In the wake of the market crisis, Ponzi scheme cases continue to be a staple of SEC enforcement. It seems the turmoil in the markets in recent times is exposing the schemes. SEC Chairman Schapiro cited these actions last week in discussing significant cases the division is bringing. Speech by SEC Chairman: Keynote Address at the Compliance and Legal Society of the Securities Industry and Financial Markets Association 2010 Annual Seminar, May 6, 2010. Likewise, criminal prosecutors are also bringing an increasing number of Ponzi scheme cases.

Last week, a scheme which had been going on for over a decade came to an end when Gregory Cronin pleaded guilty to a two count information charging wire and securities fraud based on his scheme. U.S. v. Cronin, Case No. 1:10CR154 (E.D. Va. Filed May 7, 2010). According to the agreed Statement of Facts filed with the plea, Mr. Cronin raised over $6.7 million from individuals who where were largely friends and former clients from the time he was employed as a retail broker for a large bank. Mr. Cronin solicited investors to place their money in his firm, Investment Advisors, Inc., obtaining discretionary trading authority. Frequently he encouraged potential investors to refinance their homes to obtain cash to invest. Many clients gave Mr. Cronin the funds in their retirement accounts.

Typically, each month investors would receive a statement showing that their funds had been invested in an individual account in stocks such as Coca-Cola, Duke Energy and Apple Computer. The statements showed clients that their investment was increasing. In fact the statements were false. Client funds were pooled in a single bank account and used to trade options. The trading had losses, not profits. When clients insisted on withdrawing funds, Mr. Cronin used cash obtained from other investors to pay them.

The scheme began to unravel in June 2009 when the Virginia Corporation Commission interviewed defendant Cronin. During the discussion he falsely told the officials that his trading business “had wound down” and that he no longer had any clients or records. By September 2009, Mr. Cronin tried unsuccessfully to borrow funds from one of his investors, falsely claiming he needed the money to cover a short position in his personal account. About two weeks later he admitted his scheme to Postal Inspectors and turned over his computer records. Sentencing is scheduled for July 23, 2010.