In September 2008, Federal agents swarmed the offices of Tom Petters uncovering a billion dollar Ponzi scheme. A similar case in dimension and scale of the well-known Bernie Madoff case is Tom Petters; the mastermind of a 3.7 billion, fourteen-year long deceit, the second largest Ponzi scheme in the United States. Similarly, Robert Allen Stanford, whose scheme emerged in February 2009 and is thought to have lasted ten years, involving the enormous sum of $8 billion, as well as S. Rothstein, who admitted to managing an approximate 1.2 billion dollars Ponzi scheme at the end of 2009. According to Maglich (2014) Ponzi schemes continue to thrive and leave a trail of financial destruction. “In the first six months of 2014, at least 37 Ponzi schemes were uncovered, with a total of more than $1 billion in potential losses” asserts Maglich (2014). Even though Ponzi schemes eventually collapse, Ponzi schemes remain …show more content…
prevalent because many can be too trusting and invest in things we don’t truly understand. The main purpose of this research will be to analyze the financial investment fraud perpetrated by Tom Petters who had encountered such executive compensation abuses. The first step will be to define Ponzi scheme, and as a second step, to uncover the general “red flags” and the ones specific to the Petters case. The final goal is revealing how the fraud was detected and how the fraud can be prevented based on my research. What is a Ponzi scheme? The U.S Securities and Exchange (SEC) describe a Ponzi scheme as an investment scheme wherein new investors’ money is used to pay the promised return to previous investors” rather than profits of the purported business venture (U.S Securities and Exchange, 2013).
Unlike borrowing money to pay an outstanding debt, with a Ponzi scheme there is still a debt but it is owed to a different person and is larger. According to the SEC, the first Ponzi scheme ever was introduced by Charles Ponzi (Commission, 2013). Charles Ponzi is known to have deceived a large number of people into putting resources into a postage stamp scheme back in the 1920s. During an era when the yearly premium rate for financial balances was five percent, Ponzi guaranteed speculators that he could give a half return in only 90 days. Ponzi at first purchased a little number of worldwide mail coupons in backing of his plan, yet immediately changed to utilizing approaching trusts from new financial specialists to pay indicated comes back to before speculators (U.S Securities and Exchange,
2013).
In the Frontline documentary “The Madoff Affair”, it is revealed and painfully evident that the ability to predict, prevent, and prosecute white collar crime is flawed and highly complicated even for the government. Frontline takes a look at the first global Ponzi scheme in history and helps create a better understanding of the illegal conduct that led to the rise and fall of Bernie Madoff and those associated with his empire (Frontline, 2017). When the leadership at the top of any organization is founded on lies, secrecy, and empowered by the leaders within the industry, the corruption is deep and difficult to prosecute. The largest stock market fraud in history reinforces the need for better government regulations, enforcement of the regulations, and oversight, especially in it’s own backyard (Yang, 2014).
An inheritance from his father allowed Ponzi to attend the University of Rome, which only further perpetuated the goals his mother desired for him. From the stories his mother often told him of the aristocracy of the family, Ponzi sought after the wealth to accompany the reputation. At school he was accepted into a group of the wealthy elite, and often gambled to increase his monetary allowance. This however only bankrupted him, forcing him to drop out of the University. Urged by his uncle to leave Italy in pursuit of the United States because “he was refined and from a good family” and he could easily become wealthy in the United States. His uncle continued by telling young Ponzi, “in the United States, the streets are actually paved with gold. All you have to do is ...
Allen Stanford, a financer from the state of Texas, was sentenced to 110 years in prison in June of 2012 after being convicted of running a $7 billion Ponzi scheme, in which the money he stole from his clients was used to live a prodigal lifestyle in the Caribbean. Stanford defrauded more than 30,000 investors living in various countries. U.S. District Judge David Hittner described Stanford’s crimes as being worse than the one’s committed by Bernie Madoff. Stanford was convicted of 13 charges connected to the Ponzi scheme, including fraud and “conspiracy for selling certificates of deposit from his bank in Antigua to thousands of investors in the United States and Latin America (Driver, O’Grady; Reuters). Stanford had a history of being a white
There’s no real reason as to why Madoff planned to do this scheme, but it seems that he did it, simply because he was in a league of his own and he knew it, which is why it’s possible he went South. The only reason he came forward was because he failed to follow one of the first rules of a Ponzi scheme, he had too many investors in one year and on top of that, he had the global market crisis in 2008, which had opened up the skeletons in his closet. He later began telling his two sons of what he had been doing the last decades, and it wasn’t until Andrew Madoff had told FBI authorities, that his father, Bernie Madoff would be arrested the next day. It wasn’t until 2009 that Madoff pleaded guilty to securities fraud, investment adviser fraud, mail fraud, wire fraud, perjury, money laundering and etc. His assets were then sold in order to try and repay all the investors; evidently it wasn’t enough to repay $65million. He was then sentenced to the maximum sentence of 150years in prison. One law that was put in to place was that the SEC now requires all independent public accountants to double check an investment advisor’s numbers. In addition, all investment advisors are subject to surprise exam and custody controls. Also, in corporation with the Dodd Frank Act, whistleblowers can now receive up to 30percent of what the SEC recovers in fines. This will
The Bernie Madoff Ponzi Scheme is a well-known case and is known as one of the biggest Ponzi scheme’s. In summary the scheme occurred for many reasons that I will some up into 3 points; A lack in competency by regulatory agencies, a lack of regulation, and finally a breach in ethics by Bernie Madoff himself. To explain further, the regulatory agencies like the lawyers and SEC are supposed to prevent schemes such as this one from happening but because they lacked the skills to correctly assess the situation, interpreting the number of tips they had received regarding scheme that had been filed, and to act on those in an efficient manner. One of the tips was made by Harry Markopolos in 2000, of who correctly predicted that Madoff was guilty of fraud. Even after this tip from Markopolos, Madoff was not arrested until 2009. Many family members were also a part of the fraud along with some non-family members such as Frank DiPascali and a team known as the 17th floor team, who helped Madoff carry out his fraud. The idea behind Madoff’s fraud was that he would produce false statements of their investments and when people wanted to pull out their investments, the money wasn’t actually there, which rightfully rose more than a few eyebrows and ultimately led to his arrest.
Bernie Madoff is one of the greatest conman in history. The Bernie Madoff scandal takes the gold as one of the top ponzi scheme in America. Madoff started the Wall Street firm, Bernard L. Madoff Investment Securities LLC, in 1960. Starting off as a penny stock trader with five thousand dollars, earned from his workings as a lifeguard and sprinkler installer, his firm began to grow with the support of his father-in-law, Saul Alpern, who helped by referred a group of close friends and family. Originally, his firm made markets by the National Quotations Bureau’s Pink Sheets. However, in order to compete with the bigger firms that were trading on the New York Stock Exchange floor, his firm started to use very intelligent computer software that help distributed their quotes in second’s rater then minutes. This software later became the NASDAQ that we know today. In December of 2008 Bernard Madoff confessed that he had embezzling billions of dollars from investors. It is estimated to have lasted nearly two decades, and stolen approximately $64.8 billion. On December 11, 2008 he was arreste...
1994 is a sharp increase, but even if the growth rate for 1994 is not
What happens is people are told to invest large amounts of money and promised large amounts of return if they do end up going through with it. What really happens is that the originator of the scheme tells vast amounts of people of the “opportunity”, the early one’s who invest are given their money in return as well as extra money provided from some later investors who unknowingly join the scheme. After this, amazed by their return they recommend it to their friends and family who also invest and only add fuel to the Ponzi scheme. Unfortunately, only the beginning investors have a possibility of winning from the situation, the investors who came later lose all that they had, while the originator of the Ponzi scheme reaps all the reward. For some back story on the Ponzi scheme we must learn about the man whom it was named after, Charles Ponzi. Charles Ponzi noticed a flaw with postage stamps and international reply coupons. He could buy international reply coupons and return them in another country in exchange for postage and because of it being just after World War I, the exchange rate was beneficial towards Ponzi in that he would receive more money than he had paid for. He told his plan to many investors and promised them a large amount of return in a short amount of time, this is usually what is said during a Ponzi
What is the possible meaning of the change in stock prices for Berkshire Hathaway and Scottish Power plc on the day of acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp?
A Ponzi scheme is an investment fraud that involves the payment of returns to previous investors from funds paid by new investors.With little or no legal earnings, Ponzi schemes require a consistent flow of money from new investors to operate. Ponzi schemes tend to collapse when the operator is unable to recruit new investors ,when a large number of investors ask to cash out or if the operator disappears.These types of financial fraud have had a tremendous affect on the accounting profession, in the form of forensic accounting.
Bernard Madoff is a successful businessman, investor, and entrepreneur. At the beginning of his career he was thought of to be a young and successful. He started a business that was made up of employees that were primarily family members. Throughout the duration of his business, a fraudulent scheme took place. In this scheme Bernard Madoff was part of a fraud that managed to take near $17 billion dollars in principal, ruined retirements, drained savings, and destroyed some individuals lives. In this business it included Bernard Madoff as well his brother who were tied to this case and in the end resulted in jail time for the two brothers. Bernard Madoff was served 150 years in prison. While in 2012, his brother Peter pleaded guilty fabricating
Madoff built a certain level of trust with his investors in which they trusted him based off testimonies of his achievements, relationships, and reputation. Madoff operated a Ponzi scheme under BMIS and was taking clients assets, transferring to his own accounts, and making fictitious statements to hide the truth. He would then use recently acquired capital from other investors when clients wanted to withdraw funds. This is how Madoff ended up pulling off the Ponzi scheme until investors wanted their money leading up to the Global Financial Crisis.
In December 2008 one of the biggest fraudulent schemes, better known as a Ponzi scheme was discovered and shocked the United States. The person whom committed this scheme was Bernard Madoff or Bernie as his friends called him. At that time he was a well- respected financier until he scheme his investors out of more than $65 million for over a decade (Yang, 2014). What is a Ponzi scheme? Let me explain. A Ponzi scheme works like a pyramid scheme. What Madoff was is take money from new investors to pay earnings for existing customers without actually investing the money (Ferrell, Fraedrich, & Ferrell, 2015). Ponzi schemes were name after a man name Charles Ponzi who in the 20th century saw a way to profit from international reply coupons,
Money laundering is the process by which large amounts of unlawfully obtained money (from Illegal arms sales, smuggling, and other organized crime, including drug trafficking and prostitution rings) is given the appearance of having originated from a legitimate source.
Diana B. Herniques, “Madoff is Sentenced to 150 years for Ponzi Scheme” June 29, 2009 New York Times, Http://nytimes.com2009/06/30/business/30madoff.html; accessed 9.6.11