By: Top World News | posted in Alleged Scam/Fuard, News & Stories |
Date: September 25th, 2011
What is Ponzi Scheme?
A Ponzi scheme is an investment scam or investment fraud. The Ponzi schemer promise high investment returns with little or no risk. A classic Ponzi scheme have virtually no income-generating from its business and it uses new investor funds to payout existing investors. The Ponzi schemer focus on recruiting new investors to pay off existing investors and using the rest of the money for personal gain.
The term Ponzi scheme is a type of fraud named after Charles Ponzi of Boston, Massachusetts. In the early 1900′s, Charles Ponzi created a scheme that he claimed to guaranteed investors 50% return on their investment for his postal coupons. The U.S. Post Office quickly pointed out that these coupons were not being bought in quantity – domestically or internationally. The Massachusetts U.S. attorney tried to audit Ponzi’s nearly nonexistent records. His scheme collapsed when he cannot pay his investors because there were no or little legitimate income in his postal coupons. New investors are needed to pay off existing investors and when Ponzi cannot find new investors his scheme slowly dissolved. He was charged with 86 counts of mail fraud. Ponzi was sentenced 5 years in federal prison, 9 years in state prison and later deported back to Italy.
How Ponzi schemes get busted?
One main characteristic of a Ponzi scheme is old investors had to be paid off with new investors money because Ponzi schemes have little or no legitimate earnings. This mean new investors are needed to invest into the scheme to payout existing investors. When it is hard to recruit new investors or a large amount of cash needed to be cash out. The Ponzi schemer have no money to pay off the investors and eventually the Ponzi scheme collapse.
How to avoid Ponzi schemes and what to watch out for
There are many warning signs with Ponzi schemes, watch out for these common characteristics:
- High financial returns with little or no risks
Investing in anything with high financial returns or dividends with no or little risks is a big red flag. All investments come with some kind of risks. Be cautious with any investment with exaggerated claims. - Consistent high financial returns
Investments have the tendency to go up and down base on the current market. You should be cautious with any investment that continue to bring in consistent high financial returns despite the market condition. - Unregistered company or investment | financial advisors without license
Ponzi schemes usually do not have registration or certificate with state regulators or the U.S. Securities and Exchange Commission (SEC). Registration provide the investors important information about the company, its advisors/managements, programs, services and finances.Securities laws from federal and state require investments professionals and their firms to be licensed or register. Most Ponzi schemes are not licensed or unregistered. You should also check the credentials of the financial professionals or advisors with the National Association of Personal Financial Advisors, the Financial Planning Association, The American Institute of Certified Public Accountants and the Certified Financial Planner Board of Standards.
- Avoid investing money in something you do not understand or can’t find information
If you can’t find information about your investment or do not understand the strategies of your investment. It is a good idea to avoid investing your money into something you do not understand or can’t find information. - Trouble receiving payments
Remember that a typical Ponzi scheme require new investors to invest new funds to pay off existing investors because there is no real legitimate money coming in. New money are needed to payoff previous investors. You should be very suspicious when you’re having a hard time cashing out your funds or receiving your returns.
Where to get help?
Financial Fraud Enforcement Task Force and the task force is working tirelessly to combat these and future scams to protect the American people.
(202) 514-2000
ffetf@usdoj.gov
Most famous & biggest Ponzi schemes
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$64.8 billion (estimated) Arrested Sentenced 150 years in prison |
Bernard MadoffBernard L. Madoff, 70, on March 2009, pleaded guilty in Manhattan federal court to 11 felony counts related to a massive Ponzi scheme. Madoff is currently serving 150 years imprisonment and forfeiture of $17.179 billion. U.S. prosecutors estimated the size of Madoff’s Ponzi scheme at $64.8 billion, up from the $50 billion from about 4,800 client accounts. “Madoff Securities is the world’s largest Ponzi Scheme,” Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999. FBI Bernard L. Madoff Pleads Guilty to 11-Count Criminal Information and Is Remanded Into Custody |
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$3.65 billion Arrested Sentenced 50 years in prison |
Tom PettersPetters and his business partners at Petters Company, Inc. defrauded billions of dollars and property by convincing investors to give the company money to purchase electronics to be sold to big-box retailers, such as Costco and Sam’s Club. Instead, Petters diverted the funds to make payments to other investors, fund his other businesses and finance his extravagant lifestyle. The $3.65 billion Ponzi scheme is the second largest in U.S. history second only to Bernie Madoff. |
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Alleged $1.6 billion “Massive Ponzi Scheme” Arrested |
Stanford Financial GroupFeb 2009, U.S. Securities and Exchange Commission accused Texas billionaire Allen Stanford, his college roommate and three of their companies of carrying out a “massive Ponzi scheme” over at least a decade and misappropriating at least $1.6 billion of investors’ money.
Laura Pendergest-Holt, Chief Investment Officer of Houston-based Stanford Financial Group, arrested by the FBI in the $8 billion Allen Stanford fraud investigation. The complaint alleges Pendergest-Holt made several affirmative misrepresentations to the SEC in order to obstruct its investigation. FBI Stanford Financial Group Chief Investment Officer Charged with Obstruction |
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$930 million 60 victims Sentenced to 20 years in prison |
Nevin ShapiroHe was living the high life—taking up residence in a Miami Beach mansion worth more than $5 million, cruising around in a million-dollar yacht and his leased Mercedes-Benz, shelling out more than $400,000 for floor seats at Miami Heat basketball games, and donating thousands of dollars to the athletic program of a local university (the school was so appreciative it named a student athlete lounge after him). But it all came crashing down on Florida businessman Nevin Shapiro last month, when he was charged with orchestrating a multi-million-dollar Ponzi scheme involving about 60 victims throughout the United States. Read more about Nevin Shapiro. FBI Wholesale Grocery Distribution Ponzi Scheme |
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$300 million At least 250 individual victims Arrested Sentenced to 25 years in prison |
Lou PearlmanLou Pearlman, 53, earned widespread fame and fortune in the 1990s for creating successful pop sensations such as the Backstreet Boys and ‘N Sync. The groups eventually sued him, claiming he was siphoning large amounts of money from them. The cases were later settled. March 2008, Pearlman plead guilty and make restitution to victims swindled out of an estimated $300 million in phony bank and investment schemes, U.S. prosecutors said. Pearlman admitted in a plea agreement that for 20 years he enticed people and banks to invest millions of dollars in two companies that existed only on paper: Transcontinental Airlines Travel Services Inc. and Transcontinental Airlines Inc. On May 21, 2008, Pearlman was sentenced to 25 years in federal prison, after pleading guilty to charges of conspiracy, money laundering, and making false statements during a bankruptcy proceeding. REUTERS Boy band mogul Lou Pearlman to plead guilty in fraud |
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$230 million 500 victims |
Reed E. SlatkinReed E. Slatkin, a co-founder, former director and substantial shareholder of Earthlink, Inc. From 1985 to April 2001, Slatkin managed at least $230 million for about 500 clients through purported securities trading accounts in Switzerland. The Commission’s complaint alleges that in February 2001, Slatkin misappropriated $10 million in client funds that he had received purportedly to invest in a money market fund and misused the client’s funds by using $6.975 million to pay other clients and using over $24,000 to pay personal expenses, including credit card bills, telephone and other utility bills, fees at two country clubs, and pool maintenance fees. The Commission further alleges that the Swiss trading accounts do not exist and that Slatkin was merely operating a fraudulent securities scheme. Earthlink co-founder Reed Slatkin, an unregistered investment manager and ordained Scientology minister, admitted to defrauding clients of approximately 255 million dollars in a Ponzi-type investment scheme. Many of his victims were fellow Scientologists; others were wealthy investors with Hollywood connections. Securities and Exchange Commission Securities and Exchange Commission v. Reed e. Slatkin |
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$500 million Arrested 18,000 victims Sentenced from 13 – 27 years in prison |
Gerald Payne & Greater Ministries InternationalChurch founder Gerald Payne calls it “divine inspiration.” He was given a plan — a way for the faithful to reap what they sow. The scheme is simple. The faithful are promised — gift the church and your money will be doubled in seventeen months. The faithful believe and they invest. The cash is flowing — millions of dollars pour into Greater Ministries International every month. The IRS is suspicious. Banking records are pulled and agents discover a scam — one of the most lucrative pyramid schemes in history! March 13, 1999, with indict-ments charging GMI leaders with money laundering, fraud and criminal conspiracy. Seven people were arrested: Gerald Payne, Betty Payne, Don Hall, Patrick Henry Talbert, David Whitfield, Andrew Krishak and James Chambers. Church leaders received prison sentences ranging from 13 to 27 years. FBI FBI Law Enforcement Bulletin, Vol 74, Number 12 |
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$80 million Arrested Sentenced to 20 years in prison |
J. David DominelliIn his heyday, Dominelli enjoyed an opulent lifestyle from a worldwide network of investment companies that turned out to be nothing more than a scam built on wildly exaggerated claims about the rates of return investors could expect. Essentially, he paid early investors with money from newer investors, but also used the money to support his extravagant lifestyle (classic Ponzi scheme). He bilked San Diegans out of $80 million. Dominelli pleaded guilty to four felony counts in 1985 and was sentenced to 20 years in federal prison. He served 10½ years of his sentence and was paroled to Chicago in 1996. Sign On San Diego Ponzi schemer Dominelli’s death news to San Diego |
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$7 million ($76 million in 2011 terms) Arrested |
Charles PonziCharles Ponzi, an Italian immigrant, promise 50% investment returns on his postage stamps coupons within 90 days. The strategy was to purchase postage at European currencies at lowered fixed rates before redeeming them in U.S. dollars at higher rates. But there weren’t enough coupons in circulation to make the plan workable. Ponzi schemes slowly dissolved when he couldn’t come up enough money to pay off his investors. The term “Ponzi scheme” refers to scams that pay off early investors from new investors money with no real money from legitimate product, service or business. Ponzi was sentenced 5 years in federal prison, 9 years in state prison and later deported back to Italy. The New York Times PONZI ARRESTED; LIABILITIES PUT AT $7,000,000; Federal Authorities Charge Using Mails to Defraud |
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i also got such type of offer but i refused to invest my money in that scheme.And in future i always keep it in my mind that if such type of offers if some one offering it means it is a ponzie scehme.
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Shouldn't we shut down this Ponzi Scheme,return as much as we can to the "Investors" so they can start actually preparing for their Retirement,and Prosecute and Imprison those who have been running this Scam?
Shouldn’t we shut down this Ponzi Scheme,return as much as we can to the “Investors” so they can start actually preparing for their Retirement,and Prosecute and Imprison those who have been running this Scam?