Ponzi in California

(Paul Jacob/Common Sense) – Keeping loans and investments distinct is important not merely for business people, but for governments.

Case in point? Mahmoud “Mike” Karkehabadi’s 89 felony counts of securities fraud and grand theft. The Laguna Niguel, California, movie maker is accused of turning his business into a Ponzi scheme.

When his film Hotel California flopped, bringing in just over half a million dollars, Mr. Karkehabadi convinced his investors to roll over their loans to him into future movie projects. When he did this, it is alleged, he fuzzed up the distinctions between different deals, and entered dark territory. Fraud.

According to California Attorney General Jerry Brown, Karkehabadi “ran a cold and calculated scam, making promises he never intended to keep and using the funds of new victims to pay off the earlier ones.”

I don’t know which this sounds like more, something out of Get Shorty or the Social Security Act of 1935.

It’s interesting that, at the same time it prosecutes Karkehabadi, the state of California is hastily and drastically re-arranging its finances. Politicians are forced to do so because they have promised the state’s retiring employees returns on investments never made in amounts state government could never, realistically, afford to come through on.

The whole story of the accused Mr. Karkehabadi looks bad. Criminal. But then, so does the whole story of how politicians in California (and elsewhere) behave.

Fraud isn’t as uncommon as it should be.