The “Dawn” of a New Day—and a New $20 Million Fraud Charge

Money 3

Last summer, Dawn Bennett’s seemingly lucrative career as a financial adviser came crashing down around her. In an administrative enforcement action, SEC lawyers claimed that as a result of her fraudulent conduct as a fund adviser, "Dawn Bennett is wholly unfit for any role in the securities industry.” Administrative Law Judge James E. Grimes agreed, barred her from the industry and ordered her to pay more than $4 million in penalties and disgorgement.

But Bennett, a former radio personality in addition to her investment fund work, allegedly didn’t let that little setback slow her down. No, she picked herself up, dusted herself off, and, according to civil and criminal charges filed by the SEC and the Justice Department, started a brand new career as a Ponzi schemer and an amateur magician.

The Classic Ponzi Scheme Alleged

The Ponzi scheme, one of the oldest scams around, is nothing new to those versed in financial fraud. The allegations leveled at Bennett suggest a classic Ponzi scheme, in which the fraudster uses new money from investors to pay off those who bought in earlier to keep the scheme afloat. FBI Special Agent Keith A. Custer stated in an affidavit filed with the U.S. District Court for the District of Maryland that a review of her accounts showed activity consistent with a Ponzi scheme and misappropriation of investor funds.

He described a Ponzi scheme as a fraudulent investment:

where the operator of the scheme solicits investors by promising high rates of return with little risk. The scheme operator then funds payments to the older investors through funds obtained through new investors. Typically, the operator of the scheme will use investment funds for purposes other than what was conveyed to the investors. For example, funds may be used for the personal benefit of the scheme operator.

Bennett allegedly used wildly inflated figures in her firm’s financial statements to entice investors. Special Agent Custer spelled out the operation of the scheme in heartbreaking, but not surprising detail in his affidavit. He described how Bennett targeted elderly and unsophisticated investors, and cited emails where her customers told Bennett that they were investing all that they had with her. One investor wrote that “what you are managing is our sole security blanket, it would be a killer if for any reason an investment in your fine company would lead to any more losses than what our portfolio has experienced in the recent past.”

Another told her of his wife’s struggles with crippling depression, but noted that his spouse could be “sharp enough by being awake late in the day or early evening to be party to a phone call with the two of us on the matter of the IRA accounts and moving them your direction to achieve what you have so very generously described to me as late as yesterday when you learned our real financial circumstance.” The husband mentioned “my expressed anxiety over matters pertaining to our account with you because it was/is our ONLY ‘financial security’ for our future.”

Eye of Newt, and Toe of Frog, Wool of Bat, and Tongue of Dog

It is heartbreaking that she allegedly took advantage of vulnerable people, but not unusual or surprising, because such financial fraud occurs all too often. What is unusual and surprising, however, is Bennett’s attempt to dabble in sorcery and witchcraft to ward off SEC investigators. He described a search of Bennett's residence, where agents recovered instructions for placing individuals under a "hoodoo spell.”

Special Agent Custer tells the story better than I can:

The instructions were called "Beef Tongue Shut Up Hoodoo Spell" and allegedly were to cause the individuals under spell to "shut up" about Bennett. In handwritten notes on Dawn J. Bennett-styled stationary, along with other directions such as slitting open animal tongue, the instructions called on the spell-caster to state the name of the individual on whom to cast the spell followed by "I cross and cover you, come under my command. I command you to hold your tongue."

He additionally mentions a rather unsettling detail that “the residential search also uncovered biographical information for at least three SEC attorneys working on the SEC investigation into Bennett.”

But the best is yet to come. Special Agent Custer described how, “consistent with the instructions on how to cast a `hoodoo spell,’ agents discovered in Bennett's residence two freezers containing dozens of sealed Mason jars with identifying information for the same SEC attorneys, suggesting that Bennett had many times cast a `hoodoo spell’ in hopes of paranormally silencing the SEC attorneys.”

Last-Ditch Efforts

Ponzi schemes inevitably collapse, as there is never enough new money to keep the scam alive in the long run. The affidavit describes other episodes of Bennett’s behavior that strongly indicate that she was engaged in fraudulent conduct. She told a creditor bank and frenzied investors that she had been so slow in responding to their inquiries because she because she had been in China for the preceding eight months. According to Special Agent Custer, she claimed that she did not access her email while gone “due to hacking and vicious Chinese viruses.” The FBI discovered in a search of her credit card activity and customs records, however, that she hadn’t left the country. It appears that perhaps the closest Bennett might have gotten to China during this time period would have been to have had dim sum at the Foong Lin Restaurant in Chevy Chase, Maryland.

While desperate investors were trying to reach her, pleading by email that “you mentioned getting my money back by the end of the month, I don't know what I have to do or say to help you understand my emphatic need to resolve this problem now, I need an update today by email as to when you will have this money back to me,” Bennett allegedly was spending investor funds on a lavish lifestyle. She signed a $10 million lease for 20 years on a luxury box for Dallas Cowboys games, and shopped for designer footwear and jewelry. She also allegedly submitted a brokerage account statement showing a balance of more than $4.2 million to a bank to support the extension of a line of credit to her. The actual value of the portfolio according to the FBI was less than $36.

The SEC filed civil charges based on alleged violations of the registration and antifraud provisions of the Securities Act and the Exchange Act antifraud provisions in §10(b). The Justice Department alleged both wire and bank fraud violations.

Beef Tongue Shut Up Hoodoo Spell

I cross and cover you, come under my command. I command you to hold your tongue.

I have to remember that one. You never know when it could come in handy.