TOPICS > Economy

Alleged Ponzi Scheme Swindled Immigrants in Los Angeles

May 4, 2009 at 6:40 PM EDT
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Amid growing complaints about Ponzi-type schemes in the wake of the Bernard Madoff scandal, a company in Los Angeles is alleged to have swindled investors out of millions. Special correspondent Jeffrey Kaye reports.

JIM LEHRER: Bad times and the Madoff case have brought new attention on Ponzi and other get-rich schemes. Here now is another. Special correspondent Jeffrey Kaye reports on a trail of broken promises in Los Angeles.

JEFFREY KAYE, NewsHour Correspondent: The promises made by a company called Financial Plus Investments were enticing. Spanish-language ads on television and radio, in glossy magazines and newspapers offered fabulous money-making opportunities, paying back up to 100 percent interest.

HOWARD EHRENBERG, Bankruptcy Trustee: What was going on was essentially a Ponzi scheme amongst largely Spanish-speaking immigrants in East Los Angeles and surrounding areas.

JEFFREY KAYE: Complaints about Ponzi-type schemes are on the rise. The U.S. Securities and Exchange Commission says the scams are increasing in magnitude.

And in the last six months, the Commodity Futures Trading Commission has filed three times as many Ponzi allegations as in all of fiscal 2007.

In the Los Angeles area, as many as 800 people put some $40 million into Financial Plus Investments between 2006 and 2008. Of the $40 million, according to bankruptcy trustee Howard Ehrenberg, investors are owed $29 million.

HOWARD EHRENBERG: As all Ponzi schemes go, the first investors received back some of their money. But as the Ponzi began to unravel, and when it finally collapsed, most of the victims were left un-reimbursed.

JEFFREY KAYE: Still hoping to recover their investments, many meet regularly to go over records and consult with lawyers.

MARIA ZUNIGA (through translator): The financing was good, and I thought that with the money I could help my children and make a better life.

Many Ponzi-type schemes

JEFFREY KAYE: Last summer, California regulators shut down Financial Plus, which operated out of this bank building, and FBI agents arrested company owner Juan Rangel at his mansion, after he and his son were indicted on federal charges of bribing a bank official to falsify records.

In the raid, agents seized luxury cars and a limousine. Rangel, a Mexican national, has pleaded not guilty. He is being held without bail. His son, Harold, jumped bail and is a fugitive.

Financial Plus is in bankruptcy liquidation proceedings. Ehrenberg compares Rangel to convicted swindler Bernard Madoff.

HOWARD EHRENBERG: The only difference is who the group of victims were. In Madoff's case, it was, you know, largely Jewish organizations and wealthy individuals that he became connected with.

JEFFREY KAYE: In Rangel's, it was working and middle-class Latinos with much less to invest, but a lot to lose.

PATRICIA ARREOLA (through translator): What caught my attention was the good interest that it offered. I was seeing it in magazines and on the television. I thought I would invest this money for the future of my two daughters.

JEFFREY KAYE: Patricia Arreola invested $50,000, and lost it all. For the mother of five, the loss was particularly tragic.

PATRICIA ARREOLA (through translator): This money, I would say I received it in exchange for the life of my son, because he was a Marine. He died in Iraq two years ago. I was given this as life insurance for him.

JEFFREY KAYE: Marine Lance Corporal Mario "Danny" Gonzalez was killed by a roadside bomb at the age of 21.

PATRICIA ARREOLA (through translator): This loss is not so much about the money. But it hurts me, it hurts me, because this money, you could say, was part of the son that I had.

Minister endorsed plan

JEFFREY KAYE: Arreola used to attend weekly meetings organized by Financial Plus, where clients received bonuses for bringing in new investors. Many we spoke to said promotions by media figures, including Pepe Baretto, who, as a star on the Hollywood Walk of Fame, convinced them Financial Plus was legitimate.

That's why Servilia Estrada says she invested $80,000. Of that, she lost $64,000, most of her savings. She said the fact that a minister opened meetings with a prayer enhanced the company's credibility.

SERVILIA ESTRADA: He say, "Please, all the people, stand up and pray to the God. Pray for God for thank you for Plus Investment."

JEFFREY KAYE: Thank you for Financial Plus Investments?

SERVILIA ESTRADA: Yes, yes, because Financial Plus Investments give money.

Preying on the vulnerable

JEFFREY KAYE: Estrada is a widow who cares for her grandson and handicapped daughter. To get the money to invest, Estrada cashed in bank certificates of deposit, CDs earned from a lifetime of hard work.

Two full-time jobs?

SERVILIA ESTRADA: Yes, two full-time. I work in some hotels in Beverly Hills as housekeeping, in Jack in the Box in the night.

JEFFREY KAYE: Since losing her savings, she depends on a granddaughter and what she can scrounge from trash cans.

SERVILIA ESTRADA: I wake up 4 o'clock in the morning, and I went to take cans and paper on the street to recycle, to recycle because I need pay my house.

JEFFREY KAYE: Besides drawing in investors, Financial Plus also went after homeowners like Martin Lozano, a father of two, who was behind on his mortgage payments.

MARTIN LOZANO: They came to my door, and they knocked and said that, "You know, you don't have to lose your house. We can help you out. We can put your money to work."

JEFFREY KAYE: Financial Plus employees told Lozano they would refinance his home.

MARTIN LOZANO: Pay my mortgage and then the rest they'll give back -- they'll give it to me. So every month, I'll get a check of $1,000, and then they were doing my mortgage payment.

Losing a home

JEFFREY KAYE: Lozano said he believed he had reinvested part of the loan with Financial Plus in exchange for cash payments. But after a year, he discovered the company had gone under and a check of the title showed he'd lost the house.

MARTIN LOZANO: And they told us, "Well, you know what? You're not an owner no more. A year ago, when you say you took out that money, you actually sold your house."

JEFFREY KAYE: The deed to the house was transferred to a woman who told me she went to Financial Plus to inquire about investments and received a $2,000 gift after filling out papers.

But in the process, someone stole her identity and took out a $400,000 bank loan on the house. But who?

The woman and Lozano say they never got that money or knew about it. As to what happened to the $29 million still owed to Financial Plus investors, some was put into Los Angeles real estate and some went to Mexico.

HOWARD EHRENBERG: The government is more involved in trying to trace the funds, which we believe largely went to Mexico, where I understand Mr. Rangel and his family are from, and they were used to buy real estate and other assets in Mexico.

JEFFREY KAYE: The FBI is investigating Rangel for "a wide-ranging fraud," and more criminal charges are likely. Rangel's lawyer denied his client was operating a pyramid scheme; he said the business failed because of the decline in real estate values.