In a Friday press release, the Securities and Exchange Commission (SEC) announced fraud charges against two men accused of running a Ponzi scheme with investor funds raised for the purchase and resale of high-demand shows.
According to the SEC, the two men, Joseph Meli and Matthew Harriton, allegedly raised more than $81 million from at least 125 investors spread across 13 states.
Ponzi schemes involve using recently invested funds to pay out returns to older investors to maintain the illusion of a profit-earning endeavor. Ponzi schemes — named for Charles Ponzi, an Italian con artist who defrauded thousands of people across New England in the 1920s in a postage stamp scheme — generally promise high return rates with little to no risk.
This particular scheme, structured around the premise of buying large ticket blocks to popular New York City shows which would then be resold for large profits, focused specifically on high-demand performances such as concerts by the singer Adele or the popular Broadway musical "Hamilton."
Since its inception, "Hamilton," which won 11 Tony Awards in 2016 — including the award for best new musical — has been one of the most popular shows in New York City. The show set a Broadway record for the most money grossed in a single week when it earned $3.3 million over eight performances in the days following the cast’s live address to now-Vice President Mike Pence. It also set a record for the highest premium ticket price charged by a Broadway box office when a single ticket sold for $998, far surpassing the previous record of $700 for Barry Manilow on Broadway back in 2013.
According to The New York Times, during the record-breaking week, the high average for paid admission was $303, a number that reflects only tickets charged by producers and sold at the box office or through Ticketmaster — suggesting that a considerable number of seats sold for massive premiums in what has become an enormously profitable resale market..
The recent Ponzi scheme raised money off the concept of buying large blocks of tickets to the show, guaranteeing large returns off the high resale premiums, even going so far as to misrepresent to investors that an agreement existed with the producer of "Hamilton"’ to purchase 35,000 tickets to the musical.
While Mr. Meli had approached the producer about such an arrangement, the producer declined to participate leading the SEC to allege that no such agreement existed.
In fact, according to the SEC, the majority of the money raised was used to pay off earlier investors.
According to Reuters, the two men are also accused of using company money to help a fund manager repay $4.2 million to investor in a separate scheme whose money had been previously misappropriated.
In addition to the money paid in order to maintain the scheme, a further $2 million was used for personal expenses including $82,000 in jewelry, $208,000 spent at a luxury car dealership, and almost $50,000 spent at an Atlantic City casino, according to Bloomberg News.