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Crimes

Ponzi’d By My Accountant

October 8, 2019

Photo:  Charles Ponzi

 

by Howard Haykin

 

For some 30 years, Carol Ann Pedersen provided accounting services to individuals and families in Southern California. For 26 of those years, she also acted as a money manager and investment adviser to some of her accounting clients.

 

Pedersen raised over $29 million from 25 clients by representing that she would invest their money in securities and other financial instruments that would earn returns of at least 8%. Except for one brief moment, Pedersen never invested any of her clients' moneys. Instead she used over $25 million to make Ponzi distributions to investors, and spent the rest on personal expenses.

 

A Ponzi scheme is … an investment fraud promising high rates of return with little risk to investors. The Ponzi scheme organizer then uses funds collected from new investors to pay existing investors.

 

Pedersen concealed her fraud by issuing fake account statements that represented where the clients’ funds were supposedly invested. The Ponzi scheme collapsed in 2017 when Pedersen ran out money and investors sued her.

 

 

MONEY IS MONEY & YOU CAN NEVER BE TOO SURE.    Ms. Pedersen was undoubtedly a beloved and trustworthy CPA, who seemed to be a beacon of fiscal responsibility. But when her clients entrust her with their money, they entered into "unchartered territory."

 

And in that scenario, they should have obtained multiple layers of verification - not just personal assurances, official-looking partnership agreements, and tidy account statements.

 

  • For one thing, they probably didn't ascertain the Pedersen was duly registered with federal authorities – she wasn't.
  • Second, there was no independent verification that their funds were invested and held in a brokerage or custody account maintained by a reputable financial institution - something they probably didn't do.
  • Third, they're money was invested in a partnership fund, but did they see or obtain annual audited financials and Schedule K-1 tax forms (which report their share of the partnership's earnings, losses, deductions, and credits)? Maybe not

 

I'm speculating, but it's likely that these issues significantly aided Pedersen in carrying out her Ponzi scheme that lasted nearly 30 years.