Ponzi-mania: Nadel's Sarasota empire unravels
Wake up and good morning. Anybody want a business jet? (I hear a lot them are coming on the market.) Alleged Sarasota Ponzi king Art Nadel's money empire is crumbling swiftly now that's he's in custody after fleeing the west coast of Florida. A federal criminal complaint in New York says investors in funds run by Nadel were told they had more than $300 million in their accounts, though there was less than $125,000. Newspapers are filling with stories about additional charges, expanding investigations and asset seizures -- like Nadel's jets, one of which (a Cessna) is similar to this one. Where to begin?
First, a Fort Lauderdale investor who lost $5.8 million with Nadel's Scoop Management Inc. has filed his own fraud suit against Neil and Chris Moody, general partners in three of Scoop's hedge funds, reports the Sarasota Herald-Tribune. Plaintiff's attorney Morgan Bentley also wants to seize properties owned by the Moodys in Sarasota, including Neil Moody's $2.16 million La Bellasara waterfront condominium on Golden Gate Point and Chris Moody's $2.35 million home just south of Siesta Drive.
Second, the Herald-Tribune also reports two finance companies filed a federal court action Wednesday to seize jet aircraft owned by Nadel. General Electric Capital Corp. and VFS Financing Inc. loaned Nadel a combined $4.7 million so he could buy a Lear Jet and a Cessna 550 jet as part of a Georgia-based aviation business called Tradewinds. Nadel defaulted on the loans last month, according to a court filing in U.S. District Court in Tampa.
Third, Nadel, who is held in jail without bail, this week was ordered transferred to federal court in New York to face criminal charges by U.S. Magistrate Judge Mark Pizzo in Florida.
Art Nadel? (See second photo.) Considered a philanthropist in the Sarasota community until it was realized he had apparently stolen most of the money he was handing out. And what of Lou Pearlman (that's him in handcuffs), the Orlando boy-band promoter who, on the side, concocted a Ponzi scheme of hundreds of millions of dollars. Pearlman was snagged by the feds while hiding in Bali and now sits in a U.S. jail.
Ponzi schemes unravel in bad times because the new money from new investors, required to mask Ponzi schemes method of paying old investors with new investor money, dries up. But why is it so concentrated in Florida? Because that's where the money is, that's where less-than-skeptical older investors seem way too willing to hand over their cash to a good pitch at the yacht or country club, and where overwhelmed and undertrained state regulators still would not know a Ponzi scheme if it landed on their desk.
The Wall Street Journal reports (subscription required) that at least six suspected multimillion-dollar fraud cases emerged in January alone, many of them alleged Ponzi schemes. The story quotes Florida private investigator and Ponzi expert Bill E. Branscum of Naples:
"When you have serious economic problems, people who have been content with where their money has been sitting sometimes need it," he says. "And in needing it and in finding out that they can't get it, that serves to reveal Ponzi schemes that may have gone unnoticed."
This NPR radio report asks: What's up with all these Ponzi schemes in Florida? It's worth a listen. The idea is also explored here and The New Yorker magazine writer George Packer has a story headlined "The Ponzi State" about his wandering about the greater Tampa Bay area's new housing subdivisions. The best line in the story comes from University of South Florida (St. Petersburg) history professor Gary Mormino, author of the Florida modern culture book, "Land of Sunshine, State of Dreams." He tells Packer:
“Florida, in some ways, resembles a modern Ponzi scheme. Everything is fine for me if a thousand newcomers come tomorrow.”
Give Mormino an "A" for honesty and insight. The NPR report asks an expert, attorney Michael Goldberg, who is a court-certified expert on Ponzi schemes. Says th NPR report:
"As for the investors, Goldberg says, he's seen both poor and wealthy people taken advantage of. 'It's just a little bit of human nature,' he says, 'a little bit of wanting to make a quick buck and, to be honest, a little bit of greed. That's the common characteristic.' "
(Lou Pearlman photo by Phelen Ebenhack for the St. Petersburg Times. Other photos from AP and courtesy of Cessna.)
-- Robert Trigaux, Times Business Columnist