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$112 Million Judgment for Ponzi Scheme of Paul Zada

By Peter Clarke, JD on June 04, 2015 6:35 PM

The people behind Ponzi schemes are usually quite ruthless. When they get caught, it's no surprise that courts can be equally ruthless when handing out judgments.

Paul Zada, the mastermind behind the sham investments of Zada Enterprises, faces a judgment of $112 million. This hefty judgment will in part go to pay back investors whom Zada defrauded. One investor, a former hockey player of the Red Wings, lost $40 million in Zada's scam.

Zada Enterprises: A Poorly-Disguised Ponzi Scheme

How can you tell if an investment opportunity is too good to be true? Here's a major red flag: The investment involves going through royalty in Saudi Arabia to make insider purchases of oil. Does this sound like a good plan? Honestly...not at all. This sounds like a scam. And that's exactly what it was, spearheaded by Paul Zada of Zada Enterprises.

Mr. Zada raised $60 million from investors by pitching the story that he had close connections with Saudi Arabia's royalty. Instead of investing these funds in oil, as promised, he spend the money himself. Some of his investors might have seen some money coming back; but if they did, it was only money he acquired from other investors.

Zada Challenged the Civil Penalty

In US SEC v. Joseph Paul Zada, Mr. Zada tried to challenge the $112 million penalty, since it was substantially larger than the amount he took from investors. However, as the court explains, the substantial penalty was necessary due to "Zada's lack of acceptance of responsibility, in addition to the egregiousness of the offenses and the large amounts of money that he stole."

A few takeaways from Mr. Zada's case: 1) Ponzi schemes are evil and always will be, 2) don't steal from innocent people or rich hockey players, 3) don't mess with the SEC.

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