Details of Kirk Wright Indictment
A number of details have emerged from the amended indictment against Kirk Wright, which appear not to have been reported in the various news accounts, here and here. No one seems to have read in detail either the indictment or the FBI's news release. The news reports continue to talk about an $185 million ponzi scheme and the disappearance of most of that sum.
But, it is very unlikely that Kirk Wright ever had anything like $185 million under his control, or the control of his hedge funds. As the indictment makes clear, he is alleged to have lied about both where the money was being invested, and how much money the various funds had in their control.
To accomplish this, the indictment alleges that he simply put the investor's money in an account called, I suppose, creatively, the "IMA expense account" and used the proceeds of it to pay himself, and his partners. The indictment the alleges that he simply sent false statements by mail to his clients and counted on them being happy with what the statements reflected.
Charles Ponzi used a similar scheme in 1919. As Donald Dunn, writes "after receiving notification of their 50% return, Ponzi could imagine the activity". While some would rush to cash in on their good fortune, "others would take their time, convinced by the fact that they had a one cent post card, they also had a 50% return on their investment. They would read the card over, show it to their wives and relatives. ... Back at their jobs, at the restaurants, at the recreation halls, they would tell others of their stupendous good fortune -and the ones they told would come running. Each satisfied customer would become a salesman, self-appointed." (my emphasis)
As many of the ponzi scams have shown, the ability to manufacture false returns or statements of accounts in critical to the success of the scam, or fraud. And as one astute reader has already pointed out, "It seems that money deposited into a legitimate custodial account is then deposited into a "black hole" with no further accountability". Are the institutions who provide the custodial accounts innocently enabling fraud? Do they have any liability for this, if so? Interesting questions.
Technorati Tags: ponzi scheme, charles ponzi, indictment, news reports, news release, donald dunn, money, fbi, hedge funds, expense account, ima, proceeds, kirk wright
Comments
The original SEC complaint specified around $115 million that had been collected. Some of that was returned to earlier investors, so there can be no real accounting until every investor's initial investment minus any withdrawals is tallied. A few investors may have actually made money and gotten out before the whole thing came crashing down. The $185 based on IMA records is bogus, just like most everything and everyone else associated with the company.
Posted by: Anonymous | July 6, 2006 6:09 PM
When all the proofs of claims are accepted by the trustee in bankrupcty, we will have a much clearer picture if even the $115 million was correct.
I think the proof of claims had to be in by the end of June.
Posted by: Michael Webster | July 6, 2006 6:32 PM
The indictment stated that the COO and CFO principally handled administrative and marketing tasks. Are these typical responsibilities for those positions? Is there legal precedence for "deliberate ignorance" not sufficing as a defense in culpability of fraud?
Posted by: Anonymous | July 7, 2006 1:38 AM
IMA must have been registered with at least a dozen different states across the country and in fact, still is. What measures are the states taking to assure that the individuals involved are never allowed to do business in those states again, or any other state, for that matter?
Posted by: Anonymous | July 10, 2006 11:24 AM
This is a very good question, which I don't know the full answer to. My guess is that states would take some administrative action to make sure that Wright et. al. could no longer trade in their state. Generally, the regulators do not pursue cases on behalf of their state residents for restitution, even if their owns state laws have been broken. You might want to check http://www.nasaa.org//QuickLinks/ContactYourRegulator.cfm and ask more details from your own state regulator.
Posted by: Michael Webster | July 10, 2006 11:41 AM
It is unknown how many custodial insitutions were involved in transferring funds to IMA which did not provide further accounting for where the funds were invested or how they were performing. One custodian fund was Reliance Trust Corp, which happens to also be based in Atlanta, GA, as were the headquarters for IMA, perhaps a little too close for comfort.
Posted by: Anonymous | July 10, 2006 6:47 PM
Each individual investor should check their own statements to see what custodial institution was involved as they may have a claim against that institution for negligence.
Posted by: Michael Webster | July 10, 2006 10:08 PM