Investment Scam Red Flags You Can’t Ignore
Investment Ponzi schemes can last for many years, but others are thankfully shorter lived. Recently, we came upon an investment scam of relatively short duration, but during the 16-month time frame, 64 people handed over $4.1 million. While a relatively small Ponzi scheme, Justinas Butkus aka Darius Karpavicius’s investment fraud was egregious enough to justify using it as a warning to all financial investors.
According to the SEC, investment fraud cases have increased significantly in recent years, with billions lost annually to various Ponzi and pyramid schemes.
Of the $4.1 million invested, Defendants allegedly stole $3.6 million. The cash was traced for Darius’ personal benefit, “including for groceries, restaurants, hotels, clothes, cash withdrawals, and crypto asset purchases.” SEC Complaint
Investment Fraud Warning Signs
Darius allegedly sold interests in mutual funds that did not exist—he completely made-up everything about the funds. Defendant operated two websites, TBO Capital Group and Gray Capital Group. The sites were fairly typical, detailing the fund managers’ vast experience and providing performance information. There were a few warning signs. However, in order to see most of them, the potential investor would have to look at both sites.
- The names and photos of fund managers were nearly identical on both sites.
- The company address and telephone numbers were the same.
- The investment funds purportedly provided annual returns of around 50%. SEC Complaint
- The addresses to mail checks were private mailboxes at retail shipping stores.
Spotting Investment Frauds before Handing over Cash
When rates of returns sound too good to be true, they almost always are, and you should either walk away or exercise heightened due diligence before engaging with the company. In order to spot an investment fraud, there are a few things to always research.
- Are the people involved registered or licensed brokers in your state and/or with the SEC?
- Is the company registered with your state’s investment licensing board and/or with the SEC? In this case, neither TBO Capital Group nor Gray Capital Group were registered.
- Are the companies registered with your state or in the state they are purportedly conducting business in? You can check with your state’s Secretary of State (SOS) department.
- Investigate the physical address of the offices. Are they mailbox drop-offs? Is some other entity occupying that space? Use on-line maps and follow-up with the building managers’ offices. Even if you are wiring funds, instead of sending a check, investigate the address of where to mail a check.
- Search the fund manager’s history on the web. Do they have an active presence on someplace like LinkedIn? Is there photo a stock photo? Verify their education or association memberships. In this case, the fictitious bios were available on social media.
When to Contact a Financial Fraud Attorney
If you’ve been victimized by similar schemes, consulting with a financial fraud attorney can help you understand your legal options.
If ultimately you decide to invest, ask to receive your dividends, instead of reinvesting them. If it is a Ponzi scheme, you will either receive some of your money back or you will limit the money you lose. Eleven investors “chose to receive monthly dividend payments and they received approximately $42,000 during the course of the scheme. Because Defendants did not actually operate any mutual funds, these dividend payments were actually Ponzi-like payments made from funds Defendants obtained from newer investors.” SEC Complaint
How Ponzi Schemes Collapse
Ponzi schemes typically collapse when new investor money can no longer sustain payments to existing investors, or when too many investors request withdrawals simultaneously.
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