Fools and their money

Terry Freeman is a City trader and blogger who has been arrested and questioned by the City of London Police over an alleged £44 million Ponzi fraud. Such schemes, named after an Italian migrant to America at the beginning of the last century, work by offering massive returns to investors with dividends paid from other investors' capital rather than from underlying profit, of which there is generally none. It's the oldest pyramid scheme in the book - apart from the Pyramids.

Mr Freeman, 60 and born Terence Sparks before changing his name by deed poll, has a young Russian wife and a Mock Tudor house in Buckhurst Hill with three cars in the drive (living the Essex dream, eh?). According to some sources he also now has police protection. His hundreds of investors, who put in sums ranging from £5,000 to £500,000, include footballers and police. One, quoted in the print edition of The Times this morning - Sir Compton can't find it online - said: "A friend of mine had put £140,000 in and got a £40,000 profit. I'd seen the figures for two years and didn't think there was any harm in putting £10,000 in."

What is amusing about this is that both Mr Freeman and his clients would at some point over the past few months have gone through a gradual awakening, a realisation that started maybe as butterflies in the tummy, that the pyramid was going to crumble. It probably collapsed because fewer - possibly no - new investors were willing to come forward in uncertain times. Suddenly the statements showing surging growth were mysteriously unavailable and then customers found that they could not withdraw their money. The first flushes of panic turn to raging mania, the thought that this cannot possibly be happening and then the flash of clarity: it's over, the money has gone.

Doorstepped by reporters since news of his arrest on Monday morning broke, Mr Freeman's neighbours said he was lovely, not at all extravagant and very unassuming: it's always the quiet ones. A police source said officers thought they were on to a "mini-Madoff" - a reference to the $50 billion New York Ponzi fraudster Bernie Madoff. The Freeman investigation centres on whether the scheme started as a Ponzi fraud or turned into one when times got tough.

Mr Freeman, with his offices in Broadgate, is difficult to get hold of: one can only imagine the sort of anguished hell he has been going through, knowing that exposure, disgrace and a prison cell are all coming over the event horizon. The strange thing, though, is that he must have known that it would end, because it always does. Is there not in this country a thing called the Financial Services Authority? Do its employees not scrutinise the investment claims made by people operating money-making schemes? Do they not recognise duds and shysters when they see them, or are they blind to everything except the notion of hoodwinking the public at large into thinking that there is regulation, when, in fact, there isn't?

If something appears too good to be true, it is generally because it is too good to be true. So while there can be no sympathy for Mr Freeman if he is convicted, there should be none for the greedy - and they were greedy as well as gullible - who entrusted their money to him. What fools they were. It is of course entirely possible that many of the investors knew they were part of a Ponzi fraud and - just like Mr Freeman - were relying on further mugs to come forward. So, nasty fools as well, and those who did know absolutely deserve to lose their money.

Sir Compton feels quite certain that the Govt will recompense them.