As a federal prosecutor, Lee H. Vilker deals with not only criminal defendants but the victims of those crimes.
Vilker, head of the criminal division of the U.S. Attorney’s Office in Rhode Island, says that while victims of violent crimes have devastating consequences, there is another type of victim, those of financial fraud, who have their lives upended too. The psychological effects can be enduring.
“We hear it from every single victim: How could I be so stupid? How could I have fallen for this?” Vilker said. “[The theft] is only part
of the damage they suffer. There is the financial part and there is the emotional impact of having been defrauded. It makes you lose confidence in yourself and in your judgment of other people. It can really shake you.”
The most well-known financial crime is the Ponzi scheme. Fraudsters pay existing investors not with dividends, but with money from new recruits. Eventually, the scheme collapses.
According to Ponzitracker.com, 34 Ponzi schemes were discovered by U.S. authorities in 2021, representing roughly $3.8 billion in investor funds.
In recent years, Rhode Island has seen its share of investment scams.
One example is Monique Brady, an East Greenwich businesswoman who defrauded dozens of people, including friends and family members, out of millions of dollars through a fraudulent real estate company. She was sentenced in 2020 to eight years in federal prison and ordered to pay $4.8 million in restitution to 23 victims.
Vilker, who worked on the Brady case, sees common traits among people who attempt to pull off investment fraud.
“These were people who were very close to her,” he said. “These [criminals] are gifted at understanding their mark. They are very good at what they do.”
That’s why intelligence and savviness aren’t enough to protect potential victims. Vilker says he has seen victims who were sophisticated businesspeople and professionals, including lawyers. “These are very intelligent people who are by no means naïve in nature,” he said.
Federal prosecutors say Thomas Huling, of West Warwick, was able to dupe people with a promise of 450% returns in 40 days. Between 2008 and 2018, he allegedly raised more than $14 million from investors who thought they were putting money into a wide range of enterprises such as bond trading platforms, car emissions-reduction technology and marketing companies.
Prosecutors allege Huling, 58, built trust by incorporating religion and “charitable good works” to boost his credibility, diverting money to fund a lifestyle that included luxury vehicles, country club memberships, gambling and vacations. The scam caused more than $6 million in losses for his victims, according to court documents.
Huling pleaded guilty to wire fraud and tax evasion in September and is scheduled to be sentenced in federal court in December. He faces a maximum of 25 years in prison.
On the state level, the R.I. Office of the Attorney General also prosecutes financial fraud.
Warwick attorney Vincent Mitchell was prosecuted under state statute for defrauding clients in an estate planning scam perpetrated between 2014 and 2017, where he set up a limited liability corporation to accept funds that were used for gambling and to fuel his drug habits, according to state prosecutors. Mitchell was sentenced in 2019 to 20 years, with eight years to serve.
Mitchell was also ordered to pay $1.3 million in restitution to his victims. He was paroled in January.
Brian Hodge, spokesman for the attorney general’s office, says many of these schemes target the most vulnerable populations, such as the elderly. Some of Mitchell’s clients had passed away before he was sentenced.
“The attorney general’s Elder Abuse Unit frequently works on cases where individuals who are supposed to be taking care of an elderly person instead take advantage of the access and trust [they accrued],” he said.
Financial advisers say there are warning signs that can help people avoid being scammed.
First, there is no such thing as a guaranteed return, and those who claim otherwise should be looked upon with suspicion, said John Mullen, portfolio manager with Parsons Capital Management Inc. in Providence.
“Anytime you see something even approaching a guaranteed return, the first [red] flag should be going up right then,” he said. “Anyone that wants to promise a return is already on shaky ground.”
Another red flag is the promise of speed, a hallmark of financial scams that play on investors’ dreams of realizing quick profits.
“If it’s a quick return, they are either taking on a huge amount of risk through leverage, or someone needs to get cash in the door to pay off another scam,” Mullen said.
A third warning sign is the promise of a massive return. Brady promised 50% of the profits made would go to her investors.
“Charm or being personable certainly makes it easier to do these kinds of things,” Mullen said. “When you put dollar signs in front of people, they can lose their judgment.”
Even after conviction, the judicial process is often far from over, Vilker says. Getting restitution for scammed investors can go on for years. The office has a financial litigation unit dedicated to tracking down assets. But often, there is nothing left.
“There are cases where we are able to find assets, and we will work aggressively to get money to the victims,” Vilker said. “But in my experience, there are far more cases where there is little to no money that exists at the time the defendant is sentenced because they spent it all.”
