Bennet Funding Group Ponzi Scheme

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Somewhat of a Gamble

Prosecutors said the Bennett Funding Group enticed people in 46 states to invest in office equipment leases that did not exist, swindling more than 22,000 investors out of $700 million.

They purported to acquire leases on mostly "small ticket items" ( under $15,000 ) such as photocopiers and facsimile machines. The supposed end-users were municipalities, which agreed to make monthly payments on the equipment for terms between two and five years, so the investments were emphasized as tax-exempt and safe, and comparable to more conventional municipal bonds.

They agreed to service the leases and had a staff of 180 employees that performed the administrative tasks necessary to maintain the contracts. Investors had no part to play in these efforts, and were led to expect that their profits would come solely from the efforts of others.

The investments were sold by more than one hundred brokers throughout the United States. When investors were given documents, it looked as if they owned an interest in a lease which represented a municipality's promise to pay.

Although they purported to be passing through payments from a particular lease to a corresponding investor, they did not do so. In fact, they sold numerous leases to more than one investor at a time, such as $55 million worth of bogus photocopier leases with NYC Transit.

Of the at least $1 billion of funds that had been deposited into their general operating account from some 20,000 investors, some was used to make payments to investors and to pay commissions to brokers while other money was diverted to other causes. Over $10 million was paid to a principle and over $30 million to various people and entities connected to him and members of his family.

He used some of the money to buy Vernon Downs racetrack near Syracuse and also ordered that tens of millions of dollars of the company's money be spent on gambling ventures, including $19 million for a gambling barge.

Rather than paying investors by passing through payments on leases, they pooled the contributions received from investors and lessees into one account, from which they made payments to investors.

The payments to investors had no relationship to payments made on the purportedly assigned contracts; they generally paid investors regardless of whether the end-user was delinquent in payments. They used funds that came from new investors to make payments to earlier purchasers of the lease assignments.

They engaged in numerous sham transactions that enabled them to appear as a profitable company, purportedly in the business of financing the acquisition of office equipment and resort time-share contracts when, in fact, it was suffering massive losses. They avoided reporting losses by improperly recognizing income from sham, year-end transactions and by giving false invoices and other documents to their auditors.

Eventually, they reached a point where new investments were outstripped by obligations to earlier investors. In January, 1996, all investors were notified that the rate of interest they had been receiving would be temporarily reduced due to a short term problem. In March 1996, they filed for bankruptcy.

The promoter admitted in court that he lied to the Securities and Exchange Commission after it began investigating his company but said he never intended to defraud investors.