Timeshare Scam Targets Elderly. SEC Targets Scammers.

The Timeshare Owners Blog warned readers about this scam, back in April in a post titled, Warning: Timeshare Fraud Targeting Older Investors.

At that time, the Missouri Secretary of State, Robin Carnahan, had issued cease and desist orders against four Missouri men, a business in Panama, two Mexican businesses, and a Nevada promoter who were targeting elderly Missourians with a “get rich” timeshare investment scam.

According to Bloomberg News and the Washington Post, the Securities and Exchange Commission is now cracking down on this scam and the people behind it. The list of those being charged has expanded to include Michael E. Kelly and 25 other people or companies who are being sued or are facing charges for their role in the $428 million fraud. The lawsuit, filed in Chicago federal court, is intended to not only bring justice in this particular situation, but to prove that the SEC will, in the words of Merri Jo Gillette, the SEC’s regional director in Chicago, “vigilantly pursue those who target older Americans, no matter what the obstacles.”

The fundamental nature of this timeshare scam is that individuals were led to believe that by purchasing timeshares, they would receive regular revenues from the ongoing rental of the timeshares. They were also told that anytime they wished to sell the timeshare, the leasing agency would buy it back for the full purchase amount.

This sounds incredible…which should be the first red flag. If this “investment” deal was solid and afforded this kind of guaranteed return, then lending agencies and investment firms would be jumping at the chance to be part of it; and the people behind it wouldn’t be looking for senior citizens to make it happen. As we hear all the time, when a deal sounds too good to be true—assume it is!

In fact, this timeshare scam is a “Ponzi scheme”, a type of fraud that takes its name from Charles Ponzi, an infamous turn of the century shyster. In a Ponzi scheme, early investors are paid returns from the money that subsequent investors have used to become part of the deal. These payments do not represent genuine net revenue as they should, and because of this, a Ponzi scheme will ultimately fail 100 percent of the time. Yet those who get into the deal early on, do receive the returns promised (for a while) and are often eager to vouch for the deal’s validity in living up to its promises. A Ponzi scheme can be highly tempting to others; while we may not trust the salesperson pitching the deal to us, we tend to place great faith in endorsements and testimonials of other investors like ourselves.

The saddest part of this specific deal is, according to Forbes Magazine, more than $136 million of the money invested in this timeshare scam came from individual retirement accounts, meaning that it obviously was not expendable income on the part of those who invested it.

Timeshares should never be purchased as an investment for financial return. Timeshares are a lifestyle investment—they promise no financial rewards, only the benefit of great vacation opportunities. If anyone implies to you that buying timeshare is an investment, that person is not only lying, he or she is violating Securities and Exchange Commission regulations.

Buy a timeshare because you want to enjoy vacation ownership. Buy because owning timeshare is a commitment to a lifetime of great vacations for you and your family, typically in luxurious surroundings, at high-demand venues. Likewise, you should sell your timeshare as soon as you find that you are no longer using and enjoying it. The value of timeshare is in using it, not in holding it for financial return.

Before you enter into any transactions involving timeshares, check with the Office of the Secretary of State or the Attorney General for the state in which the timeshare company or timeshare resale company is located.

If you would like to read the complete list of those named as defendants in this case, you can find it on The Bizop News blog, where Michael Webster has posted all the names and some additional information about the case.