IU alumnus Zachary Horwitz was arrested on April 6 and is accused of orchestrating over a $690 million Ponzi scheme violating federal SEC laws, according to court documents.
A Ponzi scheme is an operation promising high financial return or dividends through fraudulent investments, according to the FBI’s website. In Horwitz’s case, he was accused of using investors’ money for other purposes than what was intended.
Horwitz, 34, allegedly used money from investors to buy luxuries, such as a $6-million Beverlywood residence, as well as to repay money owed to previous investors, according to NBC News.
Horwitz created the company 1inMM Capital, LLC which was a limited liability company based in California, where the investments were made.
Horwitz allegedly fabricated information and claimed he had business relationships with Netflix and HBO when he did not, according to court documents. He told investors he was buying distribution rights to movies and selling them to these media companies for a large profit, according to court documents.
JJMT Capital, a company who invested in 1inMM, began to question Horwitz when he missed payments owed to them in 2019, according to Forbes. JJMT, according to Forbes, tipped off federal law enforcement leading to Horwitz’s arrest.
Four IU alumni created the company JJMT, which stands for each initial of the four founders.
IU alumni Jacob Wunderlin, Joe deAlteris and Matthew Schweinzger met Horwitz at IU where they all became friends, according to Forbes. The friends, with the addition of another IU alumnus Tyler Crookston, used JJMT to help support and create deals for Horwitz and his company, thinking they were financing his purchases of distribution rights for movies, according to Forbes.
Horwitz’s next court date is May 13, according to NBC News.
IU-East economics professor Robert Mulligan said Ponzi schemes, like Horwitz’s case, involve financial scams where investments are presented that seem to yield high returns often quickly and with little risk.
Mulligan said these types of financial scams are quite common, and there are thousands of Ponzi schemes happening in the U.S. Scammers tend to use the fact that others have already invested to bring in even more investors, he said.
“They’re stealing the money, and they're just using the ongoing operation of taking money in and occasional payouts to create an appearance of profitability that helps attract additional rounds of victims,” Mulligan said. “They will encourage victim-investors to re-invest for even better returns going forward.”
At some point, he said the scammer draws in so many investors that the payments or money withdrawals just can’t be made anymore, and the scheme collapses.
“It comes to light that this is all house of cards,” Mulligan said.
CORRECTION: An earlier version of this article omitted the word "million" after $690.