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Ponzii2 Ponzii2 Presentation Transcript

  • Charles Ponzi By Lamar Hogan
  • Background
    • DOB – March 3rd, 1882
    • Born in Lugo, Italy
    • Studied at the University of Rome, but dropped out in order to move to the United States
    • Arrived at the Boston Harbor, November 13, 1903
    • Then moved to NY and worked odd-jobs.
    • Eventually started working as a bank clerk at the Banco Zarossi
    • Arrested for forgery of check
  • Background(continued)
    • Released from prison in 1911
    • Soon after was arrested for smuggling Italian immigrants into the United States
    • When he was released he moved back to Boston and married Rose Maria Gnecco, in 1918
  • Definition "A Ponzi scheme is a type of securities fraud where the promoter makes some sort of false or misleading statement about an investment (often including a guaranteed high rate of return) and pays off older investors with newer investor's monies. Eventually, when the promoter can't find any new investors, the scheme collapses" - American Bar Association
  • The Crime
    • Charles Ponzi was struggling in the United States
    • Ponzi had a failing international advertising business
    • Ponzi received a letter in the mail from a business in Spain
    • On the letter was an International Reply Coupon that could be redeemed in any country, and you could redeem them for the price that they were being sold for in the country that you were in, no matter if you paid less in another country
  • The Crime(continued)
    • Charles Ponzi's idea was to buy the International Reply Coupons in bulk from Italy for a lower price then they were being sold in the United States
    • Then redeem the IRC Coupons in the United States
    • Ponzi started a business called the Securities Exchange Company.
    • Started the SEC to gain investors, in-order to make as much money as possible
  • The Crime(continued)
    • Ponzi promised investors 400% profit on investments
    • The Securities Exchange Company grew quickly
    • By 1920 the company was making millions
    • But the money was going directly to Ponzi, not the Securities Exchange Company
    • Charles Ponzi then buys a mansion
  • The Crime(continued)
    • A furniture dealer from Ponzi's past hears about Ponzi becoming a millionaire
    • The furniture dealer had given furniture to Ponzi in the past but Ponzi did not have money at the time
    • The furniture dealer sues Ponzi but loses
    • Investors start to question how Ponzi became a millionaire so quickly
    • Investors start to leave the company because they are not getting paid and are fearful
  • The Crime(continued)
    • Ponzi pays off the beginning investors after they rushed into the Securities Exchange Company
    • Boston Post does a positive article on Charles Ponzi
    • The article brings more investors to the company
    • Boston Post investigates the Securities Exchange Company and finds that Ponzi is under investigation by the Commonwealth of Massachusetts
  • The Crime(continued)
    • Boston Post receives help from Clarence Barron, the publisher for Barron's Financial Paper
    • Barron found that Ponzi was not investing into the Securities Exchange Company
    • Barron also found out that there would have to be 160,000,000 IRC coupons in circulation for the scheme to work, but there are only 27,000 in circulation
    • Barron also contacted the Post Office and found out that no IRC coupons were being bought in bulk
    • Barron concluded his findings by saying that the scheme would not work because the overhead required to buy the IRC coupons and redeem them would end up making the profit margin minuscule
  •  
  • The Crime(continued)
    • August 2, 1920, Boston Post Publishes the Barron Investigation
    • August 10, 1920, federal agents raid the Securities Exchange Company
    • August 12, 1920, Ponzi was arrested on 86 counts of fraud.
    • Estimated 17,000 people had invested into the Securities Exchange Company
    • Millions of dollars were invested
    • Most lost all of the money invested
  • Outcome
    • October 1920, Ponzi was found innocent on 10 counts of fraud and larceny charges
    • Ponzi found guilty on mail fraud, served four years in a federal prison
    • Ponzi was let out on bail, and fled to Florida
    • In Florida, Ponzi started another scheme, which was to sell 'swampland' to tourist
    • In 1924, Ponzi and his wife, were arrested for violating Florida trust and securities laws
    • Judge grants Ponzi bail, and Ponzi flees to a ship that is going to Genoa, Italy
  • Outcome(continued)
    • Ponzi is arrested in Houston, Texas
    • In 1925 he is sentenced to five years in a federal prison, after this sentence he is moved to a Massachusetts federal prison and serves seven more years
    • Ponzi moves to Italy and works at an italian airlines company
    • Ponzi then moves to Rio De Janeiro, and gave english lessons until he died in 1949
  •  
  • Red Flags
    • Not enough International Reply Coupons in circulation for the scheme to work
    • Charles Ponzi never invested into the Securities Exchange Company
    • Large overhead for the scheme to work
    • Ponzi had a past criminal history for forging checks
    • Only a small amount of investors were paid
    • Ponzi guaranteed profits
  • Preventing Ponzi Schemes
    • Educate the Public
    • People need to ask questions when a large amount of money is being invested
    • Require documentation from the investment managers
    • Be weary of “chance-of-a-lifetime” opportunities
    • Be weary of investors who require cash
  • What has been done
    • To prevent future frauds the government has tried to educate the public by creating websites against Ponzi and Pyramid schemes.
    • The government has set up several websites to check on Ponzi Schemes such as the FTC, SEC, FBI, IRS, DOJ.
    • On the Federal Trade commision website the government allows people to submit complaints against possible Ponzi Schemes
    • The government has passed two bills to protect people from Ponzi Schemes. The two bills are the Hedge Fund Transparency Act and the Hedge Fund Adviser Registration Act of 2009. These two bills aim to deal with increasing transparency and registration in regards to private investment funds.