...A “Ponzi Scheme” is an investment fraud that involves the payment of alleged returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often seek new investors by showing potential in their company; they entice investors to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legal investment activity. The system is destined to collapse because the earnings are less than the payments to investors. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. The system eventually will collapse under its own weight. The scheme is named for Charles Ponzi, who became well known for his illegal techniques for using the Ponzi method in early 1920. He had emigrated from Italy to the United States in 1903. His operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted investors' money to support payments to earlier investors and Ponzi's personal wealth. At that time when the annual interest...
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...Ponzi Scheme Keller Graduate School Forensics Accounting The Bernie Madoff scam truly made history. Bernie Madoff probably would not have been able to prolong this scam without the continued help of the Accounting Firm of Friehling & Horowitz CPAs PC, who at last reported purported to audit financial statements and disclosures of Madoff firm for the last 17 years. Ponzi schemed to help Madoff by trying to go undetected because of Friehling deceiving investors and regulators by declaring that Madoff enterprise had clean audit records. Ponzi’s scheme enabled Madoff by falsely stating in annual audit reports that F & H audited Madoff financial statements pursuant to GAAP, including the requirements to maintain auditor independence and perform audit procedures regarding custody of securities. F & H purported that the financial statements conformed to GAAP and the Friehling reviewed internal controls at Madoff firm. According to SEC complaint, Friehling knew that the firm regularly distributed the annual audit reports to Madoff customers, and that reports were filed with the SEC and other regulators. The complaint alleges these statements were “materially false”. The SEC alleges that Friehling merely pretended to conduct minimal audit procedures of certain accounts to make it appear that he was conducting an audit, and then failed to document his purported findings and conclusions as required under the GAAP. If properly stated those financial statements...
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...ESSAY CASE: ‘Ponzi schemes’ ‘Ponzi schemes’ are scams in which investors are promised exaggerated profits (often short-term) from supposedly can’t-miss investments. If and when early investors are paid returns, the money doesn’t come from actual investment gains; it comes from new cash pouring in from later investors. Initially the promoter will pay out high returns to attract more investors, and to lure current investors into putting in additional money. Other investors begin to participate, leading to a cascade effect. The "return" to the initial investors is paid out of the investments of new entrants, and not out of profits. Often the high returns lead investors to leave their money in the scheme, leading the promoter not to have to pay out very much to investors; they simply have to send statements to investors showing them how much they earned. This maintains the deception that the scheme is a fund with high returns. Ponzi scammers promise windfall returns, counting on their victims to be either gullible or greedy—and sometimes both. The appeal of quick and hefty profits is precisely why some people fall for Ponzi schemes, even though they clearly fall into the category of too good to be true. Charles Ponzi, an Italian immigrant living in Boston in the early 20th century, was a master at playing the gullibility-greed game. He was clever, yes, but more than that, he was charming and charismatic, easily convincing people to jump aboard his pie-in-the-sky schemes. He claimed...
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...The early 1990s was the beginning of Burnie Madoff’s grand scheme to wipeout billions of dollars from shareholders in the United States. This scheme of his is known as a Ponzi scheme and can also be known as the biggest fraudulent scheme in the United States. Burnie Madoff was born in 1938 and raised in Queens, New York. In the 1960s he developed his own business which quickly turned into a huge multi-million-dollar business called the Barnard L. Madoff Investment Securities, LLC. This business attracted many well know people and celebrities who put their own money into it as an investment for themselves. In 2008 he admitted that part of his business was in fact ran as a Ponzi scheme. He was later arrested for this Ponzi scheme and sentenced...
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...Madoff Ponzi Scheme 1.Recent Developments * February 4, 2009 The whistle blower Harry Markopolos has told his nine years of warnings to SEC officials without making any action. * Oct. 2, 2009.Jeffrey Picower, one of the greatest beneficiaries of the scheme, was found dead at the bottom of his pool. According to the autopsy report, he suffered a massive heart attack while in the swimming pool resulting in accidental drowning * December 12, 2010.Mark Madoff, son of Bernard Madoff, committed suicide and was found dead in the living room of his apartment. According to his friends, he was hopeless of the burden he had to carry which made it difficult for him to rebuild his life. * June 29, 2012. Peter Madoff, brother of Bernard Madoff pleaded guilty of fraud and was sentenced 10 years of imprisonment. He confessed that he his actions paved way for his brother to continue his business. * September 3, 2014. Andrew Madoff, son of Bernard Madoff died of mantle cell lymphoma. Andrew together with his brother were the ones who told the authorities about their father’s fraudulent activities. * March 6, 2015. David G Friehling, auditor who rubber stamped Bernard L Madoff's Ponzi scheme, was sentenced to a year of home detention and an additional year of supervised release. * August 12,2015. Irving Picard, the court-appointed trustee in the Madoff case, has reported these recent developments: * We have recovered or entered into agreements to recover approximately...
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...Franzee Barlamas Ponzi Scheme Assignment Advanced Fraud Accounting March 30, 2016 1. According to the Securities and Exchange Commission a Ponzi scheme is “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.” The scheme got its name from Charles Ponzi who created the first ever Ponzi scheme in the 1920s. Ponzi manipulated thousands of New England residents into investing in postage stamps for a return of 50% in just 90 days. His guaranteed return of 50% was compared to the bank’s return at the time being only 5%. The New England citizens should have saw that as an immediate red flag and a too good to be true investment opportunity. 2. I do believe that this situation was a Ponzi scheme. It definitely fits the definition that I quoted in question one. In order to have any type of Ponzi scheme you need to have new investors. Over the course of 1996 and 1997, Wilson Energy Resources attained over 33 new investors. This quote from receiver Lane says exactly why it was a Ponzi scheme, “By making distributions to investors, the impression was created that many wells were profitable when, as a result of the expenses for reworking and maintaining the wells, there were no profits.” In a way this Ponzi scheme was like Bernie Madoff’s scheme. Both Madoff and Wilson were paying investors profits that they did not have, both parties promised investors returns that were not logical, both...
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...American Ponzi Schemes The unethical business practice of paying investment returns to separate investors, not from any actual profit earned from the organization but instead from their own money paid by subsequent investors, is called a Ponzi scheme. Ponzi schemes are unethical because the process is fueled by greed and deception to swindle money from investors in which many times its victims can never fully recover. The emotional, psychological, and financial ramifications from Ponzi schemes have resulted in some of its victims even committing suicide. However, Ponzi schemes are not a new scam and have been around since the 1920’s. There have been several Ponzi schemes since then but two have stood out amongst the others. One of the most infamous Ponzi schemes, for its sheer size, was the $50 billion scam run by Bernie Madoff. The other is John Bennett’s scam because of its insidious nature of preying on nonprofit and religious organizations. While the American dream promises the possibility of success and wealth, some do not understand, or possibly ignore, the implicit ethics and legalities of running a legitimate business and earning honest profits. The Ponzi scheme gets its name from Charles Ponzi, a 1920’s crook who promised investors in New England a 40 percent return on their investment in just 90 days, compared with five percent in a savings account. Ponzi had planned to make money by taking advantage of the difference in exchange rates between the dollar and...
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...Ponzi Scheme Corporate Finance A Ponzi scheme is an illegal business practice in which new investor’s money is used to make payments to earlier investors. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity. The returns are repaid out of new investors’ principal, but not from profits. This can continue as long as new investors line up with cash, and old investors don’t try to withdraw too much of their money at once. Ponzi scheme is named after Charles Ponzi, known as the Father of the Ponzi scheme and the infamous swindler, who paid out returns with other investors' money. Charles Ponzi was born in 1882 in Parma, Italy. Ponzi marked what would become known as the Ponzi scheme in December 1919. An alliance of international postal services had begun selling postal reply coupons after World War I ended. Each coupon was good for one stamp in the affiliated countries. This allowed the mail services to continue operations smoothly despite the instability of most European currencies at the time. That’s when Ponzi established the Securities Exchange Company, a one-man operation that offered coupons reflecting a supposed investment in international reply coupons (IRCs). IRCs are legitimately sold in the postal facilities in many nations, intended to be enclosed with international correspondence and redeemed for return...
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...weak character who committed one of the crimes of the century, instead of simply telling the truth. His story is not the story of ridiculous greed but more the picture of our unlimited aptitude for self-delusion. Bernard L. Madoff was arrested in December 2008 for defrauding thousands of individuals and organizations of billions of dollars for over two decades. The part of Madoff’s investment advisory company involved in private-investment or assess-management was where all of his illicit activities were carried out. In fact, most employees had no ideal he was stealing from his clients. Madoff had perpetrated an outsized Ponzi scheme, a Brobdingnagian con game (Lewis, 2012). In March 2009, Madoff pleaded guilty of soliciting funds to buy securities and failing to invest the money. He used the money instead, as did the notorious Charles Ponzi, to pay returns to early investors and for his own benefit. According to the initial reports of the office of the U.S. Attorney, at the end of November 2008, Madoff’s investment advisory company reported that they held a balance of $64.8 billion. A government press release from the day he was arrested stated Madoff himself...
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...Dr. Nassar, The case of Bernard Madoff details a massive Ponzi scheme that resulted in financial losses, ruined careers and imprisonment. As a result, I will describe prevention mechanisms that could ensure that Ponzi schemes do not happen in the future. First, corporate culture should be revised to deter white-collar crimes like Ponzi schemes. The causes of typical white-collar crimes involve peer influence, inherently criminal behavior of employees. The manager’s role should involve close monitoring of employees that are prone to unethical behavior. Second, family members working in the organization should not the head of business units that are responsible for financial decision and corporate oversight. Conflict of interest should be...
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...WP/09/95 Ponzi Schemes in the Caribbean Ana Carvajal, Hunter Monroe, Catherine Pattillo, and Brian Wynter © 2009 International Monetary Fund WP/09/95 IMF Working Paper Western Hemisphere and Monetary and Capital Markets Departments Ponzi Schemes in the Caribbean Prepared by Ana Carvajal, Hunter Monroe, Catherine Pattillo, and Brian Wynter Authorized for distribution by Paul Cashin and David Hoelscher April 2009 Abstract This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. In several Caribbean states, unregulated investment schemes grew quickly in recent years by claiming unusually high monthly returns and through a system of referrals by existing members. These are features shared with traditional Ponzi schemes and pyramid schemes. This paper describes the growth of such schemes, their subsequent collapse, and the policy response of regulators, and presents key policy lessons. The analysis and recommendations draw on country experiences in the Caribbean, and in such diverse countries as the United States, Colombia, Lesotho, and Albania. JEL Classification Numbers: G18 Keywords: Pyramid schemes, Ponzi schemes, Caribbean Authors’ E-Mail Addresses: acarvajal@imf.org; hmonroe@imf.org;...
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...A Ponzi scheme “lures investors in by guaranteeing unusually high returns... to avoid having too many investors reclaim their ‘profits,’ Ponzi schemes encourage them to stay in the game and earn even more money” (Yang, 2014). One of the largest Ponzi schemes that has ever happened was pulled off by the prestigious and well respected Bernie Madoff. Madoff had been chairman of NASDAQ at one point and at the time was the founder of Bernard L. Madoff Securities LLC, where he had a position of status and power. This status and recognition was one of the reasons that he was able to pull off the elaborate Ponzi scheme, because no one would have thought he was capable of doing such a thing. Madoff had been running the scheme for several years until he was eventually caught and arrested in 2008. The scandal was a shock to the entire nation, but especially to his investors who had invested billions of dollars only to eventually find out that their money was gone. He tricked everyone and would have kept going had he not gotten caught. How did he intrigue people to invest in him though and trick so many people? Because he was laundering money, he was able to deceive his clients into thinking that there was never a down month and that their money was returning more and more investments as the time...
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...White Collar Crime: Ponzi Scheme with a Focus on Bernard Madoff NAME College White Collar Crime: Ponzi Scheme with a Focus on Bernard Madoff Most people, when they hear the word “crime,” think about street crime or violent crime such as murder, rape, theft, or drugs. However, there is another type of crime that has cost people their life savings, investors’ billions of dollars, and has had significant impacts of multiple lives; it is called white collar crime. The Federal Bureau of Investigation defines white collar crime as illegal acts which are characterized by deceit, concealment, or violation of trust and which are not dependent upon the application or threat of physical force or violence. Individuals and organizations commit these acts to obtain money, property, or services; to avoid the payment or loss of money or services; or to secure personal or business advantage (as cited in Barnett, n.d., para. 3). White collar crimes consists of such things as embezzlement, bank fraud, forgery, insider trading and investment schemes. This paper is going to focus on a Ponzi scheme, a type of investment scheme, and Bernard Madoff. Madoff is probably one of the most known offenders when it comes to the Ponzi scheme. The U.S. Securities and Exchange Commission (SEC) defines a Ponzi scheme as “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors” (U.S. Securities, n.d.). In another words, a person...
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...The Ponzi scheme is named after an Italian immigrant named Charles Ponzi. Charles Ponzi is known for financial crimes by conning investors into giving him millions of dollars. He would pay investors through returns funded by other investor’s money. His returns was investigated by the Boston Post, which lead to his arrest and later conviction. He was brought up on 86 counts of mail fraud and was sentenced to 14yrs in prison. Charles Ponzi died in Rio de Janeiro, Brazil, with no money (biography.com) Bernie Madoff was head of one of the largest Ponzi schemes in U.S history. Madoff was a stockbroker and chairman of L. Madoff investments securities, who is believed to have defrauded over $65 billion from thousands of investors. After pleading...
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...Enron Ponzi Scheme Enron Ponzi Scheme The Enron scandal was a corporate scandal that involved the American energy giant Enron Company based in Houston, Texas and the auditing and accountancy-consulting firm Arthur Andersen. The scandal was uncovered in October 2001. Enron Corporation was undoubtedly a giant corporation and in fact, some individuals suggest that it was one of the largest energy companies’ world over. It comprised of a multibillion corporation that employed several individuals and had various affiliations right to the White House. Enron majorly depended on external sources of credit to finance its operations (Loren, 2003). In 2001, the corporation collapsed leaving in its wake financial chaos and financially ruined lives and families. It emerged that the Enron Corporation’s remarkable financial condition thrived on institutionalized, systemic and intricately planned accounting fraud that was later to be referred to as the “Enron scandal”. From that instance, Enron has continued to become a very popular symbol and example of willfully orchestrated corruption. The collapse of Enron Corporation destroyed lives and shattered reputations, questions have been raised on how the fraudulent transactions occurred and who was involved. In this paper, all these questions will be investigated explicitly. The paper will also focus on the various ways in which the Enron debacle created an awareness of corporate ethics within the United States (Peter & Ross, 2002). Enron...
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