Investor Fraud – Anatomy of a Conman – Figuring out a Ponzi Plan and Rip-off Artists – Element III of III

Part III of III in this series of article content on Ponzi schemes will examine a true earth, ongoing fraud, the con gentleman at the rear of it and a number of of the hundreds of investors victimized by his prison business, Millennium III Corporation.

Record: At an early age, Gregg Scott Luce was falsely led to consider that his Maine based blood line was instantly related to the storied Time-Life Henry Luce legacy. It truly is unclear whether this fallacy was instilled inside him by personal dementia or a collective familial dementia. Luce fled his extremely dysfunctional loved ones at age nineteen and started trafficking in cannabis. In a 5 yr period, petty trafficking grew to main distribution: cargo planeloads of item, considerably of it brought in immediately from Jamaica.

Ten decades into this undertaking, Luce understood that a considerably better profit margin was to be understood in trafficking cocaine. It was the early 1980’s and cocaine was a well-known and recognized recreational drug amongst the institution. There wasn’t the stigma hooked up to the narcotic that exists these days. Luce was pushed to the brief deal with by impatience, an entrepreneurial spirit, ruthless and boundless ambition, and an insatiable craving for the recognition, hard cash and cache that experienced eluded his spouse and children for the far better component of a generation as it strived, futilely, to detect alone with the gilded Time-Lifestyle Luce lineage.

Sociopathology, one minded emphasis and indifference to the entire body rely in his wake, both of those basically and figuratively speaking, allowed Luce to establish a port of entry distribution hub in Seattle, Washington, and rapidly dominate the unclaimed US Northwest territory. Coming from a spouse and children of commercial fishermen, Luce was nicely versed in nautical maps. The Pacific Northwest’s unsettled, remote shoreline authorized inconspicuous ingress and egress of transportation planes from Colombia. Luce leased a pier and houseboats off Lake Washington, web hosting cocaine fueled parties frequented by popular spot artists, company leaders, lawyers, politicos and bankers.

Within just a five year period of time of time, the distribution network prolonged north to Canada and as considerably Southwest as Aspen, Colorado, the place his cartel’s administrative crew oversaw operations. The rising business enterprise invested in a Nascar race team. Product or service was transported to merch fall points in trailers employed to ferry cars and trucks and pit machines from town to city.

As with most narco-centric organizations, Luce’s venture operated on borrowed time. When the DEA and Feds broke up the drug ring, all senior staff, conserve for 1 specific, escaped. The captured operative refused to switch state’s proof, allowing his associates to quietly look for out other business opportunities. Luce took a two yr hiatus lying reduced and pored over the latest economic trends. It was the early nineties and the Nasdaq bubble had started to gestate. Silicon Valley, Boston, Austin and Seattle were being the new Wild West. Greed and inexperienced ended up in the air. In the fast paced planet of new media startups, the “cocktail serviette to boardroom” paradigm dominated, as did medications, violence, treachery, and lawful manipulation: otherwise known as Twenty-First Century corporate greatest procedures. Uncomplicated promotions had been the forex of success futures contracts and penny shares ended up the new blow. The watchful vetting of business options demurred to the haste of being very first to market place with a supplied merchandise . Undertaking capitalists indiscriminately showered IT neophytes and veterans alike with extra seed income than most could realistically hope to match in profits. Boom-bust higher tech gold fever was in entire force. Luce could not have scripted a much better entree into legit business enterprise.

Ponzi Scheme: Hence marked Gregg Luce’s emergence from the organized criminal offense of drug trafficking to the organized criminal offense of Wall Avenue. The founding of Millennium III Corp. (MIII) commemorated Luce’s introduction to Fortune 500 culture at the VC cotillion. In purchase to fly beneath the radar of SEC laws and regulators, the recently minted CEO of MIII, a broadband media streaming company, confined his original trader pool to thirty-five non-accredited shareholders. He later violated the SEC Rule 505 exemption provision with inclusion of an extra 10 investors. Somewhat than issue shares to investors, Luce issued “convertible be aware bank loan agreements”: an instrument convertible to both buybacks or shares in MIII at maturation. Luce took his tortured small business product a step further more, arguing the corporation managed a non-financially rewarding rely on that secured investor monies. In this and subsequent downsides, Luce argued, with poetic license, that the preliminary company kind would by some means morph into a “lender”, thus making certain the liquidity of MIII’s funds funds and the security of investor monies.

In trying to keep with Millennium III’s smoke and mirrors enterprise framework, its CEO was functionally illiterate in New Technological know-how: the company’s main products providing. Luce was equipped to efficiently move himself off as an IT avatar by bordering himself with knowledgeable, real technology professionals, offering the Ponzi scheme with a patina of legitimacy. He maintained an entourage of tech savvy progress folks, lest his shareholders and clientele notice that the emperor experienced no clothing.

7 decades immediately after the founding of MIII, I was retained to critique mental home concerns. Roughly twelve months into my do the job, original note holders commenced contacting me, expressing concern that they had obtained no once-a-year statements from MIII — for that matter, no interaction at all from the board of administrators or company officers for quite a few a long time. More troubling, to a person, every single investor experienced demanded buyback on maturation of their convertible be aware mortgage agreements. Luce refused to honor the promissory notes. The paper trail confirmed Luce made use of revenue from the non-accredited trader pool to line his possess pockets, and revenue from new investors to pay back contracted employees that held inventory choices thus, perpetuating the ruse. A textbook definition of the classic Ponzi scheme with a slight twist: utilizing revenue from new buyers to pay dividends to first buyers.

I approached the CEO with my issues. He was non-responsive, as was the board. The newly enacted Sarbanes-Oxley Act supplied new remedies for lawyers caught in this predicament, enabling them the ability to whistleblow devoid of panic of reprisal for breach of legal professional-client privilege. The new regulation permitted me to inform the shareholders and regulation enforcement to Luce’s misuse of company money. Legal professional-consumer privilege was a lesser issue, as Luce experienced very long due to the fact waived any privilege appreciated when he actively solicited me, demanded truly, that I launder corporate receipts for his conversion to own use. As I dug deeper into the CEO’s background, unearthing a deep listing of accounting firms, legislation corporations and contractors owed cash, I arrived to understand that this was a single of Luce’s methods: secreting dollars in his attorneys’ customer rely on accounts, knowing that the law firm would be obliged to release the cash to Luce as shopper, regardless of irrespective of whether the cash was soiled. In addition to confronting shareholders with Luce’s malfeasance, I reported his actions to lawyer normal places of work in two states. Official investigations into Millennium III and its CEO were underway.

With heat turned up by regulation enforcement and shareholders, Luce did a cash get, embezzling from his possess company, and fled the condition to set up store in Arizona. Luce didn’t see functioning off with investors’ funds as theft. His mentality was these types of that he was constitutionally incapable of distinguishing involving company assets and own property. As he noticed it, MIII’s belongings ended up his belongings therefore, there was no theft in this distorted environment see. This would be a recurring topic in his subsequent Ponzi strategies. His flight still left dozens of traders in Washington Condition, Nevada and Idaho keeping the bag — out all their cash. To this working day they have not recouped a penny, in spite of two eighteen thirty day period very long concurrent investigations by AG places of work in both equally Washington and Arizona.

A fantastic con male rarely stays static in product or presentation. This is particularly real right after a Ponzi plan has been uncovered. Right after Luce was chased out of Washington State and started off anew in Arizona, he adjusted his full business design to cater to the New Age Sedona group. Con gentlemen gravitate to merchandise and expert services wherever overall performance can’t be measured empirically. New Age meditations, administrations and potions proved a industry ripe for exploitation, because it was largely religion based and not ruled by the Fda or AMA. Beneath the banner of a MIII Corp. overseas company registered in Arizona, Luce commenced to solicit buyers for ventures ranging from the mundane — self-advancement programs — to the fantastical — place tourism. He held out his partner’s Flagstaff true estate as his personal, applying it to collateralize investments. His shotgun tactic to featuring a multiplicity of expert services failed. Following 5 a long time with no looking at a return and suffering a reduction in excess of $500,000 USD, Luce’s partner gave him the boot, forcibly evicting him from the assets. To this working day, Luce holds out the home as his personal, regardless of the actuality his identify is not on the title and a courtroom get was awarded for illegal detainer.

Luce then ventured more south to Santa Fe, New Mexico, this time altering his bodily appearance to a startling diploma: Luce retired the Brooks Brothers satisfies and button-down conservatism for ‘aging rock star’ couture and a metaphysical slant in pitching his “marks”, fully switching his glance and product. The person appeared like Rod Stewart. On a terrible working day. Wherever he was reserved and presentable although doing work and living in Seattle, Luce now came across as a raving lunatic with out another person well-informed, articulate and balanced fronting him at the bargaining desk. These handlers were defecting in lockstep with their CEO’s deteriorating psyche Luce’s entourage of capable advance gentlemen was promptly thinning the patina of legitimacy showing extra trompe l’oeil. To see just how “ridiculous” ridiculous is, peruse the nonsensical manifesto that seems on his MySpace site: Movie clips and photos of Luce executing his various negatives are linked to his homepage. Courtesy of his formidable moi, this is a scarce option to see a con man in motion.

In the vicinity of Los Alamos, the MIII CEO tapped into a group of retired physicists and businessmen operating on new encryption technological know-how. Luce managed to convince them he was an Info Engineering visionary with the capability to pair product builders with financiers. Regardless of his new eccentric seem, he practically pulled this off, mesmerizing a youthful, naive trader from Los Angeles that ponied up $75,000 USD with the pledge of a a lot greater, 2nd angel trader look at. Prior to proffering this 2nd check out, the trader had the belated excellent feeling to run the attendant paperwork by his legal professional. The attorney had the joyless job of informing his consumer that, not only was his income long gone, there was no basis for prison or civil fit because of to the nebulous nature of the “companies contract” he entered into with MIII. The agreement did not bind the con male to any identifiable, legally binding distinct overall performance. As a authorized document the deal was meaningless. It was convoluted enough to persuade the trader to portion with his money: that’s wherever its value finished. In brief, from a authorized standpoint, the $75,000 was no a lot more than a “reward” from one particular particular person to one more.

Present day: Phrase of Luce’s reemergence in New Mexico attained my regulation offices this past thirty day period. I was set in get hold of with legal professionals representing both of those investors and innovators to the deal. Neither legal professional was amazed to come across Luce was a con man, as they had arrived at that summary with out my help. They were, nevertheless, stunned that he had these types of a prolific and recidivist record as an expert self-assurance gentleman. I furnished them with documentation outlining Luce’s Ponzi strategies in Washington and Arizona. A mere week later, Luce surfaced in Santa Monica, California, in which he had settled in as interminable household visitor at the demi-mansion of a productive, properly-intentioned New Age marketer. In short purchase he experienced tapped into the marketer’s expert network where by he succeeded in each co-opting and alienating organization contacts.

Like a parasite trying to get out a host body, Luce would not only insinuate himself into the company life of his marks but their personalized lives, as very well. The crucial to his con — and that of numerous self confidence gentlemen — was to ideal the specialist and social networks of his victims in get to feed his rip-off. If a person trader dries up, one more in the network is primed and can be approached.

As a consequence of his relationship with Luce, the marketer was dropping believability, standing and relationships inside the restricted knit naturopathic group. Further more fomenting discord was Luce’s volcanic mood. He had a historical past of violent outbursts, lashing out at those people that would question him, specifically minorities and girls. Not just reliable with the New Age humanist standpoint. Luce’s true character was revealed when his mood flared. Inspite of the grave liability he introduced his host, the businessman was so taken in by the scam artist’s charisma that he was in denial.

The marketer’s superior pal, a further prominent businessman in Los Angeles’s homeopathic neighborhood, was not so enamored by Luce or deluded by his charisma. In simple fact, when introduced to the con guy at a Hollywood Hills occasion, he observed his pitch much too excellent to be accurate and Googled Luce’s identify on his Blackberry: up popped my name with a warning to possible Millennium III traders. He referred to as my business office the adhering to working day, sharing his worry for his friend’s very well being. It took recurring sit downs and individual discussions with the marketer, armed with documentation I delivered him, to objectively layout Luce’s historical past and machinations. Even with challenging, tangible specifics in entrance of him, the marketer remained incorrigible. It took a next spherical of paperwork and direct correspondence from my desk to the marketer’s in get to shake him free from the con man’s Svengali-like choke hold on his reasoning capacity. The marketer kicked Luce to the suppress.

In the earlier five decades, Luce has efficiently mounted three individual fiscal scams, even staying so brazen as to threaten law satisfies in opposition to investors who severed ties with him after noticing they experienced been swindled. Consistent with all thriving con gentlemen, Luce has a keen eye for identifying a will need in his mark, then convincing the mark that he is uniquely positioned to fulfill that want –despite missing the intent, skill or wish to supply on his guarantees.

Luce is starting to unravel and increase ineffectual. The con guy has come to be entangled in his personal world-wide-web of deceit. Unable to hold his lies straight, he contradicts and exposes himself at each switch. His mood, misogyny and racism have surfaced frequently as the intensifying scrutiny of regulation enforcement, bilked investors, lawyers and accountants attenuates stress by directing klieg lights on his numerous Ponzi techniques.

Con adult males are generally tough to apprehend, because they are not pushed by financial get, on your own. They are sustained in huge part by the adrenalin rush seasoned transferring in for the destroy, gutting then hanging their prey to bleed out. Luce is notably skewed in this regard, normally forfeiting the significant rating in buy to slink absent and mount yet another fraud in yet another condition. Thieving just ample funds to continue on the ruse, but not so a great deal bounty that felony or civil fits are filed as a matter of training course.

More From My Blog