How to Avoid a Craig Carton Ponzi Scheme

sunamakeup Temmuz 18, 2021

Craig Carton is just the latest reminder to avoid Ponzi schemes at all costs.

Carton is the co-host of "Boomer and Carton" on New York sports radio station WFAN, but he was arrested Wednesday morning by the Federal Bureau of Investigations. According to a complaint filed by the Securities and Exchange Commission, the WFAN host and a partner took at least $3.6 million from two investors and took another $2 million from another investor on his own, to cover his own gambling debts.

As with any Ponzi scheme, this one started with a bogus business built to attract investors. Carton and his partners claimed they ran ticket-resale companies with access to tickets for Katy Perry, Justin Bieber, Roger Waters, Metallica, Barbra Streisand and Adele shows that could be resold at huge profits. Investors were promised minimal risk and huge rewards, though the SEC claims Carton forged ticket-sale "agreements" between his companies and concert promoters.

According to Bloomberg, one of the victims of this scheme was Brigade Capital Management, a hedge fund. Though the scheme ate up less than half of a $10 million credit facility provided by the fund had been tapped, the firm was able to seize some of that money and hold onto the collateral to limit potential losses. However, according to the SEC, Carton and a third conspirator were knowing participants in the ticket fraud, with Carton complaining in mid-2016 that he owed about $3 million and a casino had frozen his account. In September, the three conspirators met and hashed out the ticket plan "to clean up the debt." Brigade Capital offered its $10 million in revolving credit in December but only after Carton allegedly offered up fake documents and emails pointing to a glut of nonexistent tickets.

"Guys. I've done it," Carton wrote. "One investor ready committed $10m liquid and $40m LOC [line of credit] with $50m if needed. I need some info. List of shows we can 100% prove access to tickets. How many when and how it's returned and predicted success."

Carton and his one partner are charged with conspiracy, wire fraud and securities fraud, while another conspirator was already charged in January for a similar scheme involving resale of tickets to the hit Broadway musical Hamilton. Bloomberg says that billionaires Paul Tudor Jones and Michael Dell, as well as an executive at Och-Ziff Capital Management Group, were among the more than 125 people who had unwittingly contributed to the Hamilton scam, which centered around yet another hedge fund.

So how do you make sure that you or your investments don't get tangled up in the kind of scheme that Carton is accused of running? Well, the SEC says there are a bunch of red flags to watch out for if you're being pitched an opportunity directly. Every investment carries a degree of risk, so don't believe that any investment has "guaranteed" rewards or no risk. Also, if an investment has yielded overly consistent returns regardless of how the market has performed around the same time, be wary. Perhaps the best way to sniff out a Ponzi schemer is to search for them in the SEC database for all Registered Investment Advisory firms. Smaller firms (with under $25 million under management per current legislation) are registered directly with the states and can be vetted through your state securities regulator.

Finally, if an investment seems overly complex, if you don't have access to paperwork and if you encounter accounting errors or late payments when you've already invested, those are all good reasons to stay clear.

Before you invest in something that sounds like a Ponzi scheme, the SEC suggests asking five questions: