Agape World Ponzi Scheme Case: Selling Safety, Spending the Principal

In the Agape World Ponzi scheme case, the SEC alleged a $415 million operation that sold investments as business loans while using new investor money to pay earlier investors. If you handled the loan files, investor accounts or commission payments, the gap between the promised investment and the actual destination of the money is the part of this story you may recognize.

The SEC’s charging announcement targeted 14 sales agents for the Long Island investment firm and described more than 5,000 investors affected nationwide. This page follows Agape’s loan promises, sales network and cash flow. Our broader account of private note and loan Ponzi schemes follows the same repayment question across other lending businesses.

How Did Agape World Describe the Investment?

Agape World sold the prospect of high-interest bridge loans to commercial borrowers or businesses that accepted credit cards, according to the SEC. The agents allegedly promised returns as high as 12 to 14 percent in several weeks while telling investors that only one percent of their principal was at risk. High returns, a short wait and an almost untouched principal were all part of the same sales pitch.

The Justice Department’s account of the superseding indictment identified Hauppauge-based Agape World and Agape Merchant Advance, alleging a scheme running from October 2003 to January 2009. It alleged that account representatives and brokers told investors their money would fund particular short-term secured bridge loans or small-business loans. They allegedly raised substantially more money than the loans needed while continuing to assure investors that each investment would fund only a particular loan.

Offering materials describe the intended use of the money, subscription records identify what came in, and bank transfers show where it went. We look for the connection between the loan the salesperson described and the cash the borrower actually received.

Where Did Agape World’s Investor Money Go?

The SEC alleged that little, if any, investor money went into the promised lending. Instead, it funded payments to earlier investors and the agents’ sales commissions. The SEC also alleged that Agape’s president lost $80 million trading futures in personal accounts. Investors were supplying both the payments that made the investment appear successful and the compensation for selling it.

The Justice Department’s criminal trial account gave a concrete comparison: the defendants and their co-conspirators took more than $370 million from investors, but only $22 million went to bridge loans. Approximately $113 million went into high-risk futures and commodities trading without investors’ knowledge. We see the absurdity: the safety stayed in the sales pitch.

For someone working with the books, the important distinction is between a payment’s label and its source. A distribution described as investment income can be traced back through the account that funded it. At Agape, the criminal trial account said returns came from existing investors’ deposits or new investors’ money rather than profits on the investments. That makes borrower receipts, investor deposits and outgoing distributions parts of the same inquiry. A federal jury in Central Islip convicted two former employees in that criminal case.

Who Sold the Agape World Investments?

Agape’s sales network included four sets of siblings and brokers who paid other sellers to bring in investors, according to the SEC. The agency alleged that more than $52 million in commissions and payments came out of investor funds. The compensation rewarded bringing money into Agape while the lending story explained to investors why they should put it there.

The SEC described one agent paying sub-brokers, including his own brother, to sell Agape investments. Another sub-broker enlisted his sister in his sales effort. This chain of promoters and sub-brokers matters because the person making the pitch could be receiving instructions and payments through another seller. Commission records can connect the investor-facing promise to the people who financed and directed the selling.

The Justice Department’s July 2016 criminal-case account described one convicted participant as both a broker and Agape’s bookkeeper. It reported that she took $3.6 million in commission payouts for herself, spending the money on home improvements, luxury cars and vacations. Her role puts the books alongside the selling. Someone who handles both may be able to connect the assurances reaching investors with the payments and loan balances inside the company.

The SEC also alleged that none of the agents was registered with it to sell securities or associated with a registered broker or dealer. Agape itself and its securities offerings were unregistered as well. The SEC charged every agent with selling securities without the required registrations and accused some of fraud.

What Warning Signs Did the SEC Identify at Agape?

The SEC identified unusually high returns, extraordinary assurances about principal, the organizer’s prior fraud conviction and Agape’s small, unknown status as a private issuer. It also alleged that agents ignored extensions, defaults and other warnings about the company’s financial condition. Those warning signs reached directly into the sales operation: what agents knew about the loans and what they continued telling investors.

The criminal trial account made that contrast concrete. In the summer of 2008, Agape stopped paying commissions to the defendants and asked them not to cash checks because the checks might bounce. On November 3, 2008, the defendants learned that all of Agape’s 2007 bridge loans were in default or on extension. They withheld that information from existing and new investors and continued soliciting money, obtaining an additional $13 million.

If you received a loan-status update or an instruction about delayed checks, you may know when the internal account changed. We compare those messages with the assurances still reaching investors. At Agape, the Justice Department’s trial account put the warning and the continued fundraising together, making the sellers’ knowledge part of the money trail.

The Loan Story Appears in Other Ponzi Schemes

Woodbridge Group of Companies also used a lending story to explain investor returns. In its December 2017 charging announcement, the SEC alleged that supposedly independent borrowers were mostly entities controlled by Woodbridge’s owner and lacked the income to pay the promised interest. New investor money paid earlier investors, while sales agents received commissions for pitching the investments as low risk and conservative. For an insider, borrower identities, loan funding and actual receipts can show why the payments to investors depended on someone else’s deposit.

What Can an Insider’s Agape Records Show?

An insider’s knowledge of the accounts and sales records can connect the promise, the transfer and the people who knew they diverged. At Agape, those connections run through particular-loan assurances, investor deposits, borrower funding, trading accounts, commissions and messages about defaults. A loan-servicing employee may recognize the unpaid borrower, while someone handling investor accounts may recognize the continuing distribution.

We work through those connections with you. The loan file identifies the transaction investors were told they were financing. The investor ledger and bank transfers show the money coming in and going out. Sales instructions and commission records can explain who kept promoting the investment after the loan story had stopped matching the accounts.

The 2018 Journal of Forensic & Investigative Accounting paper The Significance of Whistleblowing as an Anti-Fraud Measure found that frauds involving more perpetrators were more likely to be detected through whistleblowing. That finding gives the Agape sales network another significance for us: each layer of sellers raises questions about who received the warnings, passed on the assurances and authorized the payments. Your view of one of those connections can be the starting point for examining the wider operation.

Whistleblower Rewards for Evidence of Investment Fraud

The SEC whistleblower program can pay eligible whistleblowers a combined 10% to 30% of the sanctions collected. Under the program’s rules, an SEC enforcement action must impose more than $1 million in monetary sanctions to qualify. We assess how your information about an investment operation can contribute to an enforcement case.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That program covers fraud against the government. For investment conduct like Agape’s, our focus with you is the SEC whistleblower opportunity.

You Know What Happened After the Loan Stopped Paying

If the investment story you were asked to sell conflicts with the loan files or payment records you know, speak with our whistleblower experts about where the investor money went. We work with you to build your strongest securities whistleblower case, bring in securities fraud whistleblower lawyers who understand lending records and investment sales, and stay beside you through the case.