Stock Broker Fraud: Ponzi Scheme Allegedly Lost Millions of Dollars

Denver, COIt's a scheme often associated with stock broker fraud: the Ponzi scheme, recently made infamous by Bernard Madoff. Although the Ponzi scheme is not the only reason investors file a stock broker arbitration or hire a stock broker fraud lawyer, it is a big reason that investors lose millions of dollars. Now, another financial advisor is accused in lawsuits of having perpetrated a massive Ponzi scheme.

According to The Denver Post (12/05/10), Sean Mueller is accused of running a $71 million Ponzi scheme that involved approximately 65 investors—although not all are listed as victims in the scheme. Mueller reportedly pleaded guilty to theft, fraud and racketeering after officials began an investigation into his activities. Mueller's victims include, according to The Denver Post, attorneys, business owners and John Elway, a former NFL quarterback.

Many of the victims met Mueller through an accounting firm, Bailey Saetveit & Co., where some accountants referred their clients to the financial advisor. Although lawsuits have been filed against some of the accountants, those accused say they were as taken in by Mueller as the other investors and further say they lost millions of dollars because of him.

Ponzi schemes involve using money obtained from new investors to pay out previous investors. Rather than money being made from actual investing, the fund requires a constant supply of new investors to pay previous investors back. Furthermore, the perpetrator must create fake monthly reports and brokerage statements to convince investors of financial gains. Once the supply of new investors dries up, there is no more money to pay back the existing investors. That is usually when the Ponzi scheme collapses.

After officials began an investigation into Mueller's activities, he wrote a letter of apology to investors. Although he claimed to have between $120 million and $140 million, Mueller had just $9.5 million of his investors' money left.

Mueller was recently sentenced to 40 years in prison—the maximum allowed—for his Ponzi scheme.

According to the US Department of Justice, since the start of Operation Broken Trust—a three-and-a-half-month operation targeting investment fraud schemes—action has been taken against 343 criminal defendants and 189 civil defendants. Approximately 120,000 victims have been harmed by the frauds investigated by the operation, and those victims suffered a total of more than $8 billion in losses.