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Investment fraud: a New Jersey Ponzi scheme

It's been a couple of years now since Bernard Madoff's immense Ponzi scheme collapsed. But state and federal authorities remain watchful for activities that could be interpreted as possible investment fraud.

In a recent New Jersey fraud case, a former investment broker been convicted of both state and federal charges in connection with the misappropriation of client funds. Last month, a federal judge sentenced the 73-year-old man to a seven-year prison term for federal mail fraud.

State authorities pursued their own charges in the case as well. Yesterday, a state judge sentenced the man to a 15-year prison term for money laundering. 

According to the charges, the man had used several different bank accounts to funnel money to himself from investments made by clients. The clients had invested the money in a fraudulent pyramid scheme involving the refinancing of nursing homes and other healthcare facilities.

A Ponzi or pyramid scheme is a scheme that generally involves taking money from new contributors and using it to pay older ones. The payments are typically intended to give the older contributors the false impression that they are receiving interest or other earnings on their investments. 

In the recent New Jersey case, the former broker described the transactions with investors as loans designed to create partners in the refinancing of nursing home and other healthcare facilities. In practice, however, the broker used the money on himself. This included numerous expensive trips to France for an extended period of time.

The state and federal sentences are to be served concurrently. But at age 73, it is uncertain whether the former broker will live long enough to get out of prison.

Source: Financial Advisor Magazine, "Former N.J. Broker Sentenced To 15 Years For Client Fraud," July 2, 2013

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