Home -> Law Blog Directory -> International Law Blogs -> Misleading Advertising Law

International Law

: Misleading Advertising Law

David A. Souza Ponzi Scheme

This is from the SEC Press Release on the David Souza Ponzi scheme.

"The Securities and Exchange Commission on Friday charged David A. Souza and his company, D.A. Souza Investments, LLC for conducting a fraudulent investment scheme that targeted a Redding, California church community.

In a nine-month period during 2007 and 2008, according to the SEC's complaint, Souza raised more than $1 million from approximately 28 investors by touting his supposedly phenomenal skill in investing.

Souza allegedly took advantage of investors' trust by appealing to their religious faith with slogans such as "Where Business Is Moral and the Miraculous Is Routine."

In reality, the SEC's complaint alleges, Souza never invested any of the money he received from investors.

Instead, he diverted most of the investors' money to expenditures designed to create the false appearance of a successful business operation. Souza used another portion of the money to pay certain investors fictitious high returns in the style of a Ponzi scheme, and he used the remainder to pay his personal living expenses.

The SEC's complaint, filed in the U.S. District Court for the Eastern District of California in Sacramento, alleges that Souza told investors that their money would be pooled together and invested in stocks or business ventures.

Souza convinced individuals to invest with him by professing that he had achieved remarkable rates of return on his past investments.

According to the complaint, one prospectus Souza distributed showed purported annualized returns of 158 percent. The supposed returns were entirely fictional, as Souza had no prior investment experience, and he never invested any of the money he received."

I want to make three points here about the legal process and the persuasion techniques.

SLOGANS DON"T CONVINCE

First, religious people are not any more stupid when it comes to investing that the ordinary crowd.  The silly slogan is not mean to induce reliance, and as such it is legally irrelevant.

The SEC press release should not be focussing on irrelevant details which make the victims look like idiots - the SEC isn't any better at spotting con criminals before they blow up than the ordinary person.

NEWCOMERS ATTRACT ATTENTION

Second, it is very unlikely that Souza convinced anyone to invest with him because of his past investment history.  Much more likely is that being a new comer to the religious community, Souza attracted curiousity and people seeking his friendship.

Newcomers are always an object of interest.

A skilled con criminal can always use his temporary position of interest and fascination to elicit enough history about the group to find out who is going to be particularly vulnerable to his pitch.

Note in this case we are talking about a group of 28, likely who looked to 2 or 3 for advice.

TOO GOOD TO BE TRUE, NOT!

Finally, how Souza convinced people to invest is irrelevant for the legal process, but critical for those who were taken in by Souza.  The legal process here is going to run roughshod over the victims because they will simply be portrayed as idiots who didn't understand that a 158% return was too good to be true.

Again, for the legal process the 158% return is not relevant: either the funds were invested in the manner Souza promised or they were not. 

We need to have better press reporting about these schemes, a focus on the details of the persuasion techniques whether they are legally relevant or not.

Full post as published by Misleading Advertising Law on September 01, 2009 (boomark / email).