Ponzi Schemes Rob Both Sides of the Aisle
As the former head of the local chamber of commerce, Carolyn Grant was once a well-known and respected politician in the Raleigh area. She ran for Raleigh mayor in 1999 and Congress in 2002, though neither attempt was successful. Grant was considered to be a pillar in her community and trusted by everyone who knew her, which is how she nearly managed to pull off a $13 million Ponzi scheme.
The Politician’s Ponzi Scheme
From 2007-2011, Grant attempted a similarly structured scam as the infamous Charles Ponzi. He carried out a mail fraud operation back in the ‘20s that utilized a method called “lulling payments” where a small, upfront investment from a new investor would be used to repay an earlier investor’s payment or the interest on the original investment would then create a false sense of confidence in the investor, often resulting in further capital investment. Grant, unfortunately, followed suit.
She tapped into her extensive network of high earners from her days as a politician and head of a local chamber of commerce. Her victims thought they were investing in a real estate development deal to score a 20% return on their investment. In June 2007, she sent a misleading mailing to investors and potential investors, detailing the supposed real estate project on Louisburg Road.
"These investors were doctors, lawyers, businessmen, businesswomen, who oftentimes were investing large sums of money with her because of the trust she had," said U.S. Postal Inspector Michael Carroll in an interview with WFMY News.
Grant received more than $14 million from 65+ victims over four years. Unfortunately, her development deal was never real, and she allegedly never intended to pay back investors. Using her reputation as credibility, Grant was able to secure rounds of investment simply because people trusted her. Up until this point, no one had a reason to not trust her.
Prosecutors said she lied to investors, telling them their money was used on real estate projects when it was used for her personal and business expenses and to repay other investors.
Carolyn Grant was convicted of mail fraud in 2012 and sentenced to more than six years in federal prison. In addition, she was ordered to pay $13 million in restitution.
Moral of the story?
Postal inspectors warn that an unrealistically high rate of return is often a red flag for a bad investment. To better prepare you and your client, see what other common real estate scams are hurting your community.
Most Common Real Estate Scams
As a real estate professional, you are responsible for protecting your clients’ interests and should be aware of common real estate scams and schemes. Here are the five most common real estate scams to keep an eye out for:
1. Escrow wire fraud: Scammers claiming to work with your client’s title or escrow company will reach out to them with instructions on where to wire their escrow funds. Fraudsters will go to great lengths to enact this ruse, even setting up fake websites that appear similar to the title or lending company your client is working with, making their request seem like the real deal.
2. Loan flipping: Loan flipping occurs when a predatory lender persuades a homeowner to refinance their mortgage repeatedly, often borrowing more money each time.
3. Foreclosure relief: Homeowners who fall on hard times and get behind on their mortgage payments can become desperate to save their homes. Scammers will swoop in with offers of foreclosure relief to capitalize on homeowners’ vulnerability. In reality, they’re just collecting a large upfront fee with no real intentions of helping the homeowner.
4. Rental scams: Scammers post fake property rental ads on Craigslist or social media using photos from other listings to lure in unsuspecting renters. Fraudsters, who have no connection to the property or its owner, will ask for an upfront payment to let your clients see the property (or hold the money as a “deposit”).
5. Moving scams: Your client has found a new place to call home, and now they have to find a way to move all of their belongings. They might fill out a form for a moving company estimate, outlining all their items, and receive an estimate for $4,000 to ship them from their current home to their new one. Once this is done, the “company” will raise the estimate and corner your client into paying more to give their belongings back.
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