You always hear about elderly, vulnerable people being taken advantage of – they are preyed upon by perpetrators who walk off with their savings. But what about two intelligent, college-educated, well-informed people who did years of research on an particular investment? How could they possibly become victims of a Ponzi scheme?
We lost $750,000. This is our story.
My husband had a close friend who was an agent for the investing company Diversified Lending Group, LLC (DLG). He told us about an investment that he and his family had been investing in for a couple of years. DLG had been in business for several years and had a good reputation. We looked over the prospectus which was many pages, and it gave the history and performance of the company. We didn’t dive right in, we followed the company and its returns for 1-2 years before investing in it. There were two types of investments – a 12% return which was uninsured and a 9% return which was “insured.” Later, it turned out that only about 10% of this investment was insured, but we didn’t know that at the time – it was presented to us as fully insured. The insured policies were through a very reputable, national company.
DLG’s Money Manager, Bruce Friedman, was well-known for his charitable work and contributions. He gave hundreds of thousands of dollars to charities. The Los Angeles Dodgers were so impressed by Friedman’s gifts to the team’s charity that they invited him to throw out a ceremonial pitch against the Boston Red Sox at the L.A. Memorial Coliseum in 2008. He was lauded by the special needs community, having helped fund the accessible and inclusive playground, Brandon’s Village, in Calabasas, California.
We invested our money little by little. We did it slowly and the returns came every quarter as they were supposed to. At the end of the year, for several years, if the investment group made a certain amount of profit, we would get a 2% bonus. After years of successful investing, we opened a few other accounts. In addition, we brought our relatives’ funds to the investment. For several years, it worked out fine, we made a good return and there were no problems.
Several months after the financial crisis of 2008, we and the other investors received a letter from Bruce Friedman. It stated that he was aware that information about him was recently made public: that some years earlier he was sent to prison for embezzlement. We filled out paperwork to withdraw our funds, but after repeated calls, we never heard anything about our request. In March 2009, the Securities and Exchange Commission (SEC) raided the offices of DLG and confiscated all the computers, files, etc. and froze all the assets of the company. Eventually, Bruce Friedman was charged with operating a Ponzi scheme. The company’s assets were turned over to a receivership and then began a five year-long process of liquidating the assets, gathering up whatever money there was to return to the victims.
As of December 2014, 9% of investors’ money has been returned and approximately 1% will be in the final distribution shortly. In our case, we lost over $750,000.
We were able to recoup some of this through taxes; there is law for federal taxes that allows you to go back five years and readjust your taxes for the loss. In our case, we received a refund check from the government for approximately $200,000. Between that and the 10% return, we still lost more than half the investment.
As for Bruce Friedman, he was eventually charged and facing trial when he left the country to Belize, then fled to France where he was captured and put into a French prison. He was there for close to a year, awaiting extradition to the U.S. when he died of a heart attack in prison at the age of 60. He had a 10 million dollar life insurance policy which the courts ruled should go to the victims of his Ponzi scheme, not his family. (This was part of the 10% that was returned to the investors.)
Most of the victims of his 200+ million real estate investment fraud scheme were older, retired individuals who lost most of their savings and were too old to go back to work. Many lost their houses or went bankrupt. And just like with Bernie Madoff, a lot of intelligent and even famous people got suckered in. Most of the victims were older, retired individuals who lost their savings and were too old to go back to work.
The bottom line: If it sounds too good to be true, it may be. If someone offers you an investment with a guaranteed return, ask how the return is guaranteed. Make sure you have a detailed understanding of how the investment works. Before you invest in anything, do a background check on the head of the company and the people involved. Check with the Better Business Bureau and see if there have been complaints about the company. Dig deep. Or stick with safer investments, like an IRA or a 401(k).
As for us…
We have not recovered financially from this devastating loss. We struggle, financially, which has been an incredible strain on our family. Children are sensitive and perceptive and pick up on our sadness and stress. Losing our house is not out of the question. But right now, it’s one day at a time.