Ponzi Collapses Nearly Quadrupled in '09 (AP)

by Dollars and Sense

From the Associated Press:

By CURT ANDERSON, AP Legal Affairs Writer Curt Anderson, Ap Legal Affairs Writer —Mon Dec 28, 9:33 pm ET

MIAMI—It was a rough year for Ponzi schemes. In 2009, the recession unraveled nearly four times as many of the investment scams as fell apart in 2008, with "Ponzi" becoming a buzzword again thanks to the collapse of Bernard Madoff's $50 billion plot.

Tens of thousands of investors, some of them losing their life's savings, watched more than $16.5 billion disappear like smoke in 2009, according to an Associated Press analysis of scams in all 50 states.

While the dollar figure was lower than in 2008, that's only because Madoff—who pleaded guilty earlier this year and is serving a 150-year prison sentence—was arrested in December 2008 and didn't count toward this year's total.

In all, more than 150 Ponzi schemes collapsed in 2009, compared to about 40 in 2008, according to the AP's examination of criminal cases at all U.S. attorneys' offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state levels.

The 2009 scams ranged in size from a few hundred thousand dollars to the $7 billion bogus international banking empire authorities say jailed financier Allen Stanford orchestrated, as well as the $1.2 billion scheme they say was operated by disbarred Florida lawyer Scott Rothstein. Both have pleaded not guilty.

While enforcement efforts have ramped up—in large part because of the discovery of Madoff's fraud, estimated at $21 billion to $50 billion—the main reason so many Ponzi schemes have come to light is clear.

"The financial meltdown has resulted in the exposure of numerous fraudulent schemes that otherwise might have gone undetected for a longer period of time," said Lanny Breuer, assistant attorney general for the U.S. Justice Department's criminal division.

Read the rest of the article.

Labels: Allen Stanford, Bernard Madoff, ponzi, Ponzi schemes

 

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12/29/2009 10:23:00 AM 3 comments

 

Another $3 Billion Ponzi Scheme

by Dollars and Sense

It's getting hard to keep track these days. Was anybody making money honestly this past decade?

From the WSJ:

MINNEAPOLIS -- Bernard Madoff bilked the public with fictitious securities transactions. Tom Petters, prosecutors allege, gulled his victims with nonexistent DVD players and flat-screen TVs.

Among the spate of alleged scams that have come to light in recent months, the $3.5 billion one that Mr. Petters is charged with is among the most unusual. The Minnesota businessman promised fat returns to investors who lent him money to buy surplus merchandise and resell it to famous retailers like Wal-Mart Stores Inc.

"In fact, there were no such purchases or resales," says a federal indictment. It says both were faked. Mr. Petters denies the charges.

Two months before Mr. Madoff burst onto the public stage last year charged with a Ponzi scheme, authorities here accused Mr. Petters, a gregarious 51-year-old appliance wholesaler, of running a multibillion-dollar fraud of his own.

But Mr. Petters's case broke in early October as the world was riveted by an unfolding financial crisis. So his story has gone largely unnoticed nationally, while Mr. Petters sits in a rural county jail -- where, until recently, he couldn't leave his cell without shackles.

Mr. Petters used the proceeds of his alleged scheme to fund an "extravagant lifestyle," a Dec. 1 federal indictment says, as well as to acquire a host of other businesses -- ranging from Polaroid Corp., Sun Country Airlines and part of Fingerhut Cos. -- to stakes in private companies. He gave millions of dollars to colleges.

Now, cases against Mr. Petters and five others are playing out in five federal district or bankruptcy courtrooms in Minneapolis and St. Paul. Alleged victims range from hedge funds to universities to creditors of myriad related businesses that have been forced into receivership or bankruptcy. One religious foundation invested almost its entire $28 million nest egg with Mr. Petters.

The five other defendants -- among them an employee who went to prosecutors with tales of wrongdoing last summer -- have pleaded guilty to felonies, agreed to have their assets placed in a receivership and are awaiting sentencing. One of them, according to a Federal Bureau of Investigation affidavit filed in court, described the fraud as a Ponzi scheme, a deal in which returns to existing investors are paid with money from new investors. Their lawyers didn't make them available for comment.

Mr. Petters "is going to fight" the charges, says his attorney, Jon Hopeman. He faces trial on 20 federal counts of fraud, money laundering and conspiracy in September. Through his lawyer, Mr. Petters declined to be interviewed.

An old friend, Jim McAlister, says Mr. Petters was optimistic and joking around when visited recently at the Sherburne County Jail in Elk River, Minn. "Look at me," Mr. McAlister recalls Mr. Petters saying. "I lost 10 pounds. I'm in better shape than I've ever been in. My blood pressure's down."

Mr. Petters grew up the fifth of seven children in a devout Catholic family in St. Cloud, Minn., says one of his brothers, Jon. Their great-grandfather from Germany had opened a tailor shop in St. Cloud. It's gone now, but a Petters Building still stands downtown.

While still in high school Mr. Petters started a business selling stereo equipment to students at St. Cloud State University, even leasing office space and hiring salespeople. His parents shut him down after learning he was skipping school. Mr. Petters later attended the college himself, but soon dropped out and went to work for an electronics retailer in Iowa and Colorado. He returned to Minnesota in 1988, so broke that he moved in with Jon, the brother says.

Tom Petters went through a divorce. His lawyer says he also had rehabilitation for cocaine addiction. Court records show Mr. Petters was involved in multiple breach-of-contract lawsuits with business partners -- them suing him or vice versa.

Staked by a loan from Jon and a friend, Mr. Petters started a wholesale brokerage business that bought and resold surplus goods, later called Petters Co. By the mid-1990s, he had a small Minnesota retail chain that sold closeout and overstock apparel, furniture, toys and groceries. But he tired of retail and sold most of the stores. He preferred wholesaling and its constant middleman juggle of buying and reselling odd-lot shipments of televisions or frying pans or Coca-Cola.

Acquaintances say Mr. Petters was motivated less by money than the challenge of selling. "Wealth isn't one of our objectives in life," Jon Petters says of his family. "Tom said, 'If you have it, you have to give it away.' Tommy was always loaning money or giving money to people or co-signing for a house."

Federal prosecutors say the alleged fraud began in Petters Co. about 14 years ago, and worked like this: Mr. Petters and an unindicted business broker solicited investors for loans to buy merchandise; the loans would pay double-digit interest rates and be secured by the merchandise or accounts receivable.

Some of the money raised went directly to two purported suppliers of goods: Nationwide International Resources Inc., of Los Angeles, and Enchanted Family Buying Co., of Excelsior, Minn. According to prosecutors, neither of them bought or sold any goods; they usually just paid themselves a commission and routed the rest of the money back to Petters Co.

Mr. Petters and associates allegedly created fake purchase orders, bills of sale, wire-transfer confirmations, shipping documents and statements purporting to show goods being bought and resold at a profit, to retailers such as Costco Wholesale Corp. and Wal-Mart's Sam's Club.

An order dated April 17, 2008, showed Enchanted selling 2,800 Hitachi projectors to Petters Co. for $5.26 million, according to an FBI affidavit filed in federal district court in Minneapolis. A purchase order dated 11 days later portrayed Sam's Club as buying the projectors for $5.84 million and thus producing a profit of nearly $600,000.

A Wal-Mart official told the FBI the retailer doesn't do business with vendors via paper records but on a special Internet site. He called the Sam's Club purchase order fictitious.

Labels: Corporate Fraud, Corporate Swindles, ponzi

 

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4/22/2009 12:38:00 PM 0 comments

 

Regulators Despair Of 'Ponzimonium'

by Dollars and Sense

Is it Ponzimonium or Ponzapalooza?

From Reuters:

Hundreds of people in the United States are under investigation for financial scams, many involving Ponzi schemes, a U.S. regulator said on Friday, calling the phenomenon "rampant Ponzimonium."

While none are as mammoth as disgraced financier Bernard Madoff's $65 billion fraud, multimillion-dollar "mini Madoffs" are proliferating from New York to Hawaii, the head of the Commodity Futures Trading Commission said.

So far this year, the agency has uncovered 19 Ponzi schemes, which depend on an influx of new capital instead of investment profits to pay existing investors.

That compares with just 13 for all of 2008.

"Because of the economy, people are seeking redemptions more than they ever have and that's making a lot of these scams go belly up," Bart Chilton, commissioner of the Washington-based Commodity Futures Trading Commission, said in a telephone interview.

In the last month alone, his agency has pursued investment fraud in Pennsylvania, New York, North Carolina, Iowa, Idaho, Texas and Hawaii.

Chilton called the problem "rampant Ponzimonium" and "Ponzipalooza" -- a play on the word "Lollapalooza," an American music festival featuring a long list of acts.

Many of the financial scams are small but grew fast to support lavish lifestyles, like the suspected $40 million, five-year Ponzi scheme that came to light last month when a North Carolina man, Bruce Kramer, committed suicide.

Claiming he was an expert mathematician, Kramer is accused of persuading 79 people to invest in what he said was a foreign currency trading operation, Barki LLC. He promised monthly returns of at least 3 percent to 4 percent, the CFTC said.

Instead, he funneled money into a Maserati sports car, a $1 million horse farm and artwork while holding "extravagant" parties, according to a CFTC complaint released on Wednesday.

As the economy soured, Kramer struggled to find new clients to keep the scheme going. In the days before his suicide, his investors demanded their money back and grew suspicious when they couldn't access their own funds, said Chilton.

The Commodity Futures Trading Commission shares oversight of financial markets with the Securities and Exchange Commission, which also faces a swelling casebook of Ponzi schemes, including charges against Texas billionaire Allen Stanford, who is accused of bilking investors of $8.8 billion.

The SEC has taken emergency action in 24 cases this year "to halt ongoing fraud," said SEC spokesman John Heine.

The FBI is also ramping up probes of financial wrongdoing. The agency has 43 corporate fraud cases under way directly related to the financial crisis, FBI Deputy Director John Pistole told a Congressional panel on Friday.

The CFTC, which set up a task force last year to pursue foreign currency Ponzi schemes and fraud, discovered about $80 million invested in four Ponzi schemes this month. That followed 10 such schemes in February totaling about $1.46 billion, and about $450 million in such scams in January.

More here.

Labels: banking regulation, Corporate Fraud, Corporate Swindles, financial regulation, ponzi, SEC

 

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3/22/2009 08:19:00 PM 1 comments

 

Elderly NYers Angry as Crisis Hits Poorest

by Dollars and Sense

More from Reuters; hat-tip to Bob F. More mentions of Madoff. A sweet picture accompanies this article, too. You can just hear them being interviewed.

By Claudia Parsons | Tue Feb 17, 2009 1:28pm EST

NEW YORK (Reuters) - From housebound grandmothers who rely on charity meal deliveries, to ailing retirees who cannot pay rising costs for medications, older Americans feeling the pinch of the financial crisis are getting angry and forming groups with names like "Senior Outrage."

In New York, with city and state tax revenues tumbling, benefits and services to the elderly are being cut, and many older residents are furiously drawing comparisons to the billions of dollars spent to bail out banks -- and pay Wall Street bonuses.

Dolores Green, 68, retired as a home help worker and lives on a government Social Security check of $740 a month. She pays $719 a month in rent, leaving just $21 for everything else.

To eat, she relies on the federal food stamp assistance program, and worries that her cost for some medication she needs for her diabetes has gone up to $8 from $3.

To get by, she said: "I run errands for seniors. They may hand me $2 or $3 or something."

Green says she sees more people seeking government assistance, such as her daughter, who lost her job after 25 years.

"She's just applied for food stamps, she's got two kids," Green told Reuters at a community center where some 25 elderly New Yorkers were eating a lunch of sandwiches, a gelatin dessert, milk and tomato juice. "That's why she can't help me, because she's got to help her children."

"Maybe I'll move in with you," she jokes to her friend Alice Jordan, 80, a retired teacher who suffers from osteoporosis and high blood pressure.

Jordan said her food stamp allocation had gradually eroded to $54 a month from $180.

When she reads about the well-heeled victims of financier Bernard Madoff's suspected $50 billion Ponzi scheme, she says she wishes they would spare a thought for those who never had such wealth.

"Just like this guy Madoff ripped them off, how did they feel when they lost their money and had to change their style of living? Think of us. ... How do you think we feel?" she asked.

Read the rest of the article.

Labels: Bernard Madoff, elderly, financial crisis, food stamps, ponzi, recession, safety net, Wall Street

 

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2/17/2009 03:26:00 PM 1 comments

 

Stanford Financial Charged with 'Massive' Fraud

by Dollars and Sense

From Reuters. There is a Madoff link: "Stanford's investment companies were exposed to losses from the alleged Ponzi scheme run by Madoff, and falsely reassured investors otherwise, the SEC charged." And there is a cricket link (hence the Antigua dateline): "Stanford came to prominence in the cricket world following his private Twenty20 competition in the Caribbean and, in particular, the $20 million game in November between England and his own team made up of West Indian players."

By Anna Driver and Simon Evans | Tue Feb 17, 2009 2:42pm EST

HOUSTON/ST JOHN'S, Antigua (Reuters) - U.S. authorities charged Texas billionaire Allen Stanford and three of his companies with "massive ongoing fraud" on Tuesday as federal agents swooped in on Stanford's U.S. headquarters.

In a complaint filed in federal court in Dallas, the U.S. Securities and Exchange Commission accused the cricket-loving Stanford and two other top executives at Stanford Financial Group of fraudulently selling $8 billion in high-yield certificates of deposit.

About 15 federal agents, some wearing jackets identifying them as U.S. marshals, entered the lobby of Stanford's office in the Houston Galleria area, a Reuters eyewitness said.

Stanford Financial said it remained open for business, but was "under the management of a receiver," according to a sign taped to the door of the firm's Houston office.

According to the 25-page SEC complaint, Stanford Investment Bank (SIB) sold $8 billion in CDs "by promising high return rates that exceed those available through true certificates of deposits offered by traditional banks."

The SEC said it was seeking to freeze assets of the company and appoint a receiver "to take possession and control of defendants' assets for the protection of defendants' victims."

The move came as investors, politicians and regulators focus on the returns promised and provided by investment firms, following an alleged $50 billion fraud by Wall Street investment manager Bernard Madoff.

Read the rest of the article.

Labels: Allen Stanford, Antigua, Bernard Madoff, cricket, fraud, ponzi, SEC, Stanford Financial

 

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2/17/2009 03:18:00 PM 0 comments

 

Judge Places Madoff Under House Arrest

by Dollars and Sense

Recently posted to the WSJ website. If you didn't think it was possible for Bernie Madoff's alleged $50bn ponzi scheme to get any juicier, it turns out that U.S. Atty General Michael Mukasey's son, Marc Mukasey will be working for the defense. He works for Bracewell & Giuliani (where Rudi is a partner); one of their specialties is white-collar crime.

This is the same SEC that issued a mea culpa a couple of days ago for missing numerous signs that Madoff was engaged in fraud.

Cox: No Evidence Yet of Wrongdoing by SEC Staff in Madoff Case

Madoff to Wear Monitoring Device; Mukasey Recusal

By AARON LUCCHETTI, KARA SCANNELL and AMIR EFRATI | DECEMBER 17, 2008, 5:07 P.M. ET

WASHINGTON -- Securities and Exchange Commission Chairman Christopher Cox said Wednesday that no evidence of wrongdoing by staff has surfaced yet in connection with the agency's failure to investigate credible claims about money manager Bernard Madoff, at the center of an alleged $50 billion Ponzi scheme.

The investigation by the agency's inspector general is just beginning. Mr. Cox ordered the probe Tuesday after he learned of "multiple failures" by staff over a decade to look into allegations about Mr. Madoff's business.

He stressed that there was "no reason to believe" information about the alleged multibillion dollar fraud was suppressed by any SEC staff. He stressed that the SEC's staff was "extraordinarily professional," saying, "I'm enormously proud of them."

In an extraordinary admission that the SEC was aware of numerous red flags raised about Bernard L. Madoff Investment Securities LLC, but failed to take them seriously enough, on Tuesday Mr. Cox ordered a review of the agency's oversight of the New York securities-trading and investment-management firm. The review will include whether relationships between SEC officials and Mr. Madoff or his family members had any impact on the agency's oversight.

...

[Here's the bit about Mukasey:]

Also Wednesday, Attorney General Michael Mukasey recused himself from the Madoff probe, the Justice Department said.

Marc Mukasey, partner at the Bracewell & Giuliani law firm in New York and the attorney general's son, is representing Frank DiPascali, a senior official at Madoff Investment Securities.

Justice officials said the involvement of Mr. Mukasey's son on the defense side of the case made it necessary for the attorney general to remove himself from overseeing matters in the investigation.

The probe is being led by investigators from the Securities and Exchange Commission and federal prosecutors in New York's Southern District, where both Marc Mukasey and his father previously served as assistant U.S. attorneys.

...

Read the full article.

Labels: Bernard Madoff, Bracewell and Giuliani, Christopher Cox, Marc Mukasey, Michael Mukasey, ponzi, Rudi Giuliani, SEC

 

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12/17/2008 06:09:00 PM 1 comments