Jerusalem – Former U.S. Convict Arrested On Suspicion For Running Ponzi Scheme That Targeted Charedim

Jerusalem – Could Ilan Morgan be a local twist on Bernard Madoff? The two have at least two things in common: They promised phenomenal returns on investments, and are under house arrest.

But there the similarities end: Madoff has admitted to running a Ponzi scheme, possibly the biggest in history, and he targeted the rich. Morgan, a portfolio manager and former convict, hasn’t admitted to conning clients and he targeted the ultra-Orthodox community.

The Israel Securities Authority yesterday detained Morgan for questioning on suspicions that the handsome annual returns he promised his customers might indicate a Ponzi scheme.

Morgan’s portfolio management company reportedly offered clients suspiciously attractive earnings – 3% monthly, which works out to 36% a year.

Again begging a comparison with Madoff, Morgan had employees who assured the clientele that their investments were guaranteed.

Authorities are investigating whether Morgan abused his license from the Securities Authority to manage investment portfolios, and conned at least dozens of Haredi clients out of hundreds of thousands of shekels, acting through a number of private companies.

And now it gets complicated.

The Securities Authority found that until 2007, Ilan Morgan had been called Ilan Mika Arbel. Furthermore, he served time in a U.S. prison after being convicted of securities fraud there.

Ilan Arbel returned to Israel in 2007 after his release, and changed his name within days. Immediately afterward, he founded several private companies, including Morgan Lombard.

The Authority says that Morgan provided false information when he established Morgan Lombard, claiming that the firm was owned by an affluent securities investor, rather than himself.

Morgan, who is also the company’s chief executive, allegedly submitted the false information in order to obtain a license to manage securities portfolios and avoid Securities Authority scrutiny. He hid his criminal past from both the public and the Securities Authority.

Morgan attracted part of the investments through advertisements by brokers acting on his behalf, distributed in Jerusalem-area synagogues, among other places.

Some the brokers also falsely claimed to be licensed by the Securities Authority to market securities investments. The investments themselves were advertised as risk-free, despite their impressive monthly returns of 3%, and the funds were said to be secured with deposits. In fact, neither of these was the case.

A former employee of the company, who belongs to the Haredi community, said he’d been recruited to rope in investors, and had undergone training for this purpose.

“We were told to say that Morgan invested the money in safe, conservative funds and in bonds, and that there was no risk involved,” he related. “We promised returns of 20% a year, with guarantees.”

The minimal amount for investment was NIS 50,000, but some people invested as much as NIS 200,000, he said.

“Morgan himself is a secular person with broken Hebrew, but he gave the impression of being a reliable, serious person,” the ex-employee continued. “He told everybody that he’d done deals worth tens of millions of dollars in the United States. He himself was always careful to say that the returns weren’t guaranteed, and would be 10% to 15% a year.”

The company’s offices were quiet. Nothing went on there, said the former worker. “From time to time investors would come for meetings. They were mainly Haredi.”