Ponzi Scheme Victimizes Texas University

 

The Houston Athletics Foundation, which funds athletic scholarships for the University of Houston, is apparently the victim of a major ponzi scheme perpetrated by David Salinas, a Houston-based money manager. Approximately, $2.2 million (over 40 percent) of the Foundation’s assets are unaccounted for, having been supposedly invested in bonds that never existed. The ponzi scheme involved $39 million raised from more than 100 investors, including numerous high-profile college coaches.

Salinas, who took his life shortly after the SEC filed suit against him and his associate Brian Bjork, reportedly had longstanding ties to some members of the Foundation’s board, which raises questions about the board’s oversight. According to the Atlanta Constitution, Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy, was quoted as saying “Unfortunately, personal relationships often supplant good due diligence, and people just go along with a charismatic personality'”

The Salinas’ scam is just another of an epidemic of ponzi schemes uncovered in the past several years. Nearly 150 foundations similarly invested with Bernard Madoff whose $65 billion ponzi scheme is regarded as the largest financial fraud to date in U.S. history.

In a ponzi scheme, the perpetrator uses money from new investors to pay bogus returns to existing investors, since they produce little or no legitimate earnings. Perpetrators often solicit investors by promising outsized returns with little or no risk. In this case, Salinas reportedly promised yields of up to 9 percent. Ponzi schemes tend to collapse when enough new investors cannot be recruited and/or a large number of investors demand to cash out.

Some warning signs of ponzi schemes may include: (i) the promoter having custody of the funds invested and providing statements of account (rather than an independent financial institution); (ii) returns that do not reflect the normal volatility of the market; (iii) use of unregistered private (Reg D) investments; (iv) sellers not registered with SEC or state securities regulator; (v) complex, proprietary strategies; (vi) lack of disclosures; (vii) errors on statements; and (viii) problems cashing out.

Page Perry is an Atlanta-based law firm with over 170 years collective experience protecting investor rights and fighting Wall Street greed.