The FBI has almost 500 open Ponzi investigations nationwide – up from about 300 in 2006, bureau officials said, according to the Post. Law enforcement officials with other agencies have noticed similar trends, and authorities said they expect to turn up many more cases in coming months.
The schemes are named after Charles Ponzi, a notorious rip-off artist who stole millions in 1920, and involve investors who are told that they are buying real estate, securities and other assets, but no investments are ever made. The flow of new money is used to pay “returns” to earlier investors.
However, eventually, the flow of new money dries up and everything collapses. By nature, the schemes are vulnerable to the harsh economic climate. Federal officials said they also have become more aggressive in trying to uncover schemes before they implode and the assets evaporate, the news report said.
The cases range from the $65-billion fraud orchestrated by Bernard L. Madoff, a former chairman of the Nasdaq stock exchange, to what is now considered a relatively minor ripoff – a $23-million fraudulent hedge fund run by a Jacksonville, Florida, man guaranteeing a 50% rate of return.
The largest operations were run by Madoff, who is scheduled to be sentenced this month on fraud charges, and what authorities say was an $8-billion scheme managed by R. Allen Stanford, a prominent Texas businessman. The government has filed 140 pages of Madoff witness impact statements for use in preparation for his sentencing that can be viewed here .
With the walls crashing down on Ponzi schemes, insiders have started reporting each other and some Ponzi operators surrendered to federal agents hoping to cut deals, the Washington Post reports. Federal prosecutors said Joseph S. Forte, 54, of Broomall, Pennsylvania, did just that.
According to the news report, authorities said that over 12 years, Forte collected $80 million from at least 80 investors who believed that he was putting their cash into Standard & Poor's index futures contracts. By 2008, Forte's revenue dried up because he could no longer find anyone willing to invest with him. He couldn't pay off redemption requests, and he turned himself in to authorities and has pleaded guilty to fraud charges.
An employee of one of Minnesota's most prominent businessmen, Thomas Petters, tipped off federal agents to what they allege is a $3 billion pyramid operation. The employee reported the fraud, her attorney said according to the Post, because she had lost confidence in Petters's ability to pay back investors. Petters has pleaded not guilty.
Suspicious about a supposed hedge fund firm's financial performance, a potential investor approached federal authorities about a California man, who has now been indicted on charges of operating a $40-million scam that promised investors, many of whom he met at church, huge returns.
"A lot of investors have become more aware of the risks and are asking harder questions," said Scott Friestad, deputy director of enforcement at the Securities and Exchange Commission, in the news report.
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