Everything from retirement savings to home equity have been squandered for 64 Hawaii families in a Ponzi scheme that led to the arrest of a Florida man Monday.
Authorities say the victims were lured by promises of unrealistic returns on foreign exchange investments.
And they warn, con artists just like this are rampant especially in the recession.
"Give me at least $30,000, I'll give you four to 10 percent interest returns per week." That was the promise of self-proclaimed investment whiz Patrick Rakotonanahary and a company he ran out of his Florida home called "Cyber Market Group."
"This resulted in 64 Hawaii families liquidating their retirement savings or the equity in their homes only to find themselves defrauded in this alleged Ponzi scheme," said Charlene Thornton, the F.B.I. Special Agent in Charge.
Thanks to a victim's tip to state and federal authorities, Rakotonanahary is now in federal custody and headed for trial in Hawaii. And it may be just the beginning - there are seven unnamed Hawaii investment advisors in the indictment.
"According to the indictment these are individuals who helped to market the scheme here. We make no judgment on their culpability, they are not charged at this time," said Assistant U.S. Attorney Lawrence Tong.
Authorities say most of the $10 million taken by Rakotonanahary - who was not a registered trader - was instead used in a Bernie Madoff-style Ponzi scheme.
"Taking money from those who invest later to pay what are claimed to be interest payments to those who invested earlier," said U.S. Attorney Florence Nakanuni.
Only a small portion was ever invested - and on that Rakotonanahary managed to lose more than $800,000. The indictment says the suspect paid himself $1 million. As to why it and other schemes like it catch on in Hawaii...
"There is some connection, you know someone, you are related to someone, and that's typically how these types of Ponzi schemes get perpetuated," said New York investment regulator Stephen Obie.
They call them affinity frauds that prey on personal connections even in churches or social groups, along with false promises of astronomical rates of return.
"Be very skeptical about investments that promise unrealistic returns or high returns with little or no risk," said Obie. "What appears too good to be true often is."
Rakotonanahary faces up to 20 years in prison on each of 21 wire fraud counts, plus a quarter-million dollars restitution each. He also faces two civil actions, one from the state and one from the Commodity Futures Trading Commission that could render $30 million in paybacks.
