How am I being scammed?

In My Humble Opinion
1

Long story short, years ago I “invested” in what seems to have been a Ponzi scheme of some sort. I signed documents with a registered company to invest in a project, and it seems the project was never done and my money disappeared.

The company then declared insolvency (bankruptcy? Not really sure, don’t have the details), but the owner said that one of the partners, who ultimately received my investment, was going to “take care of me” and “make me whole.”

For a while, I thought the scam was that the other partner’s word was worthless and the money would never come through. But now this partner wants to “return” my investment through the issuance of stock in a new company. I’m not sure what to make of this.

I figure it’s any of these scenarios:

  1. The partner has enough money and needs his business reputation more than he needs my investment, so he wants to return it because it’s not his to keep.

  2. The partner has my investment, knows he needs to return it, but wants to find a way to keep it invested in the new company. The story is just window dressing designed to not have me fight him on it. In other words, “I know that plan didn’t work out, but this one will, so can we just roll it over to the new business?”

  3. The stock is a fraud and will tank during the mandatory holding period, like a boiler room scam, a pump ‘n’ dump type of deal.

Is there any other option? Should I accept this stock? Do I even really have a choice? Anyone been in this situation or know of one like it?

2

Have a consultation with an attorney and follow their advice.

3

It sounds like he may want to make it ‘morally’ right if I understand what you are saying.

Legally your money has walked away - gone. But if there is no asking for more then shares of a stock may be a attempt to pay back if he strikes it big. It’s a shot in the dark if anything will ever come true, but now you might be holding paper of a currently worthless company which may one day succeed. Perhaps you can double your chances if you want to spend a buck or two and buy a lottery ticket.

4

I vote for consulting an attorney. I can see all kinds of questions on this.

In terms of the scenarios in the OP, it wouldn’t surprise me if it were option 3. If you agree to the new arrangement, it could be the partners are off the hook for repaying you.

5

A lawyer is probably the correct advice. If your local state’s attorney general works with this kind of thing, start with that (or at least ask their advice) since it’s free. If you do that, however, I’d suggest dropping the word ‘fraudulent’.

Having said all that, as well as what the people that follow me will say, the first thing I’d probably do, while getting an attorney/AG lined up, since that takes time, is to email them, nicely, something along the lines, “hey, I think I’m going to take a pass and cut my losses/quit while I’m ahead. Could you please just send me a check for the balance of my account. Thanks for all you’ve done, don’t hesitate to email me if something else promising comes along”. I only suggest to do this because it doesn’t let them know that you know you’re on to them. Saying something like “I know this is a ponzi scheme, send me my money or I’m suing you” will put them on the defense as well as give them time to figure out what to say if and when they have to deal with you, legally, or even go so far as to bankrupt their business or skip town. Don’t give them a chance to do that.

At the very least, don’t tell them you’re going to do anything involving the law. Just do it. Make sure it’s a surprise.

Another thought, if this is supposed to involve some kind of publicly traded stock, you may want to contact the SEC, or at least peruse their website and see what they have to say about it. Also, if you think (know?) that this is out and out fraud, as in they stole your money, you may want to go to the police (or even the feds). I know to the feds sounds drastic, but it’s probably not the couple of dollars they took from you, but the hundreds of thousands of dollars they took from everyone. However, those may be lawyer questions.

But still, I’d start with a nicely worded email to see if you can cash out. Do what you want when and if you get your money back, but see if you can do that without to much fuss. For the record, part of a ponzi scheme is returning money to earlier investors.

6

Since you “invested” before, the other partner thinks he’s got a live one. If you agree, he will try to sell you more stock or otherwise try to get you to send him more money.

You can send all the emails you want - you will never see any of your money again.

Regards,
Shodan

7

I think it’s 3), on the basis of the Sunk Cost fallacy.

The only way you’re being offered to recoup your earlier investment is to roll it into a new investment. If you agree, your earlier investment is a sunk cost, and you’re emotionally (as well as fiscally) invested in supporting the new venture. Probably, by putting forward more investment as demanded.

It’s a baited fishhook; if you agree, the hook is set and they can play you as long as you don’t give up on your accumulated investment. Which, ironically, probably doesn’t exist – the bait probably isn’t valid. If you insist on cashing out your earlier investment, you’ll get nothing. The bait is a fake lure, and everything you put in afterward is more money in the cons’ pockets.

That’s my cynical take, anyway.

8

Why did the original investment sound like a ponzi scheme? If it was an actual ponzi scheme you should report them to the authorities. However, real businesses go bankrupt all the time and it might be that the partner feels bad and wants to repay the people who lost money in the first venture. Issuing stock is not an easy endeavour and there are alot of hoops to jump through to make sure it is legitimate.

9

If it were me I think I would act as follows (based on no legal advice nor business experience whatsoever):

  1. As Joey P suggested, contacting them to thank them for their offer but asking to have your money back instead.

  2. On the (likely) assumption that is declined, accept their offer of new stock (on the basis that your money is now gone, so you may as well get some paper for it, which will likely be worthless too but there’s just a chance it’s legitimate and then a (still smaller) chance that you may eventually see a return. What have you got to lose, after all, other than what you have already lost?

  3. At the first hint of them asking for more money (or if it starts looking like any hassle at all), simply sever all further contact and never worry about it again, putting it down to experience.

10

There’s a chance that they are being sued and will have to pay out damages to all unhappy investors. If you take the new stock, you will likely be excluded as a beneficiary of such a lawsuit. If you have agreed to convert your stock in WorthlessCompany into stock in GreatInvestment, then the court would likely consider that the return of your investment.

11

As a general rule, you should not associate with people you think are untrustworthy.

If you think that the original thing was a scam, then this new thing is likely a scam too, and getting a lawyer involved is a waste of time and money, as is playing along. Yes, there’s a small chance that this is legit and you’ll get something back. But there’s also a chance that it’s some even bigger scam that’s going to be a giant stupid hassle. Like, what are the tax implications of accepting this stock? What happens if these guys go down for criminal fraud and law enforcement finds your name on the documents along with co-conspirators? Bad things!

“what have you got to lose…” is wrong for the same reason Pascal’s wager is wrong. You don’t know what the downsides are, so you can’t weigh the slim chance of a known upside against nothing.

12

Listen to

Regards,
Shodan

13

Could it be that the first company hasn’t really gone out of business, and is in fact poised to do well (or at least believed to be), and the scam is to get you to switch out that stock for another speculative one?

14

Thanks for the replies. Seems there’s a wide variety of opinions. I don’t want to give too much detail but let’s just say there’s no reason to call the AG or the feds…they called me.

15

Dun dun DUUUUUUUUUNNNNN!

16

Ya’ll come back now, hear!

17

Return to start.
Consult with a lawyer.
Don’t make any further agreements with these guys about anything.

18

Yep, and read the fine print. I’ve been given similar type stock before. In my case, it was giving almost worthless stock (really needed a miracle for the company to become attractive enough for someone to want to buy the stock much less go IPO), for what was 100% worthless stock (initial investment). I ended up selling the almost worthless stock back to the original guys for my initial investment, and as far as I can tell, they haven’t made much headway in the past few years. Anyhoo, read the fine print critically and talk to a lawyer