[00:00:12] Kenneth Hines: We trust people.
That’s what we do.
[00:00:19] J.A.
Jance: You low-down, lying scoundrel.
What gave you the right to think you were entitled to other people’s hard-earned money?
[00:00:28] Will Johnson: Welcome back to AARP - The Perfect Scam.
Here to tell us about investment scams, often known as Ponzi schemes, is Gerri Walsh.
She is the President of the FINRA Foundation, right?
[00:00:50] Gerri Walsh: Yes.
[00:01:04] Gerri Walsh: That’s right.
[00:01:11] Will Johnson: Tell us what that is, what that means real quickly.
It’s one of the best ways to protect yourself against unfortunate mistakes.
What does that actually mean?
Now we think of securities as stocks and bonds and mutual funds.
[00:02:31] Gerri Walsh: Right.
Nobody says that, nobody does that.
[00:02:51] Will Johnson: It wouldn’t work.
[00:02:52] Gerri Walsh: No, it wouldn’t, well hopefully it wouldn’t work.
[00:02:53] Will Johnson: A terrible fraud.
[00:03:04] Gerri Walsh: That’s a big part of it.
And it’s because the people that invest in them want to believe that these investments are real.
[00:04:00] Will Johnson: Is that like a dividend that you’d be getting?
[00:04:01] Gerri Walsh: Exactly.
[00:04:19] Gerri Walsh: Charles Ponzi.
[00:04:20] Will Johnson: Okay, right.
Like in the ’30s or ’40s, am I right?
Because somebody they know is making money on it, and they bring in more people.
And at some point, it has to collapse.
What made them who they are?
What forces in their childhood led them astray?
Perhaps Darren Berg’s past started at a young age with an active imagination.
[00:06:18] Will Johnson: That’s Ciara O’Rourke, a writer now living in Austin, TX.
It turned out to be a total fraud.
[00:07:16] J.A.
So those people lost everything.
It was less of a disaster for us because I was still working.
[00:07:55] Will Johnson: That’s J.A.
[00:08:20] J.A.
Jance: We lost a cool half million.
Of the 500,000 we recouped, 35,000.
You might even think of it as Berg’s secret weapon.
[00:09:52] Ciara O’Rourke: He is just exuding confidence and competence.
Um, at one point he said there’s no shortage of bad news on the doorstep.
It seemed to be a nod to what was happening to Madoffs investors.
Uh, but he reassured the people that were there.
You might think it’s magic, but it’s actually real meat and potatoes stuff."
[00:10:39] Hello!
[00:10:40] Will Johnson: Hey, Kenneth, this is Will Johnson at AARP.
[00:10:43] Kenneth: Good, how are you doing today?
Hines was the IRS Special Agent in Seattle overseeing the case.
Uh, in investment fraud cases, that’s what you see.
[00:12:20] Will Johnson: The writer, J.A.
Jance never met Berg, but she didn’t have to.
She and her husband were steered to Meridian by an advisor who had already been convinced.
[00:12:29] J.A.
Ciara O’Rourke recalls a story about Berg when he was still in college.
Newly elected as treasurer of his University of Oregon fraternity.
So an alumni investor to the fraternity at the time called him a ball on fire.
[00:14:25] Will Johnson: But investing wasn’t Berg’s only game.
It was sort of um, a jewel in his uh portfolio.
And he used 32 million dollars of investors' money on that bus company.
It was a waterfront mansion, um, where he customized much of it.
[00:15:21] Will Johnson: But let’s take a step back.
If you’re not totally clear on how a Ponzi scheme works, it’s not all that complicated.
It’s just when you run out of new victims to take money from, that it all unravels.
[00:15:54] Ciara O’Rourke: He created and operated a series of investment funds.
[00:16:26] Will Johnson: Darren Berg was particularly good at bringing in new investors.
Ultimately um, Darren was not using the money the way he said that he was.
Darren had invented them.
So what he did was he opened dozens of private P.O.
[00:17:26] Will Johnson: Kenneth Hines explains further.
He’d set up a P.O.
So they would believe that all this was real.
He did from A to Z on this, he did everything.
[00:18:00] Will Johnson: So let me get that straight.
The phony mailboxes were proof of what exactly for an auditing firm.
[00:18:27] Will Johnson: And the asset could be like a mutual fund.
[00:18:29] Kenneth Hines: Mutual fund, another brokerage firm, uh, you know anything.
But the thing was, there was no firm.
What formed the man he would become?
[00:19:14] Ciara O’Rourke: He was the youngest of three siblings.
And as a kid, he was really obedient.
He was then outgoing as well.
He um, would ride his bike to his neighbor’s homes to take care of their dogs.
Someone you’d be willing to trust with your nest egg.
[00:20:08] Ciara O’Rourke: He was extremely charismatic.
He was always beautifully dressed and um, nice clothing.
He was good looking.
He uh was smooth and likeable and reassuring.
They trusted him implicitly.
He seemed very bright.
He was almost glib.
[00:20:40] Kenneth Hines: It’s like a, it’s like a movie set, right.
Behind the walls there’s nothing.
That’s exactly what this was.
Behind the paper, there was nothing.
In 2010 Berg’s scheme started to crumble.
[00:22:50] Ciara O’Rourke: He was convinced that this was a trustworthy person.
[00:23:27] Will Johnson: Facing lawsuits and bankruptcy, Berg feels the wagons circling around him.
[00:24:24] Will Johnson: Yeah.
[00:24:25] Kenneth Himes: If I can be very blunt.
[00:25:38] Ciara O’Rourke: He had his place in Seattle.
He had another home in a Magnolia neighborhood in Seattle that initially authorities weren’t aware of.
[00:26:26] Will Johnson: And how do you do that?
You look at different things.
You go out and talk to an investor.
What did you, how did you, did you wire the money?
Did you send a check?
And then from there you go to what account did that go to?
Where did that, so you start looking all of the inflows and outflows of the money.
The foundation of the road map is actually tracking the money.
[00:28:05] Kenneth Hines: Yeah.
[00:28:06] Will Johnson: I mean that’s, he wasn’t hiding his, his profits.
He was living high on the hog.
[00:28:17] Will Johnson: Yeah.
[00:28:18] Kenneth Hines: He was, he was playing a role.
For many of them, it’s the first time they would learn what happened to their money.
And for some of these folks, that was news to them.
They have to deal with it.
It’s almost like post-traumatic stress on some of these things.
[00:31:08] Will Johnson: This case is no different.
Darren Berg’s victims lost a fortune; for some, a lifetime of savings.
[00:31:39] Will Johnson: Darren Berg probably saw the writing on the wall at this point.
His business is an open book to investigators, a complicated tangled book, but open nonetheless.
The story of Darren Berg is far from over.
[00:31:54] Will Johnson: We are back with Gerri Walsh.
She is President of the FINRA Foundation.
She knows everything there is to know about Ponzi schemes or at least a lot.
How, how common are they?
[00:32:07] Gerri Walsh: The truth is, we don’t know how big the problem is.
And the money isn’t there.
[00:32:35] Gerri Walsh: I can’t give advice to con artists.
Now how clever is that, right?
[00:35:02] Gerri Walsh: Roll, like, like a sandwich roll.
R-o-l-l. Um, but it never, it wasn’t real.
[00:35:50] Gerri Walsh: Sure.
In other words, the people that are not registered as brokers or as advisors.
Um, so one of the best ways to avoid fraud is simply to check, use Broker Check.
It’s on the FINRA website, really easy to do.
And they’ll make it seem real.
It’s a, it’s a tactic that’s called phantom riches.
There’s also this sense of um, consensus, social consensus.
And the thing is, we tend to not want to do our homework, right?
[00:38:13] Will Johnson: As a registered broker.
[00:38:28] Will Johnson: Gerri Walsh is President of the FINRA Foundation.
And we’re going to tap into some more of your expertise on Ponzi schemes and investments.
[00:38:39] Gerri Walsh: Fantastic.
And of course, my co-host Frank Abagnale.
Be sure to find us on Apple podcast or wherever you listen to podcasts.
For The Perfect Scam, I’m Will Johnson.
END OF TRANSCRIPT
Its 2009 and Bernie Madoff has pleaded guilty to stock and securities fraud in New York.
Covered heavily by the media, Madoffs Ponzi scheme is front of mind for many Americans.
It also has a group of investors on the West Coast concerned.
Theyve placed their hard-earned savings with the Meridian Group, a company operating out of downtown Seattle.
People in Washington state trust Berg, and his charismatic personality has helped him assuage investors for years.
But in 2010, the house of cards Berg had built begins to fall.
One of Meridians largest investors wants to cash out, and Berg is unable to pay.
Complaints roll in to the U.S. attorney for the Western District of Washington and the FBI.
Darren Bergs lavish lifestyle of yachts, mansions and private planes has been fraudulently funded by his investors.
