Philly Deals: What investment fraud costs the scammer

Steal a million, serve a year:

What's the price of investment fraud? If you are caught and convicted, count on being sentenced to about a year in prison for every $1 million you wrongly separated from clients, according to a Main Line ethicist's survey of a dozen local pyramid schemers jailed since Wall Street mega-fraudster Bernard Madoff got sent away in 2009.

"There is a consistent standard," yet results vary with public outrage and other factors, says Julie Anne Ragatz, director of the Cary M. Maguire Center for Ethics in Financial Services at American College, the insurance and investment school in Bryn Mawr. Ragatz, who also teaches at Villanova's graduate business school, compiled the numbers from court records and news accounts.

For example: Terence Mayfield of Phoenixville, convicted in 2009 of duping members of a Toms River, N.J., church in phony real estate deals, was sentenced to eight years in prison for stealing not quite $1 million.

By contrast, Broomall investment manager Joseph Forte, who falsely told clients he'd turned their $35 million into profitable investments, got a shorter sentence that works out to five months per $1 million.

Why did Mayfield get sent up for longer? He was "going after an affinity group," appealing to victims on the basis of shared identity, figures Ragatz. "That strikes society as more egregious" than purely financial frauds. It's as if ethical or religious or community values are more important than purely material motives, and exploiting those personal ties is worse than straight stealing.

Contrition matters, too. Forte, who cooperated with prosecutors, got a shorter sentence than Chester County's uncooperative horse-country scammer Donald "Tony" Young, as my colleague Harold Brubaker reported. It also helps if you kept out of other trouble: While many of those accused had clean prior records, Philadelphian Robert Stinson, with five prior fraud convictions, got the longest sentence of the group, 33 years.

Should whom a scammer targets make a difference? Ragatz says society is conflicted: "We want our judicial system to respond" to our outrage, yet we also expect justice to apply impartial standards and avoid "emotional revenge."

I asked whether scammers are being punished more, post-Madoff. "There's heightened sensitivity," Ragatz concludes, but you'd need "a lot of data" to show that sentences got longer.

Ragatz, coauthor of a couple accounting-ethics textbooks, is working on a philosophy Ph.D. at Temple University. She's writing an intellectual history of the efficient-markets hypothesis under Professor Miriam Solomon.

Concept arbitrage

Miro Capital Partners L.L.C., a Philadelphia firm run by lawyers-turned-dealmakers Michael R. Kelsen and Robert J. Borghese, has invested $660,000 in Grupo Sequoia, Brazil-based owner of Completa Logistica and Delivera Express, which Sequoia founders Armando Marchesan Neto and Decio Alves have built to exploit Brazil's nascent electronic-commerce markets.

Why Brazil? "Inflation's under control, and the political economy has stabilized, and that's unleashed a torrent of economic activity," Kelsen tells me. Last fall, I chronicled how Brazil-based Braskem, Marfrig Alimentos, and Ci&T have bought or opened Philadelphia-area operations. Capital flows both ways; Miro is among the U.S. firms now seeking business down there.

As "technology guys," says Kelsen, "one thing that attracted us to Brazil is 'concept arbitrage,'?" the idea that what works in the United States could work in a later-blooming but faster-growing tech market like Brazil.

"We went in with the sponsorship of Brazilian institutions," including the merchant bank and private-equity shop BR Partners. "These are sophisticated insiders, who are local, who will monitor the investment, [who] know e-commerce, with deep domain expertise in e-commerce logistics and fulfillment." They make it "less like the Wild West."

Miro is also looking at mortgage banking. "It's a nascent field in Brazil. The first inning," Kelsen tells me.

Contact columnist Joseph N. DiStefano at 215-854-5194, JoeD@phillynews.com, or @PhillyJoeD on Twitter.