In 2008, R.P. McCabe and his wife were heading into retirement with a solid financial future that included a $1 million investment in real estate with Right Place Properties and the Red Door Group in Phoenix.
By the end of the year, their money -- as well as the investments of roughly 700 others totaling more than $100 million -- was gone. The years of statements purporting solid returns were pure fiction. The money they were supposedly making did not come from profits, but from their own funds and money coming in from new investors.
Lawsuits followed, but so far no criminal charges have been filed and the perpetrators claim innocence.
Writing It Out
The money may be gone, but the memories of being a victim of a Ponzi scheme will not soon be forgotten. McCabe reached out to fellow victims and interviewed 200 of the 700 to find out how the scheme had affected their lives.
His research informs the pages of his novel Betrayed, which gives a personal perspective on the fallout from a financial tragedy.
In the novel, McCabe's characters, Wally and Poppy Stroud, are ready to reap the rewards of 40 years of successful investing and saving for their retirement. When they receive a letter from their investment manager telling them of their loss, the couple's plans are shattered. Poppy commits suicide and Wally goes into a deep depression until he decides to take justice into his own hands and exact revenge on the scammers.
While the Strouds' story shares elements of McCabe's experiences, they are not identical. We interviewed McCabe about what he lost, what he learned from fellow victims, and why he wrote Betrayed.
Q: What happened to you and your wife?
A: Our wealth management company recommended the real estate investment. We liked that there was a social conscience element to the plan because they were taking crumbling inner-city properties and rehabbing them into affordable condos for first-time buyers. The first two cycles paid off nicely; after four years we earned 10 to 12 percent on our investment.
No one knew what was happening, but at some point they started taking money from new investors and paying it out in interest to the old investors. They never completed a project.
We were stunned when we got a letter that told us that the losses were due to the economy and mortgage financing problems, especially because they were never supposed to have been using bank loans in the first place. We lost about $1 million.
All we had left was an emergency fund of about $100,000, which sounds like a lot but it isn't really when you don't have an income. I was 65 and retired. We had sold a business and had no real way of starting a new one, especially at a time when the national economy was imploding and Arizona was even worse. I spend most of my time now in Mexico, where the cost of living is cheaper.
Q: Describe some of the experiences of other victims you interviewed.
A: Some of the younger investors were not dealt as crushing a blow as the older investors. One 40-year-old investor lost $200,000, but he has time to build up savings again. Another 65-year-old lost $16 million and one family with five different members investing in the deal lost $6 million among them.
At the end of the day, the effect depended a lot on what each one of them had in reserve. For some people it was an immediately devastating blow but for others it was more like a slow death. Lending institutions don't want to help you because you don't have any capital of your own. For those people whose ability to recover was limited or nonexistent, the best hope was for an early death. There were entirely too many heart attacks and strokes among the victims I contacted.
Many of the people I reached had lost their homes, declared bankruptcy, and had moved in with family members. One family with three adult kids and both parents lost three homes between them. They all ended up moving into the parents' original home because that was the only paid-up property.
Q: What was the emotional impact of the scam?
A: At first I was extremely angry and that was followed by a deep psychological depression, which eventually destroyed my marriage of 34 years. I was suicidal, but luckily I had enough lucid moments to recognize the danger of my psychological state and to get help.
Suicide is very common after financial fraud has been committed, so I included that in the book so that people understand that suicide creates not only the horrific loss of a loved one but also anger at being abandoned.
The psychological impact for a lot of us was a deep shame and self-recrimination that we should have seen it coming. The thing is, we weren't investing in something sketchy. The investors here were not overreaching with some get-rich-quick scheme like a promise of a 25 percent return on something in some banana republic.
Q: In what unexpected ways did some of the victims rebuild their lives?
A: The overwhelming majority of the victims were resourceful people to start with, so they took what they had left and backed down their plans. One airline mechanic lost his kids' college fund and had to sell his home and move into a smaller place with his family. But unfortunately, some people who couldn't cope at all ended up in a state or county program of some sort, like one 70-year-old who became homeless and didn't have any family to help.
For me, part of the rebuilding process was to write this book. After six to eight months of therapy I was ready to be more philosophical and look at what I gained instead of what I lost. I gained the ability to be completely fearless and free. You can't take anything away from me anymore because that's already been done.
While my book definitely has a violent twist at the end, it isn't really just a good guy versus a bad guy kind of story. I wanted a variety of people who have been victimized to find a cathartic release from this book and to have something greater going forward. There's a tremendous amount of love throughout the story.
Michele Lerner is a contributing writer to The Motley Fool.