Investment Scam

Stanford Convicted in $7.1 Billion Ponzi Scheme

March 6, 2012

R Allen Stanford Guilty In Ponzi Scheme
A federal jury on Tuesday, March 6, 2012, found R. Allen Stanford, the chairman of Stanford Financial Group, guilty of masterminding a $7.1 billion Ponzi scheme.

Mr. Stanford, 61 years old, made a dizzying climb from a small-town boyhood in Mexia, Texas, to the top of the financial firmament and became a billionaire. At the peak of his career, he owned banks and residences around the world, had high-placed contacts with the leaders of Libya and other nations, and was a particularly outsize presence in the Caribbean isle of Antigua, where he was knighted in 2006. Mr. Stanford valued other kinds of possessions, too, including a 120-foot yacht and a fleet of aircraft valued at more than $100 million.

In 2008, Mr. Stanford was the 205th richest American with a net worth of $2.2 billion, according to Forbes magazine. His holdings in Antigua, where he held a dual citizenship, included banks, airlines and the country's biggest newspaper. A cricket enthusiast, he rose to international prominence as a benefactor of the sport. Read more "Stanford Convicted in $7.1 Billion Ponzi Scheme"

Madoff’s hedge fund: A giant Ponzi scheme

Updated December 31, 2009

Madoff’s hedge fund Ponzi scheme
For years doubters on Wall Street said the returns of Bernard Madoff’s hedge fund were too good, too steady and his operation always looked too slim for the tens of billions of dollars it was managing. However, given Madoff’s experience and past service the wealthy kept giving him their money. Now it looks like those concerns were right all along now as the Bernard Madoff scandal was unmasked.

Bernard Madoff, a former chairman of the Nasdaq Stock Market, was arrested Dec. 11, 2008 and charged criminally at federal court in Manhattan with securities fraud in masterminding a massive Ponzi scheme. Following the federal prosecutors’ charge, the Securities and Exchange Commission also has brought civil charges in the matter.

Madoff, 70 years old with more than four-decades of experience as trader, allegedly confessed to senior employees that the firm's investment-advisory business was "basically a giant Ponzi scheme”, which also known as a pyramid scheme. The suspiciously smooth returns of his hedge fund was achieved by running a pyramid scheme in which existing clients’ returns were topped up, as needed, with money from new investors. Read more "Madoff’s hedge fund: A giant Ponzi scheme"

Ponzi Schemes’ Premises

Ponzi schemes, also known as pyramid schemes, work essentially by bringing in new investors to pay off old ones. In its pure form, there’s never any actual business activity; instead, the money just rolls backward from ever-increasing numbers of investors to keep up the appearance of profits.

It’s typical in a Ponzi scheme that potential investors are wooed with promises of extraordinarily large returns attributed to the investment manager’s savvy, skill, or some other secret sauce.

The investment returns are distributed, at least for a time, out of new investors’ investment principal, instead of from profits. Investors will continuously receive the return as long as new investors keep coming with new funds and old investors don’t redeem too large sum of their investment at once. Read more "Ponzi Schemes’ Premises"

The Origin of Ponzi Scheme

Charles Ponzi

Ponzi schemes are named after Charles Ponzi, a fast-talking immigrant and college dropout. His scheme rested on the eagerness of ordinary working people to benefit from the wealth they saw being generated around them as the economy recovered from World War I.

Mr. Ponzi began telling New York investors in December 1919 that investments in foreign postage coupons could yield 50 percent returns in 45 days. By redeeming coupons bought cheaply overseas for much higher amounts in the United States, he could double their money in three months, he claimed.

There was no need for advertising; word of mouth sufficed. As the fever spread, millions of dollars were coming in every week, most of it from ordinary working-class people investing as little as $10 at a time. In February 1920, he took in $5,290; in April, more than $140,000; in May, more than $440,000; in June, more than $2.5 million; and in July, nearly $6.5 million. In seven months, 30,000 people had invested in "Ponzi notes", as they became known, with almost $10 million of their money. That was a time when the president of Harvard earned $6,000 a year. Read more "The Origin of Ponzi Scheme"