ponziCharles Ponzi lives! Today we offer advice for attracting special attention from federal authorities. Here’s how you do it, inspired by SEC v. Helms, et al:

Make promises

If you are Helms and Kaelin, market a limited partnership to hold royalty interests in 2000 wells, raise $31,000,000 from 129 investors.

In a private placement memorandum, promise:

  • 99.14% of the proceeds raised will be for  purchasing royalty interests;
  • Investment proceeds will be used for only two kinds of business expenses:  loan payments and promotional expenses;
  • Every dollar coming in goes out in acquisitions, “so if you put $1MM into the company, that $1MM is spent on acquisitions”;
  • You have managed other investments funds to the tune of $300MM (none of which is remotely true);
  • There are no material pending legal proceedings (when there are several).

Spiff up the resume

There’s more you can do:

  • Represent in the PPM that you have “worked with various mineral companies over the last ten years advising managerial issues involving the acquisition and management royalty interests, mineral properties and related legal and financial issues” (none of which is remotely true);
  • If you are Kaelin, describe at length your “extremely successful history” in the off-shore oil and gas industry and your business relationship with [a successful oil man you’ve heard of] and his $500MM energy fund (when your actual experience was cold-calling landowners to buy their minerals);

Break your promises, what were they thinking?

  • Make sure profits are inadequate to cover distributions to be paid;
  • Of the $31MM raised, make distributions using new investor funds totaling $4.7MM. Have the SEC’s witness deem every distribution a Ponzi payment;
  • Spend at least $8.4MM on yourselves, families, friends and associates, including $247,000 for your daughter’s wedding in Hawaii, $110,000 for airfare, $102,000 for tuition, $287,000 for mortgage payments, and a 23-day trip around the world.
  • Finance the trip with the proceeds from a single $200,000 investment.
  • If you are Helms, brag about your “Journey of Man”, in which you and girlfriend Keaelin use 50 hours flight time on a private jet, meet elephants in Thailand, ride camels in Jordan, and more;
  • Spend $12.8MM on business expenses, including $1.1MM in bank loans (don’t tell your investors).

Create and cover up evidence

  • Forge an audit letter from [a well-respected engineering firm] asserting that you own over 18,000 properties worth over $26MM.  In fact, there is nothing to audit because you own no properties;
  • Engage in “round-trip transactions” (moving money around in transactions for which there is no legitimate business purpose) to make it look like royalty revenue;
  • If you are Kaelin “repeatedly fail to comply with subpoenas, court orders and the Federal Rules, assert mental incompetence without supporting evidence, engage in “evasive and manipulative” conduct to avoid discovery obligations.

What about the salesmen?

  • If you are Sellers and Berrera, earn a commission that is 14% of a $3.1MM investment and more than eight times the PPM’s $50,000 limit for total promotional expenses;
  • Lie to the investor when directly asked about the commission, call it “small;
  • Debate with a federal judge the meaning of “small”;
  • Do all this while not a registered broker;
  • Don’t participate in the legal proceedings.

What will happen to you?

  • The SEC will sue you and your corporate entities, making a kitchen sink of securities fraud allegations.
  • There will be a judgment for $31MM, disgorgement, a permanent injunction, and a civil fine of another $31MM.

And finally, if you are Helms and Kaelin, this woeful journey