Diamond said he possessed a secret, proprietary method for trading currency futures. Everyone jumped in, including McKenney. He invested $250,000. One year later it was gone, much of the money having financed Diamond’s hard-partying lifestyle. It ended up at Vegas casinos, the local Lamborghini dealer — Diamond’s was jet black — and more than a few bars.
Today Diamond is in jail in Florida. His business, Diamond Ventures, was a Ponzi scheme. Authorities say he lost $15 million in bad trades, spent $15 million to keep the scheme going and pocketed at least $7 million. He was convicted of money laundering and wire fraud and sentenced to 15 years. But this story is not about Diamond. He’s just your run-of-the-mill thief.
The bigger question is, why would a smart, seasoned investor like McKenney hand over $250,000 to a guy like Diamond?
“I drank the Kool-Aid,” McKenney said. “This was my ticket to the dance. This was how the rich got richer. Everyone else was doing it.”
Everyone was doing it. It’s a sad and all-too-common rejoinder from those who fall prey to a swindle.
People hear “investment fraud” and they think of high-flying Wall Street types such as Bernie Madoff, a financier with a penthouse and private jets and, at one time, the chairmanship of the Nasdaq stock exchange. He managed billions of dollars for individuals and foundations — and built a $50 billion Ponzi scheme.
Most scams are not carried out as big institutional frauds. Rather, it is a friend or a fellow Rotarian, your accountant or even the local church deacon putting together that Ponzi scheme. He’s in your group. You have the same interests. It’s almost unimaginable that he would rip you off. It’s called “affinity fraud.” Madoff is, perhaps, the most notorious offender in this most common form of investment fraud. It’s common for good reason. It works.
Getting the guard to drop
Ruth and Len Mitchell are spending their retirement years in Arizona, light about $125,000. That’s how much they lost to longtime friend and accountant Barry Korcan. The smooth-talking Korcan joined Ruth’s skating club when she and her husband lived in Beaver, Pa., a bedroom community outside Pittsburgh. Korcan became friendly with the couple and put their money in what they thought were safe real estate investments. He set up a company called Guardian Investment Partners and provided phony quarterly statements. They thought they were earning as much as 8 percent.
Instead, Korcan enriched himself. In all, he stole $7 million from 39 investors, according to authorities. He was convicted of mail fraud and income tax evasion and is serving a seven-year prison sentence.