Virgin Islands Ponzi Scheme Cases: The Currency Strategy on Paper, the Payments From Investors

In Virgin Islands Ponzi scheme cases involving Kenzie Financial Management and Paramount Group, investors’ own money supplied payments presented as trading returns, according to the enforcement accounts. Both businesses had a St. Thomas connection. The Securities and Exchange Commission’s Kenzie complaint follows money through investment accounts, sales-agent payments and false investor statements. The criminal indictment described in its Paramount order alleged that a storefront business sold trading investments but used investor money to pay earlier investors. If you handled the transfers, prepared the statements or heard the sales pitch, those differences may be familiar.

This page follows the businesses and money trails connected to the U.S. Virgin Islands. Our national and cross-border comparison follows the wider geography of operators, entities, investors and accounts.

Kenzie’s Foreign-Currency Funds Had a St. Thomas Manager

Kenzie Financial Management was a U.S. Virgin Islands corporation with offices in St. Thomas, according to the Securities and Exchange Commission’s complaint. It purported to manage trading for eleven investment funds. The complaint alleged that the wider operation raised $105,875,029 from approximately 400 investors from at least 2004 through June 2010. Investors were told that their money would go primarily into foreign-currency trading.

The sales pitch combined capital preservation with an extraordinary performance history. According to the complaint, live presentations and marketing materials claimed that the funds had never lost money. A Draseena Funds Group document presented annual returns going back to 1981, with a peak of 184.15%. The manager also circulated currency-industry information, including International Monetary Fund material, to give the operation an appearance of legitimacy.

For someone who sold or administered these investments, the offering materials and the investor statements are different parts of the story. An offering describes what the fund will do with incoming money. The later statement tells investors what supposedly happened to it. Here, the complaint alleged that the manager controlled the companies on both sides of that account and used them to circulate false statements.

Separate Fund Accounts Fed the Same Payment Pool

The complaint alleged that Kenzie’s separate fund accounts did not preserve the separate investment strategies sold to investors. Money initially entered the checking account for the selected fund, then moved into shared destinations where it was mixed with other investors’ money. The destinations included an offshore fund and Kenzie Financial’s accounts at the National Bank of Anguilla and the First Bank of Puerto Rico.

The complaint alleged $71,886,926 in payments to other investors to keep the scheme going. It separately identified $15,208,038 in purported operating expenses, including payments to the manager and sales agents. We see the investors paying for their own sales pitch.

The complaint describes Serrano as a fund of funds registered in Nevis and CAPM as a British Virgin Islands entity that purported to manage Serrano’s investments. Investor proceeds reached Serrano through an account in the Netherlands Antilles. An employee could know one part of that chain without handling every account.

The Returns Survived the Investments

The complaint alleged that less than one-third of the money raised was invested and that those investments collectively lost money. Investment proceeds returned after liquidation helped fund payments to investors and purported business expenses. Yet monthly and quarterly statements, along with annual Schedule K-1s, continued to present the investments as profitable.

The commission’s complaint directly rejected the claimed investment performance:

The Securities and Exchange Commission alleged that, for June 2009, the funds reported approximately $249 million in assets under management while collectively holding $4,101,807 in their bank accounts. In the complaint’s account, the losses never reached the statements. The statements had the better strategy.

For an administrator or accounting employee, this is a specific version of the gap between trading results and investor statements. The person who prepared a statement may know who supplied its return figures. The person who handled payments may know whether a withdrawal depended on a recent investor deposit.

The More Conservative Fund Paid Earlier Investors

The complaint alleged that in March 2010, the manager offered an existing investor a supposedly more conservative investment in SSecurity Fund, describing overseas bank-secured notes and bank protection for the principal. According to the complaint, the investor put in $100,000.

According to the complaint, the manager used that money for payments to four other investors, a transfer to the First Bank of Puerto Rico and third-party expenses. The promised investment and the actual destinations belonged to different stories. An insider who knew the offering materials and the payment instructions could connect the safety pitch to the use of that particular deposit.

The Securities and Exchange Commission’s Chicago Regional Office investigated the operation. In its June 28, 2010 announcement, the agency said the federal court in the Northern District of Illinois had frozen the manager’s and companies’ assets and required them to bring overseas assets back to the United States.

Paramount Group Sold Its Trading Story From St. Thomas

The criminal indictment described in the Securities and Exchange Commission’s March 1, 2016 order alleged that Paramount Group LLC used a St. Thomas storefront and sales agents to attract investors from July 2005 through May 2009. The order reports that a federal jury in the District Court of the Virgin Islands convicted the owner and chief operating officer of conspiracy, wire fraud, money laundering and tax evasion.

The criminal indictment, as described in that order, alleged that the operators sold investors several reasons to trust the business. Pooling their money supposedly opened access to highly profitable securities. Paramount supposedly traded currencies, commodities and rubies, lent money to companies paying high interest, and could double an investor’s money in less than a year. The pitch also claimed Federal Reserve approval and that Paramount was part of Haliburton Co.

The indictment alleged that investor money instead paid promised returns to earlier investors and benefited the operators personally. According to the indictment, the owner and chief operating officer regularly met investors at the storefront and managed a group of sales agents. That makes the sales operation part of the money story: the pitch brought in the cash that supplied earlier investors’ payments.

A person working around those sales could know which representations came from management and which materials agents used. Someone handling the accounts could know where the deposits went. Paramount’s trading claims and Kenzie’s currency strategy differed, but both accounts describe investor cash supplying payments presented as investment returns. That is the recurring mechanism behind a Ponzi scheme.

The Records Behind a Virgin Islands Investment Pitch

The useful comparison starts with the investment the customer bought and follows the money through the business. Subscription records identify the fund receiving the investment. Bank transfers identify the next destination, trading records show what was invested, and payment records show the source of distributions. Sales-agent compensation and operating expenses explain other demands on the same cash.

Kenzie illustrates why those records need someone who understands the operation. Separate fund names and separate checking accounts gave the appearance of distinct strategies, while the complaint alleged that the money was later mixed. Paramount illustrates another part of the same problem: a storefront employee or sales agent could hear claims about trading and official approval that the payment records would never explain on their own.

The Significance of Whistleblowing as an Anti-Fraud Measure, published in the Journal of Forensic & Investigative Accounting in 2018, found that whistleblowing became more likely to detect fraud as more people participated in the scheme. For someone in a fund business, the practical point is that sales conversations, statement preparation and payment approvals give different people a view of the same transaction.

Our work on securities fraud evidence connects that inside knowledge to the investment story and the money. We assess what you know, what the documents show and which decisions explain the difference.

What Can a Virgin Islands Ponzi Scheme Whistleblower Earn?

An SEC whistleblower can earn 10% to 30% of the sanctions collected in an action with sanctions over $1 million. We assess how your information connects to the conduct and the potential whistleblower award. The contribution can begin with a specific transaction you understand from inside the business.

Fraud against government money brings the False Claims Act into the assessment. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. We work with you to identify the right case and the securities fraud whistleblower lawyers suited to the evidence.

You Know What Paid the Investor

If you know why a Virgin Islands investment business needed another deposit before it could pay an investor, speak to one of our Whistleblower Experts about what really paid the investors. We turn your understanding of the sales pitch, account movements and statements into a case strategy, and bring in securities fraud whistleblower lawyers who know fund operations. You have a partner beside you as the evidence leads from the payment to the people directing it.