by Brian Mahany
My grandmother would often say “It must be true, I heard it on TV.” That was years ago but people still believe things they see or hear on the TV, radio or Internet. Now a federal grand jury in Los Angeles has indicted a radio talk show host and charged him with running a $20 million Ponzi scheme. Many of his listeners were also his victims.
The indictment says that John Farahi ran a Ponzi scheme from his Beverly Hills office. During his talk show he would frequently solicit listeners to learn more about his investment opportunities. Prospective investors were told their money would be placed in “safe, low or no risk investments.” Some were told their money would be placed in FDIC insured CD’s while others were told their funds would be invested in government bonds. Prosecutors say he also told investors that he had his own insurance to protect their money.
Where did the money actually go?
Prosecutors say that much of it went to pay off earlier investors, a classic trait of Ponzi schemes. To keep the scheme going, more and more money must come in to pay off earlier investors. Ultimately, the scheme collapses under it’s own weight.
Prosecutors say much of the money also went to Farahi’s Beverly Hills home, cars and yacht.
As the scheme unraveled, Farahi became more desperate. The indictment says he once used a forged deed to lull an investor to believe that his investment was secured by real estate. It wasn’t – the deed was forged.
Individual investors weren’t the only victims. Prosecutors say that Farahi borrowed millions from Bank of America, Sun West and U.S. Bank.
Farahi is charged with wire fraud, bank fraud and mail fraud, among other things. If convicted he faces over 500 years in prison. He isn’t the only one facing his life behind bars, however. Farahi’s lawyer, David Tamman, has also been indicted. Prosecutors say that he is an experienced securities lawyer that prepared documents that he knew were false and conspired with Farahi to cover their tracks.
If this story isn’t bad enough, once the S.E.C. began investigating, Farahi is accused of perjury, obstructing justice, concealing evidence and witness tampering. The latter charge involved threatened or intimidated a witness to keep him from testifying.
Although Farahi was running so many scams, the interest he was claiming to pay (5%) was not astronomical. Instead of appealing to people’s greed by promising outrageous rates of return, Farahi claimed to be a conservative investor. That coupled with his talk show and Persian audience (his radio show was broadcast in Farsi) lulled many investors into a false sense of security.
What are the take aways from this story?
First, just because the promoter is a popular figure doesn’t mean the investment is legitimate. Most people know what they read on the Internet may be a hoax but many people still believe in radio and TV personalities. John Farahi was no Larry King or Walter Cronkite. (Even then one should always be vigilant.) According to journalist / attorney John Maglich, several other radio and TV personalities have also been charged with fraud in recent years including a Minnesota radio host, Trevor Cook, who had a show called “Follow the Money.”
The second lesson is to remember that many fraudsters prey on people in insular ethnic or religious communities. Just because the person that wants your money goes to your church or speaks your language doesn’t make him or her honest.
If you are the victim of an investment fraud, call us. Our securities fraud and asset recovery lawyers have helped people across the United States recover their hard earned money. Often cases can be handled on a contingent fee basis.
Mahany & Ertl – America’s Fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan & Portland, Maine. Services available in most locations.