There was a time at the end of 2015 when Carlos Legaspy, founder of the Chicago-based brokerage InSight Securities, was pitching hard to win a chunk of custodial business as Raymond James exited the Latin American market. “I was the most aggressive on pricing, it was a really thin margin,” he said. “For better or worse, I won it.”
The operating words might have been “for worse,” as the piece of business was Biscayne Capital, based in Miami, and the chunk was $700 million—$155 million of which would eventually be revealed to be an alleged private placement Ponzi scheme that nearly destroyed Legaspy’s firm. What ensued for him was $40 million worth of lawsuits as victimized clients sought justice, even though InSight had neither recommended nor sold the notes but was merely the custodian.
According to Legaspy, his battles are almost over, as he said he has just one final lawsuit to resolve, but the Biscayne case grinds on. Last September, the U.S. Attorney’s Office charged three of the firm’s former officers with conspiring to defraud investors and financial institutions. They were Roberto Gustavo Cortes Ripalda, arrested in Spain; Fernando Haberer Bergson, arrested in Argentina; and Ernesto Heraclito Weisson Pazmino, arrested in Florida.
“As alleged, the defendants orchestrated a complex and fraudulent scheme to repeatedly mislead investors about the nature and performance of their investments. The defendants enriched themselves with millions of dollars in investor funds while making misrepresentations that caused more than $155 million in investor losses,” Acting United States Attorney Jacquelyn Kasulis said at the time.
In March, a federal judge ruled that Deutsche Bank will now have to face those investor’s lawsuits, as the firm allegedly ignored warnings it was enabling the fraud by continuing to lend money to Biscayne’s officers.
The scheme started its slow collapse in 2017, Legaspy said, when he grew suspicious of the private placement notes and tried to see “what was under the hood.” When he saw malfeasance, he said, he insisted InSight would no longer be Biscayne’s custodian. At that point, the companies that had issued the private placements stopped making their interest payments, and Legaspy contacted the FBI.
If convicted on all counts, each defendant faces up to 70 years in prison. In April, Pazmino pled guilty to wire fraud and will be sentenced in August. The other two cases are ongoing.
Legaspy has written an account of the growth of InSight and the Biscayne relationship that nearly destroyed it in “Going For Broke: How One of Latin America’s Largest Financial Frauds Became a Blessing in Disguise,” published by Advantage and available now on Amazon. He and one of his lawyers, Laurence Landsman of Chicago’s Landsman Saldinger Carroll, agreed to an interview with FInancial Advisor to discuss the Ponzi experience.
FA: Do you think Biscayne gave you their business because they thought you wouldn’t notice?
Legaspy: No, because Raymond James really was out, and I was the most aggressive on pricing. I think when I froze the trading of the notes it really threw a monkey wrench into their operation because no one had done that, not Raymond James, not Pershing, not the banks. They just kept trading their notes normally. They already had their customers with us. I’m willing to bet if I had not been that vigilant they would have just upped the commissions to their sales force. They would have said, ‘If you sell more notes, we’ll pay you 5%, 6%, 7% commission,’ and probably the whole $700 million in assets would have ended up being bought into those notes. The assets they had in other places were insufficient to maintain the stability of the pyramid. So that’s how they started relying on overdrafts that Deutsche Bank allowed them. In a way, by having Deutsche Bank as a paying agent, as a counterpart, it gave all the other Street participants some level of comfort and legitimacy with the transactions. Now after the litigation and the discovery, I can see there was nobody minding the store, and we were collateral damage.
FA: At one point you were involved in 19 lawsuits at the same time. How did you respond?
Legaspy: Ask Larry.
Landsman: Carlos was tenacious. Carlos educated himself on the law. He was determined. With all the pressure that came with all the threats that were coming at him from all different directions—that there was this massive Ponzi scheme and he knew what was going on—he kept his wits about him. And he kept his focus on ‘I’m not letting people bring me down.’ And to me that’s the whole story. Here’s a guy, doing well, creating and building this practice, this broker-dealer, and then all of a sudden he’s just getting crushed by all of these allegations because people are looking for someone to blame. Look, people were real victims of a real, massive Ponzi scheme, and that was a terrible thing. But he didn’t like the note, and he was doing his due diligence. He was doing his job. But when it all crashed down, he focused on the issue and was intentional about "I’m not letting other people do this to me when I have done nothing wrong."