The U.S. Securities and Exchange Commission (“SEC”) has charged Gaston E. Cantens and Teresita Cantens of Miami with defrauding more than 400 investors out of more than $135 million in a Ponzi scheme aimed at Cuban-Americans. The Cantens founded and owned Royal West Properties, Inc. (“Royal West”), a Miami-based real estate development company. According to the SEC the defendants raised money by selling promissory notes supposedly backed by mortgage assignments. In some cases, the Cantens signed personal guarantees backing the promissory notes. The SEC’s complaint alleges that:
Royal West was not generating sufficient revenues to repay principal and interest to investors and, since at least 2002, the Cantens were operating a Ponzi scheme, raising new investor funds to pay earlier investors. Moreover, since at least 2005, Royal West failed to record approximately one-third of the mortgage assignments. Finally, the Cantens misappropriated approximately $20 million of investor funds to pay themselves lavish salaries, to fund unrelated personal business ventures, and to pay their children and grandchildren.
Notice three things about this case. First, notice that the allegedly fraudulent instruments were promissory notes. Scam artists are making promissory notes the center-piece of their scams more often, it seems. Whether it is the contractual nature of a promissory note, the promise of “interest” (which we associate with savings accounts and certificates of deposit), or some other reason, scams using promissory notes have proven wildly successful recently.
Notice also the extravagant spending. If someone to whom you have entrusted your nest egg spends money lavishly, get your money back. Too often, those who spend money like a trust fund baby on a weekend shopping bender are spending other peoples’ (your) money.
Finally notice the targeting an identifiable group, Cuban-Americans in this case. A scam that targets a specific ethnic or religious community is called an “affinity fraud.” The perpetrator of an affinity fraud is almost always a member of the group he targets, which allows him to better gain the trust of the intended victims. The victims bond with the scam artist over a shared heritage or faith and believe that the perceived bond protects them from being taken advantage of. Experience teaches otherwise.
SEC Accuses South Florida Couple of Affinity Fraud Ponzi Scheme Targeting Cuban-Americans
SEC Accuses South Florida Couple of Affinity Fraud Ponzi Scheme Targeting Cuban-Americans
The U.S. Securities and Exchange Commission (“SEC”) has charged Gaston E. Cantens and Teresita Cantens of Miami with defrauding more than 400 investors out of more than $135 million in a Ponzi scheme aimed at Cuban-Americans. The Cantens founded and owned Royal West Properties, Inc. (“Royal West”), a Miami-based real estate development company. According to the SEC the defendants raised money by selling promissory notes supposedly backed by mortgage assignments. In some cases, the Cantens signed personal guarantees backing the promissory notes. The SEC’s complaint alleges that:
Notice three things about this case. First, notice that the allegedly fraudulent instruments were promissory notes. Scam artists are making promissory notes the center-piece of their scams more often, it seems. Whether it is the contractual nature of a promissory note, the promise of “interest” (which we associate with savings accounts and certificates of deposit), or some other reason, scams using promissory notes have proven wildly successful recently.
Notice also the extravagant spending. If someone to whom you have entrusted your nest egg spends money lavishly, get your money back. Too often, those who spend money like a trust fund baby on a weekend shopping bender are spending other peoples’ (your) money.
Finally notice the targeting an identifiable group, Cuban-Americans in this case. A scam that targets a specific ethnic or religious community is called an “affinity fraud.” The perpetrator of an affinity fraud is almost always a member of the group he targets, which allows him to better gain the trust of the intended victims. The victims bond with the scam artist over a shared heritage or faith and believe that the perceived bond protects them from being taken advantage of. Experience teaches otherwise.