issued to his investors false Schedule K-1s that showed inflated returns and led them to believe that their investments were profitable.

The SEC’s complaint alleges that Spitzer used offshore bank accounts to pay purported business expenses of his companies. Spitzer deposited investor funds into bank accounts at the National Bank of Anguilla and the First Bank of Puerto Rico, from which he paid more than US$15 million in purported operating expenses and payments to himself and various sales agents. Spitzer also used more than US$4.8 million to pay third-party business expenses. 

According to the SEC’s complaint, as recently as March this year, Spitzer obtained US$100,000 from an investor for an investment in one of his purportedly more conservative investment funds. Rather than invest the money, Spitzer used a portion of the money the following month to pay other investors and third-party expenses.