Family and finances

[Foil]

Last night, my younger brother called me with what he described as a lucrative investment opportunity. As he described it:

An entrepreneur (who his father-in-law vouched for) was using dollars invested with him to create an account for a trust, so the trust could show extra funds available in order to obtain a loan for a commercial real-estate project. The entrepreneur would then get the funds back after a week or two, charging a fee for the service, and provide 10-15% return to the investors. According to my brother, the laws in his area allow this, and he has already nearly doubled his principal in only a few months (though he's "letting it ride" with the entrepreneur), so he has put aside any reservations about it.

Of course, red flags are going off for me, and after later talking with my wife who knows more about real-estate than I do, I'm really suspicious. The fact that it's going through a trust, that the website he was given is "under construction", and that the entrepreneur is encouraging investors to leave the funds with him, makes me fairly certain it's a scam. I haven't found anything exactly like what he described, but it sounds to me like it's something akin to an REIT scam. I'm rather surprised my brother would put his well-earned money (plus some of his savings) into it, as he has always been the more financially-sound-minded of the two of us.

Anyway, I hate to mix family and finance, but I'd like to intervene for my brother. Part of me thinks he'll learn best if he loses some $$, but he's put a lot into this thing. If anyone here has had a similar experience, what has worked / not worked when trying to convince your family member to get out of something they feel is ultra-lucrative?

[CUDA]

sounds kinda like a Pyramid scheme


I've found, if it sounds too good to be true, it usually is

[Whitewater]

I'm worried about two different things. Number 1, if your brother wants in on a REIT why not join one through a legitimate proven company? There are plenty of them out there. Number 2, once that money is in a trust, which has it's own individual tax id and is its own legal entity, there's no real legal recourse for pursuing the originator should he refuse to pay out initial investments. I'd also be interested to know who the beneficiaries are on the trust. This all seems much too risky unless your brother has absolute supreme trust in the originator, who again, has no legal obligation.

[CUDA]

Also, Never do business with family and friends

[Nightshade]

A simple thanks but no thanks. Cuda is right.

[fliptw]

The best marks are family.

[Ferno]

that 'double the investment in a few months' is a dead giveaway for a scam.

[Foil]

A simple thanks but no thanks.

That's certainly my response, but unfortunately my brother has already invested deeply.

What I'm looking for is advice on convincing him to get out, and/or information on legal/regulatory resources that might help.

[Whitewater]

As far as I know, privately held REITs don't have any type of cool down period or a surrender fee like an annuity. REITs are kind of like the mutual funds of property. The property is actually owned, but 95% of dividends are supposed to be distributed back to the investors. The big problem with these is that there are so many opportunities for an agency issue to develop. The link below is a bit old, but it's still almost entirely relevant with more specifics than I care to get into.

http://www.reri.org/research/article_pdf/wp24.pdf

[callmeslick]

smells like a Ponzi scheme, and the bit about inflating the trust to obtain borrowed cash is real shaky as well, exposing those involved to criminal liability as well as financial loss, since they are aware of that being done. Were I you, I would contact whatever agency is in charge of investment regulation in the state in which your brother resides, telll them everything he has told you and let them go to town. Your brother IS going to lose money on this, no matter what you do.....the 'let the money ride' thing virtually is begging for that to happen. Good luck.

[woodchip]

One word describes it all...Madoff

[Tunnelcat]

Foil, if you don't ever want the worst family strife in history, stay far, far away from this one. Trust me, family and financial matters can and usually do end up poison. Especially it they go south, and they usually do, when they sound too good to be true. I found that one out the hard way.

[Foil]

I'm staying out of it between my brother and I, but I'm definitely going to pursue slick's suggestion about contacting the local regulatory agency, and hoping they can intervene for him.

[Foil]

[Update]
Local regulatory agency followed up and called me back. They're investigating, but needed someone actually involved, so I ended up asking my brother to call them. Definitely awkward, but I think my brother and I have a good enough relationship that this won't strain it overmuch. Hopefully it saves him some grief in the end.

[woodchip]

Hopefully in the end he thanks you.

[Foil]

[Update, for anyone who remembers this old thread.]

Over three years later, the guy is in custody, facing charges of running, yep, a Ponzi scheme.

As far as my family goes, my brother doesn't seem to want to talk about it, but he had apparently realized at some point in the last couple of years that this guy wasn't legit, and managed to get some of his money out via smaller withdrawals before the guy ran. I'm not sure if my small warnings helped, or if it just became obvious to him that it was a scam.

Anyway, I'll see my brother in December for the holidays, and part of me wants to yell, "I told you so!". But mainly, I just hope this guy doesn't get off with a common white-collar light sentence.

[Tunnelcat]

The old adage always seems to come true. "If it sounds too good to be true, it probably is."

Glad you stayed out of the mess Foil. Sorry your brother got suckered however. I do hope that the crook gets more than a little slap on the hand.

[Ferno]

[Update, for anyone who remembers this old thread.]

Over three years later, the guy is in custody, facing charges of running, yep, a Ponzi scheme.

As far as my family goes, my brother doesn't seem to want to talk about it, but he had apparently realized at some point in the last couple of years that this guy wasn't legit, and managed to get some of his money out via smaller withdrawals before the guy ran. I'm not sure if my small warnings helped, or if it just became obvious to him that it was a scam.

Anyway, I'll see my brother in December for the holidays, and part of me wants to yell, "I told you so!". But mainly, I just hope this guy doesn't get off with a common white-collar light sentence.

paywalled.

[Vander]

Protip: search the article title on Google News.

[Ferno]

Protip: search the article title on Google News.

I know that. I'm letting him know that the site that he used paywalls articles like this.

[Vander]

And I'm telling you that if you follow the link from Google News to the article, it will usually bypass the paywall!

[Jeff250]

Or use Firefox's Reader View.

[Ferno]

those are some neat tricks.

[Foil]

Interesting. I'm not getting a paywall from that link. Here's the text of the article:

Accused local Ponzi schemer Maguire arrested in New Hampshire

Money man Chris Maguire tried to take illegal funds when he fled to Florida, indictment says

Authorities arrested former Dr. Phillips area resident Chris Maguire Friday in New Hampshire, on charges that he ran a Ponzi scheme that targeted conservative Christian churches in Florida, among other victims, according to a federal court docket.

Maguire was released to the custody of family members Friday, with an order that he not incur any new debts, and that he appear in Tampa federal court on Dec. 10, according to federal court records filed in New Hampshire.

An indictment unsealed over the weekend slams Maguire with 21 counts of wire fraud, illegal monetary transactions and transporting illegal funds across state lines. (Read the indictment here.)

Maguire allegedly ran an investment fraud where he told people he had a “proof of funds” loan business. He's accused of telling investors he was making a quick profit of 20 percent on funds.

Pictures: Christopher Maguire's rented Orlando estate
Maguire’s alleged fraud was at least $13.4 million in scope and fleeced several people associated with Christian churches and organizations -- including the pastor of a black church near Tampa, Ron Ellis, according to allegations filed in state and federal courts. He also did business with two church organizations in Winter Haven – Champions Church Inc. and All-Pro Pastors Inc. – according to the indictment.

Maguire, 33, appeared to be a wealthy financial wizard to many people. He lived in a waterfront home in Dr. Phillips (see accompanying photo gallery), drove Lamborghinis and bought houses and cars for his friends. But federal authorities said it was all part of the latest Ponzi scheme in Central Florida.

Ellis’ church itself, Exalted Word Ministries, claims losses of $30,000, according to a lawsuit. The indictment seeks forfeiture of at least $5 million allegedly bilked from investors.

Court records indicate that Maguire took about $6,000 in investor money when he tried to flee north over the summer. He was previously arrested in Florida on civil contempt charges, held for questioning and released on a promise he would provide more information about his finances. Maguire previously told attorneys in a deposition that some of the money had been moved to overseas bank accounts.

By the time a new arrest warrant was issued in the civil matter, Maguire’s whereabouts were unknown until the New Hampshire arrest. (This is a breaking story. Check back later for updates.)

Attempts to reach Maguire and attorneys who have represented him were unsuccessful.

One complaint filed by the U.S. Attorney’s office in Tampa described Maguire’s scheme in a 12-page document:

-- From 2012 to April 2014, Maguire told people he ran a financial company, usually Vivid Funding LLC, that provided “proof of funds” letters for corporations.

-- Maguire told investors that he was hired by corporations, and they would use Maguire’s bank accounts to show that they had assets when applying for new bank loans. He told investors they could get big returns on their money if they invested, and their money would be held in a trust account.

-- In reality, the feds allege, Maguire never used the money as described. Instead, he allegedly pooled the money in one slush fund and paid out large payments to previous investors, the classic definition of a Ponzi scheme. Authorities allege that he siphoned off about $4 million for personal expenses, like cars and houses.

-- Maguire described another company in his name, M-Development Inc., as being involved somehow in mobile application software.

One of Maguire’s alleged victims, Robert G. Noble Jr. of Orange County, sued him last year for $450,000. The court ordered Maguire to pay the money, but he hasn’t yet. Noble’s attorney, Gary Salzman, described Maguire’s image in an interview with the Sentinel last summer.

“He was ingratiating himself with these people, driving around in Lamborghinis, hobnobbing with the wealthy, and that’s how he’s getting their trust. He was documenting these loans, and paid out some returns, but then it ended,” Salzman said.

Another alleged victim was Marvin Weed of New Hampshire, who filed suit against Maguire and M-Development for $142,000.

The U.S. Attorney’s office has also identified a financial adviser who helped Maguire – William Peterseim, formerly of Longwood and now of Wesley Chapel, near Tampa. Peterseim was described as helping to steer investors to Maguire, in a federal complaint filed in Tampa to seize Peterseim’s home.

Peterseim has denied knowing about Maguire's alleged fraud. In the complaint, federal authorities said Maguire bought a house for Peterseim, paid directly out of the slush fund account.