Feds Charge Norada with Swindling $62.5 million from Investors in Massive Ponzi Scheme – How to Detect the Red Flags Beforehand

Investors were drawn-in by promises of sky-high returns, low-risk, raving investor reviews and were paid like clockwork … right up until it all collapsed. Here’s how many Private Investor Club members spotted the disturbing warning signs early and avoided the blood-bath.

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What Happened?

On September 9th, the U.S. Justice Department charged Norada Capital Management and its CEO Giovanni Santarelli with running a Ponzi-scheme involving bogus promissory notes.  According to federal prosecutors, more than 500 investors were scammed out of $62.5 million:

Former CEO of Orange County-Based Private Equity Fund Charged with Conning Investors Out of $62.5 Million via Bogus Promissory Notes Santarelli solicited hundreds of investors nationwide to invest in unsecured promissory notes ranging from $25,000 to $500,000. He promised via marketing a high-yield monthly interest rate – approximately 12% to 15% – over three to seven years. ... Via webinars, Santarelli promised that the notes were backed by diversified assets under management and offered steady, predictable monthly returns. ... In fact, NCM did not pay the promised returns and interest payments. Instead, the fund invested in risky assets that did not provide the promised safety and security, was unprofitable, had very little return on investment, and a large amount of debt. The balance sheets sent to investors hid more than $90 million in debt and included inflated assets. In Ponzi-scheme fashion, Santarelli made interest payments to investors using other investors’ money. ... In total, Santarelli caused more than 500 investors to lose approximately $62.5 million.

This is a very sad development for every Norada investors.

At the same time, many Private Investor Club (PIC) investors noticed the numerous disturbing Narada red-flags in advance and avoided getting scammed. 

How did they do this and what kinds of things did they look at?

Spotting a Wolf in Sheep’s Clothing

1. Implausibly High “Low-Risk” Returns

Norada claimed to invest in unsecured business loans yielding an eye-popping 12- 15%. This was much higher than the single-digit returns that a legitimate investment in the asset class might be expected to produce at that time.

At the same time, Norada marketed this is a low-risk investment. But unlike loans that a bank might make, these loans had no security from collateral and were completely unsecured. And unsecured loans are much riskier than secured.

This lethal one-two combination (claims of returns that are implausibly high and risk that is implausibly low) is a stereotypical feature of virtually every Ponzi scheme. Per the SEC: 

Promises of high returns, with little or no associated risk, are classic warning signs of fraud.  Every investment carries some degree of risk and the potential for greater returns comes with greater risk. Ignore so-called “can’t miss” investment opportunities or those promising “guaranteed returns.”

And together these are the reddest of red flags ... and made this investment an easy and immediate "no-go" for many PIC members.

2. Overly consistent returns

Norada claimed their returns were “predictable monthly income”:

But making unsecured loans involves risk and inevitably losses. And losses cause income streams to become inconsistent and erratic (and especially in downturns). So this claim didn't pass the sniff-test.

And claims of overly consistent returns are also another classic signal of a Ponzi Scheme. From the financial crime compliance firm, Flag Right:

Overly consistent returns: Investments in markets fluctuate over time. Even high-performing investments will experience ups and downs. However, Ponzi scheme operators will often showcase overly consistent returns, irrespective of market conditions, to entice investors.

So this was another major red-flag.

3. Principals with a past history of misconduct/fraud charges

Norada marketed their CFO, Ron Fossum Jr., in this friendly way:

However, in reality, Fossum, came with much heavier baggage. And anyone who did even a cursory Google search would have found that in 2018, Fossum was sanctioned by the SEC as part of a settlement over the following SEC fraud charges:

From 2011 through 2016, Fossum and three entities he owned and controlled raised roughly $20 million from over one hundred investors.  … Fossum engaged in multiple fraudulent and deceptive acts, including misrepresenting the financial condition of the funds, misstating management compensation, misappropriating fund assets for personal expenses, and commingling fund assets.

Having an SEC sanctioned executive involved in managing investor money was also a massive red flag (and is an immediate disqualifier for myself and many other club members).

4. Marketing to Unsophisticated Investors I

Norada didn't focus on sophisticated investors ... who generally ask tough questions and dig in deeply. Instead it pitched its notes to investing newbies via podcasts:

..and public investing forums like BiggerPockets where, CEO Marco Santarelli posted (alleged) falsehoods to newbie investors:

In general, the most experienced sponsors (the ones who have built up strong track records over a full real estate cycle or more) organically build up large and enthusiastic investor bases who quickly fill up their new deals. As a result, these types of sponsors generally don't need to market this way. 

On the other hand, many less experienced sponsors can't fill their deals otherwise and will typically do alot of podcasting and public posting to attract new investors. And typically these are designed to educate unsophisticated investors who are newer to investing. 

So for many PIC members (including myself)...sponsors who market on podcasts, public websites and social media are a yellow to red flag.

Additionally, all Ponzi schemes rely on a strong and continual inflow of new investors to prop up the returns. And unsophisticated investors are a good audience for an unethical sponsor to source these from (because they're generally “easy pickings”). 

5. Enthusiastic Investors Bragging about “Clockwork” Returns

Virtually every Ponzi scheme has a group of loudly enthusiastic investors who boast about the regular/clockwork returns. And this jubilant chatter usually lulls other investors into ignoring obvious risks—right up until the music stops.

We saw this exact issue a few weeks ago with Prestige Investments ATM’s (which also has been charged of being a Ponzi by the Feds). And numerous other past ponzi's.

And now it's happened again with Norada.

As recently as a mere 3 months ago (July 16th, 2025 ), Spark Rental bragged about Norada’s implausibly large returns as being one of “The Best Short-Term Investments” available in the market:

The Best Short-Term Investments: Real Estate & More We invested in a nine-month note for Norada Capital, the private equity arm of Norada Real Estate. The note wasn’t backed by properties but rather by the businesses owned and operated by Norada. It’s been paying us 15% interest every month like clockwork.

And in the public forum, Bigger Pockets, another investor raved:

We just had our 3-year loan mature on 2/2/24. Interest always paid on time, and principal was returned with bonus right on schedule. I have only had good experiences with Norada to date.

The bottom line is that history shows that a mere track-record of reliable payments is not a substitute for doing thorough due-diligence.

How PIC Members Spotted It

Many Private Investor Club (PIC) members screen deals for things that they feel are yellow and red flags ... like these:

• Implausibly high returns (Unsecured business loans should be yielding much lower than 12-15%).

• Claims of low risk on investments that are actually high risk (Unsecured business loans are much riskier than secured)

• Overly consistent returns (Unsecured business loans do not actually pay consistently...especially in downturns)

• Upper management with prior regulatory sanctions (for fraud and deception including misappropriating investor money)

• Marketing through unsophisticated investor channels (podcasts, public forums).

• “Clockwork returns" lulling investors into ignoring major red flags.
  

Any one of these issues could merit extreme caution. And together, they flashed a huge warning sign to many PIC members ... DANGER.

Final Word

As with the Prestige Investment Group case, the Norada allegations are still alleged—and the courts will decide guilt or innocence. But the lessons remain timeless. 

Digging deeper / Learning More

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