Friday, March 12, 2010

Kevin Foster - Son of Ponzi

Will Ponzi schemes ever die out?
Not until stupid people and greed die out.
There seems to be a lot of both in Llanelli.

From The Motley fool :-

Kevin Foster, the man behind KF Concept, is convicted of deception and theft.

Kevin Foster, an ex-cab driver who turned his hand to ambitious investment schemes, has this week been convicted of 14 counts of theft and deception.

Harrow Crown Court heard how Foster, through his 'KF Concept' roadshow, promised investors that he had a foolproof gambling and multi-level marketing system, claiming that for every £1 invested he made £28.50, and that his scheme was sitting on a fortune of over £203m.

It all started back in 2001, when Foster launched a football betting scheme, initially taking bet money from his work colleagues, and promising a five-for-one return in two years.

As the scheme expanded, Foster, in classic Ponzi style, used stake money from newcomers to pay handsome returns to some of the earlier members, while at the same time encouraging them to re-invest their winnings back into the scheme -- a tactic that he was to repeat successfully in the coming years.


Foster soon took his investment scheme public, embarking on a series of flamboyant roadshows held in hotels and conference centres across the UK. Foster would appear on stage, accompanied by loud music (often Abba's "Money, Money, Money"), boasting of his sky-high returns. The highlight of each presentation came when Foster would pick the names of early investors out of a hat, and reward them by paying out their promised returns early, and often doubling them.

Foster deliberately targeted low-income people, many in small communities in South Wales, making his trademark fivefold return promise if they coughed up a minimum of £1,000.

Seeing all the cash being handed out at his roadshows, and early investors winning cars (or the loan of Foster's Ferrari Spyder), assuaged the suspicions of thousands of people, who handed over an average of £4,200 each.

By the time the Financial Services Authority (the FAS) stepped in and halted the scheme in 2004, Foster had taken in around £34m from more than 8,500 victims. Foster was declared bankrupt, and his investors lost everything.

According to a BBC report, one investor in South Wales who, unsurprisingly, didn't want to be identified, mortgaged his house and maxed out his credit cards to raise £180,000 to invest -- and lost the lot.

The extent of the damage

About £12m of the money had gone into an illegal pyramid selling scheme, Planline, reportedly based in the Cayman Islands, but only £1,700 ever came back from it.

The Serious Fraud Office (the SFO) took over the case, and in 2007 Foster was charged. During the trial, it emerged that Foster had been living an extravagant lifestyle, paying himself and his associates very large sums from KF Concept's funds.

He had spent over £600,000 on a farm near Sittingbourne in Kent, which he stocked with all sorts of exotic animals. A sum of £700,000 had also gone on fancy cars, and it is estimated that Foster withdrew a total of around £3m from the scheme in cash.

Following the convictions, the director of the SFO commented "I am very pleased with this verdict. This was a very complex investigation and the SFO was determined to bring justice for the many victims who lost their hard earned savings to this Ponzi scheme. I would like to thank colleagues from Kent Police and the FSA who helped us with our investigation."

Foster has been remanded in custody until April 16 pending pre-sentencing and psychiatric reports, and could be jailed for up to 7 years. Many of his victims will take a lot longer to recover.

Learn the lessons

Despite my having read many tales of investment fraud over the years, two things never fail to surprise me. One is that people continue to believe such promises of fabulous riches. And in the main they're just ordinary folk like you and me -- as the investor who got stung for £180,000 said, "I never thought that I was stupid, but I was convinced by him, and thousands of others were too."

The other is that the perpetrators actually think they can get away with it -- FSA and SFO investigations are necessarily complex and can take quite some time, but as we have seen this week, they eventually get their man.

There will be plenty of new schemes like this in the future, and thousands of perfectly sensible people who are around today -- some perhaps even reading this -- will be conned. Please, don't let it be you.


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