Don’t Let Modern-Day Pirates Pilfer Your Hard-Earned Cash

By TradeSmith Editorial Staff

Amelia Island is a pristine stretch of land in north Florida. Anyone who has ever wondered where State Road A1A is (it’s a famous road that ends in Key West and is mentioned in many Jimmy Buffett songs) will find that it begins its first mile in Amelia Island.

Visitors to Amelia Island are treated to lovely beaches, incredible seafood, and one of the most entertaining lessons in finance history.

In 1817, Florida was under the control of Spain.

But a Scottish soldier and part mercenary in South America named Gregor MacGregor had big plans for Amelia Island.

MacGregor claimed Amelia Island in 1817 and temporarily formed the “Republic of the Floridas.” His reign was relatively short-lived. What went wrong? Part of the legend goes that he raised money to invade the island, but his commission spent all the money on luxury goods.

The U.S. Navy annexed Amelia Island months after his little invasion. So, like every other great swindler, MacGregor had to find a new scheme. Accordingly, he created one of the most famous scams in the history of Europe and South America.

MacGregor Returns to Europe

MacGregor returned to Europe after he failed to be King of the Republic of the Floridas. A few years after his Green Cross Flag of Florida fell in December 1817, he went back to London.

He did something that a few scammers like to do to beef up his resume.

He added a phony title to his name. Gregor MacGregor became “Sir” Gregor MacGregor.

In the early 1820s, MacGregor had vast knowledge of South America. He had traveled and fought in Venezuela and Bolivia. Rather than act as a potential ambassador for these new and established nations, he went in a different direction.

He simply made up a country. It was called “Poyais.”

The fictional nation quickly generated incredible interest, especially from investors. That Green Cross flag that once hung over Amelia Island now was the “official” flag of Poyais.

In his pitch to would-be investors and immigrants, “Poyais” was a tropical oasis. He traveled across England and Scotland. He sold land, securing upwards of $1.3 million from his scams over the years. People bought worthless bonds from an invented central bank.

They purchased land certificates, which entitled buyers to property in this new country.

When people arrived in “Poyais,” they found themselves walking through the undeveloped jungle along the Gulf of Honduras. According to various reports, just 60 of the 240 people who immigrated to his jungle paradise survived.

The Economist has called MacGregor one of the greatest “confidence” men of all time. His name runs alongside Bernie Madoff and Frank Abagnale (made famous from the movie “Catch Me If You Can.”)

Think you’re immune to such a con?

It turns out that there are plenty of Gregor MacGregors out there.

Typically, a Ponzi scheme or investment scam isn’t noticeable during a solid run in the markets. It’s when the market starts to plunge that many start to fall apart. The Securities and Exchange Commission (SEC) received many warnings about Bernie Madoff long before his $65 billion scam collapsed.

It was the financial crisis of 2008 that made it impossible for him to keep the Ponzi scheme going. (In a Ponzi scheme, new investors pay into the scheme, and the con artist uses that money to pay off the original investors. When a crisis hits, people start to ask for their money, and the whole thing falls apart.)

What’s the Latest Threat

Today, cryptocurrency Ponzi schemes are all the rage. Two days ago, investigators in India arrested a man for cheating 2,000 investors out of their money in a scam involving cryptocurrencies.

In May, the SEC charged five promoters for marketing an unregulated offering for crypto securities that raised roughly $2 billion from retail investors. Most of those investors lost money when crypto-exchange BitConnect blew up in 2018.

And in May, the SEC charged an Idaho man for allegedly raising $6.9 million for a digital investment pool that didn’t exist. From October 2017, a man named Shawn Cutting told would-be investors that he was an experienced investment adviser.

He claimed that he had more than 450 investors. Despite having no experience – whatsoever – as a financial adviseor, he raised $6.9 million.

What did he do with it? He pulled a Gregor MacGregor and bought lots of luxury goods.

He bought cars, paid for his daughter’s wedding, and fixed up his home.

And he attracted investors with lies. He told investors that they would make more than 50% in a month if they gave him their money. And when investors asked for the money back, he ignored them. The SEC’s complaint against him said that he stopped answering requests in February 2020.

That was the start of the pandemic. That was when these investors likely needed their money the most. That was when the market crashed, and the big lie was revealed.

It took more than three years for his investors and the SEC to catch on to his scam.

It’s a good reminder that you are the last line of defense when it comes to your money.

When I read about Ponzi schemes on, I notice several common themes and threads in all of those stories. Next week, I’ll tell you a few ways to avoid these schemes.