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Running Head: Ponzi Schemes
1
Ponzi Schemes
11
Running head (Header not in proper APA format)
Ponzi Schemes Comment by Lam...
the scheme had been tried without success but Charles managed
to be the first person to embezzle millions from rather igno...
investors. This is according to the federal bureau of
investigation’s definition of Ponzi schemes. A Ponzi scheme
may also...
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Running Head: Ponzi Schemes 1

Ponzi Schemes 11

Running head (Header not in proper APA format)



Ponzi Schemes Comment by Lamar, Angelo: Center please.
Latoya Smith
Bethel University





MOD 450
Dr. Angelo Lamar
February 14, 2019










Abstract
Ponzi schemes date back in 1920’s when Charles Ponzi got involved in a disreputable money generating scheme. Initially the scheme had been tried without success but Charles managed to be the first person to embezzle millions from rather ignorant and innocent credulous people. This is the main reason the scheme bears Ponzi’s name. Later in 2008, one of the Ponzi’s conspirators was brought to the light. Madoff had conned investors of their money for close to thirty years. Unfortunately, the conned investors were all classy and literate. This paper is aimed at providing brief history of the Ponzi schemes and an illustration of how Ponzi schemes work. The second aim of the paper is to give examples of historically popular Ponzi schemers. In addition the paper provides some common characteristics of Ponzi schemes to be able to facilitate easy identification of illegal Ponzi schemes. The paper ends by providing hints on how to avoid unlawful and notorious Ponzi schemes. Comment by Lamar, Angelo: Keep up the good work here.











Introduction Comment by Lamar, Angelo: The title to your paper should go above this heading.
Ponzi schemes are typical fraudulent investments in which the owner promises the investors abnormally high financial returns from their investment. The scheme operator does not invest the investors’ money; instead, the operator uses the funds from new investors to pay the already existing investors their dividends. The schemes operate smoothly until they lack adequate subsequent investors to sustain payment of dividends to existing investors. This is according to the federal bureau of investigation’s definition of Ponzi schemes. A Ponzi scheme may also seize to operate when the notorious, illegal and fraudulent business is discovered by the government or any other legal authority. Comment by Lamar, Angelo: If so, where is the citation? If information does not come from you then give credit to where it came from.
According to the business dictionary Ponzi schemes are scams which operate on the hope of continued increase in the number of incoming investors to facilitate paying the returns to the former investors. The operations come to a halt when the amount of money getting out of the business exceeds the incoming amount. However, the schemers are wise enough to flee before the business crashes down. In this scenario the schemer tends to escape with large.

Running Head: Ponzi Schemes 1

Ponzi Schemes 11

Running head (Header not in proper APA format)



Ponzi Schemes Comment by Lamar, Angelo: Center please.
Latoya Smith
Bethel University





MOD 450
Dr. Angelo Lamar
February 14, 2019










Abstract
Ponzi schemes date back in 1920’s when Charles Ponzi got involved in a disreputable money generating scheme. Initially the scheme had been tried without success but Charles managed to be the first person to embezzle millions from rather ignorant and innocent credulous people. This is the main reason the scheme bears Ponzi’s name. Later in 2008, one of the Ponzi’s conspirators was brought to the light. Madoff had conned investors of their money for close to thirty years. Unfortunately, the conned investors were all classy and literate. This paper is aimed at providing brief history of the Ponzi schemes and an illustration of how Ponzi schemes work. The second aim of the paper is to give examples of historically popular Ponzi schemers. In addition the paper provides some common characteristics of Ponzi schemes to be able to facilitate easy identification of illegal Ponzi schemes. The paper ends by providing hints on how to avoid unlawful and notorious Ponzi schemes. Comment by Lamar, Angelo: Keep up the good work here.











Introduction Comment by Lamar, Angelo: The title to your paper should go above this heading.
Ponzi schemes are typical fraudulent investments in which the owner promises the investors abnormally high financial returns from their investment. The scheme operator does not invest the investors’ money; instead, the operator uses the funds from new investors to pay the already existing investors their dividends. The schemes operate smoothly until they lack adequate subsequent investors to sustain payment of dividends to existing investors. This is according to the federal bureau of investigation’s definition of Ponzi schemes. A Ponzi scheme may also seize to operate when the notorious, illegal and fraudulent business is discovered by the government or any other legal authority. Comment by Lamar, Angelo: If so, where is the citation? If information does not come from you then give credit to where it came from.
According to the business dictionary Ponzi schemes are scams which operate on the hope of continued increase in the number of incoming investors to facilitate paying the returns to the former investors. The operations come to a halt when the amount of money getting out of the business exceeds the incoming amount. However, the schemers are wise enough to flee before the business crashes down. In this scenario the schemer tends to escape with large.

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Running Head Ponzi Schemes .docx

  1. 1. Running Head: Ponzi Schemes 1 Ponzi Schemes 11 Running head (Header not in proper APA format) Ponzi Schemes Comment by Lamar, Angelo: Center please. Latoya Smith Bethel University MOD 450 Dr. Angelo Lamar February 14, 2019 Abstract Ponzi schemes date back in 1920’s when Charles Ponzi got involved in a disreputable money generating scheme. Initially
  2. 2. the scheme had been tried without success but Charles managed to be the first person to embezzle millions from rather ignorant and innocent credulous people. This is the main reason the scheme bears Ponzi’s name. Later in 2008, one of the Ponzi’s conspirators was brought to the light. Madoff had conned investors of their money for close to thirty years. Unfortunately, the conned investors were all classy and literate. This paper is aimed at providing brief history of the Ponzi schemes and an illustration of how Ponzi schemes work. The second aim of the paper is to give examples of historically popular Ponzi schemers. In addition the paper provides some common characteristics of Ponzi schemes to be able to facilitate easy identification of illegal Ponzi schemes. The paper ends by providing hints on how to avoid unlawful and notorious Ponzi schemes. Comment by Lamar, Angelo: Keep up the good work here. Introduction Comment by Lamar, Angelo: The title to your paper should go above this heading. Ponzi schemes are typical fraudulent investments in which the owner promises the investors abnormally high financial returns from their investment. The scheme operator does not invest the investors’ money; instead, the operator uses the funds from new investors to pay the already existing investors their dividends. The schemes operate smoothly until they lack adequate subsequent investors to sustain payment of dividends to existing
  3. 3. investors. This is according to the federal bureau of investigation’s definition of Ponzi schemes. A Ponzi scheme may also seize to operate when the notorious, illegal and fraudulent business is discovered by the government or any other legal authority. Comment by Lamar, Angelo: If so, where is the citation? If information does not come from you then give credit to where it came from. According to the business dictionary Ponzi schemes are scams which operate on the hope of continued increase in the number of incoming investors to facilitate paying the returns to the former investors. The operations come to a halt when the amount of money getting out of the business exceeds the incoming amount. However, the schemers are wise enough to flee before the business crashes down. In this scenario the schemer tends to escape with large sums of money belonging to the investors and this equates to theft, cheat and may lead to legal interventions. Comment by Lamar, Angelo: If so, where is your citation? If information does not come from you then give credit to where it came from. History of Ponzi schemes Ponzi scheme has its history dating back in 1920 when Charles Ponzi got involved in a disreputable money generating scheme. Initially the scheme had been tried without success but Charles managed to be the first person to embezzle millions from rather ignorant and innocent credulous people. Today Ponzi schemes refer to an investment deception in which the conniver promises investors of deriving high returns from an investment that is said to have little or no risks involved. However, the conniver uses the money contributed by a new investor to pay the former investors. The secret behind Ponzi schemes is the ability of the schemer to continue attracting new investors to be able to pay returns to the already recruited investors without redress. Ponzi schemes however tend to be discovered when the schemer fails to convince and recruit new investors lacking sufficient funds to pay returns to the existing investors. The scheme may also fail when the legal channels become aware of the business
  4. 4. operations. Comment by Lamar, Angelo: Where is your citation? Ponzi schemes have their names derived from Charles Ponzi who was an Italian fraud and cheat who made money by deceiving investors. The embezzler used to promise investors a fifty percent returns on investments in approximately three months. Annually, banks would charge interest rates of 5% which made Ponzi preferable (Dulitzky), 2018). Ponzi schemes became international within a very short period of time. Eventually, Ponzi began to use new investor’s funds to pay the existing investors. With Ponzi schemes new amounts of money were involved and this made his strategy to become popular unlike previous attempts to carry out this fraudulent business and hence the name Ponzi schemes (Surendranath R. Jory, 2011). Comment by Lamar, Angelo: Why did you close the parentheses twice? Everything belongs within. Comment by Lamar, Angelo: Author’s last name only with date. Popular Ponzi schemers Bernard Madoff is one of Ponzi’s historical conspirators ((Dulitzky), 2018). He ran a Ponzi scheme for over thirty years. In his business at Madoff Securities, Madoff managed to embezzle millions of funds from intellectuals who found themselves victims of this fraudulent business. It is bewildering that indeed educated, professionals, intellectuals, society respectable figures could so easily get swindled into losing millions of dollars to a scheme that was formed by a simple man named Charles Ponzi. Comment by Lamar, Angelo: What format is this? Madoff will remain the most popular Ponzi schemer because of the thousands who became victims of his fraudulent business. In December 2008, Madoff’s business was exposed and handed over to the authorities. He pled guilty and majority questioned his great reputation. After discovery of Madoff’s scam many other schemes got exposed because financial authorities became vigilant in securitizing investors in this market. Madoff’s scheme was however the largest Ponzi scheme in the US. In
  5. 5. approximation, Madoff had accumulated 65 billion US dollars. Investors lost estimated 17.3 billion (Maglich, 2012). Half of the investors lost money was recovered by Irving Picard by May 2012. Allen Stanford is another fraudster through the Stanford bank investment. He was the chairman of the Stanford Financial group. Allen operated businesses aimed at selling certificates of deposits to investors (Maglich, 2012). This business contained virtually zero risk. In return Allen promised his investors high returns that are not common in ideal investments. Stanford was arrested, and the court ruling was postponed when Stanford claimed a prison beating caused him to have amnesia. Stanford was later convicted and imprisoned for twenty years in the federal correction facility. Approximately, 4.5 to 6 Billion were lost by investors under this scheme. Peter’s group worldwide is another Ponzi scheme that was owned and operated by Thomas Petters. He was a businessman in the popular brands Polaroid and Sun Country Airlines. Petters business was betrayed by two of his employees who confessed to the FBI about a Ponzi scheme that had accumulated about 4Billion US dollars (Maglich, 2012). The operator typically engineered bank statements to obtain loans to funders. Subsequently, Petters would then formulate purchase orders to attract more lenders. Eventually, loans that were unpaid accumulated and this prompted Petters to seek more from other lenders. The airlines went bankrupt and then Petters was arrested and convicted in 2009 for conspiracy and fraud. He was imprisoned for fifty years in 2010. Comment by Lamar, Angelo: All paragraphs are to be indented. Rothstein Rosenfeldt Adler (lawyer) is another scam that involved the sale of interests to settle lawsuits by Scott Rothstein (Maglich, 2012). This was pure fraud because there were no actual lawsuit settlements. Scott constructed bank statements and legal documents in an attempt to sway and persuade investors that the scheme was legal. Investors continued to buy shares which supplied the scheme with
  6. 6. incoming funds to pay the initial investors. The scheme was later discovered by law firms and Scott immediately fled to morocco carrying along millions of investors’ money. Later on Scott was lured to return to the US and was charged with fraud and imprisoned for fifty years upon pleading guilty. Estimated 1.4 billion of investors’ money was lost in this Scheme. Comment by Lamar, Angelo: Indent Paragraph Another popular Ponzi scheme is the MRI International Inc. that was operated by Fujinaga Edwin that led to the loss of eight hundred million US dollars of mainly Japanese investors (Maglich, 2012). MRI International Inc. was basically a non- existing business and the name was used to convince investors that it was a real business. Fijinaga and MRI International Inc. managed to convince investors that they bought accounts from US medical and insurance advisors. This Ponzi scheme promised investors huge profits once the targeted amount was collected from the insurance company. The investors were offered tour to the US to visit the MRI International Inc. office that was located in Las Vegas and more than eight thousand investors were conned in this scheme. Comment by Lamar, Angelo: Indent Paragraph Zeek Rewards is also a Ponzi scheme that led to the loss of approximately 600 million US dollars of investors’ money. The Securities and Exchange Commission filed a lawsuit in 2012 seeking to investigate the scheme (Maglich, 2012). The court mandated the duty to Kenneth Bell to investigate the scheme who found that the scheme had over 2 million members who had invested in Zeek Rewards. The scheme sold interests to investors through an online platform popularly linked by zeekler.com that was not licensed. Zeekrewards.com was an online auction site, were you could bid on products like iPad for as low as $1, and basically it was used for, investors who needed to cash out their money requested it online and had to wait for the check. Zeek rewards CEO Paul Burks, however was convicted in 2016 and sentenced to twenty years in prison for running one of the historical Ponzi schemes in the US.
  7. 7. Comment by Lamar, Angelo: Cite here. Nevin Shapiro founded Capitol Investment USA Inc. that promised investors exemplary returns through a grocery business (Maglich, 2012). The business involved buying of groceries that were lowly priced and reselling them at higher prices. The schemer described the business as risk free and with higher returns. The investors were promised between 10 and 26% returns from their investment. The schemer managed to accumulate close to a billion US Dollars using funds from new investors to repay returns to older investors. In 2011, Nevin was charged with fraud and sentenced to, to 20 years in jail (Maglich, 2012). Illustration of a Typical Ponzi scheme To elaborate how a Ponzi scheme manages to extract funds form investors without them noticing that it is fraud, a tabular presentation of a Ponzi scheme promising a 20% return on investment is used. Year Funds Needed Amounts Raised ($1,000s) # of Investors 0 $ 100,000
  8. 8. $ 50.00 $ 50.00 2 1 $ 120,000 $ 40.00 $ 40.00 $ 40.00
  9. 9. 3 2 $ 144,000 $ 48.00 $ 48.00 $ 48.00 3
  10. 10. 3 $ 172,800 $ 43.20 $ 43.20 $ 43.20 $ 43.20 4 4 $ 207,360 $ 41.47 $ 41.47
  11. 11. $ 41.47 $ 41.47 $ 41.47 5 Source: https://www.onefpa.org/journal/Pages/Ponzi%20Schemes%20A %20Critical%20Analysis.aspx From the table above, it is clear that initially, 100,000 US dollars was required to start the scheme. This implies that the schemer needed two investors each to contribute half of the amount. A 29% return on the investment requires the schemer to repay 120,000 US dollars to the first two investors, 600,000$ each. To generate the 120,000$ in the first year, the scheme will need to convince 3 new investors each to contribute 40,000$ making a total of the needed amount for the first two investors (Surendranath R. Jory, 2011). Comment by Lamar, Angelo: Indent paragraph Comment by Lamar, Angelo: Author’s last name and date only. By the second year, the schemer would need 144,000$ to repay
  12. 12. the three new investors which will force him to recruit four new investors each to contribute 48,000$. By the end of the third year, the schemer will be required to repay 57,600 $ which will force recruitment of four new investors each to contribute 43,200$. The trend will continue until more and more investors have been recruited into the scheme (Surendranath R. Jory, 2011). Comment by Lamar, Angelo: Indent paragraph Ponzi schemes are however are not as simple to run as shown in the figure above. Usually, they seek to attract many initial investors and high initial contribution. For example, in the Madoff’s Ponzi scheme, the scheme contained thousands of investors and contributions were in billions of dollars. Clients who are investors in the Madoff scheme included firms such as Tremont group holdings, Greenwich advisors, international banks, pension funds, insurance and medical companies, rich individuals all representing the diverse origin of schemes victims. Comment by Lamar, Angelo: Indent Detecting Ponzi Schemes To be able to avoid falling victims of Ponzi Schemes, individuals need to be aware of the warning signs of a Ponzi fraudulent scheme. Ponzi schemes can be detected easily because they bear a common set of characteristics. These characteristics are the red flags that people should get conversant with to be able to protect themselves and their friends and relatives from falling victims of Ponzi schemes. Comment by Lamar, Angelo: Indent. The most common feature of Ponzi scheme is high investment returns zero or minimal risk (Surendranath R. Jory, 2011). Basically, no single investment literally lacks some percentage risk. There are no guaranteed zero risk investment and this statement should serve as a warning that the business is a scam. The second characteristic is the abnormally consistent high returns (US SEC, 2018). Normal businesses fluctuate and rise periodically. An investment that promises consistent returns stand to be questioned. Market conditions are the factors that dictate business returns depending with the seasons.
  13. 13. Comment by Lamar, Angelo: Move up The third feature is the lack of registration (US SEC, 2018). Ponzi schemes are not legally registered because they operate unlawful businesses. The schemes do not conform to state and federal laws and thus cannot be registered. Comment by Lamar, Angelo: Move up. Financial investments are required by law to be operated by professionals who must be licensed under federal and state laws (Surendranath R. Jory, 2011). For schemers, the operators are not professionals and neither are they licensed(US SEC, 2018). This means that operators are unrecognized and firms are unregistered and unacknowledged. Ponzi schemes operate in cagey, complicated and private premises with complex strategies and unreliable structures. Investments need to understandable and with clear information from which to draw information. Comment by Lamar, Angelo: Move up Another common feature of Ponzi Schemes is that they have no qualifications for investing. Instead investment is open to all. Ponzi schemes do not embrace technological based data records but rely on paperwork (US SEC, 2018). This is to prevent existence of evidence of fraud. Paper records can be easily erased and manipulated. With Ponzi schemes investors cannot easily access their investment funds. Some usually advise investors to accumulate investment returns into greater returns which never become a reality. Comment by Lamar, Angelo: Move up The last common feature of Ponzi scheme is that they make use of affinity fraud. This entails use of a trusted individual to bring more investors into the scheme. Comment by Lamar, Angelo: Move up Avoiding and Regulating Ponzi Schemes Individuals have been provided with checklists and the red flags of Ponzi schemes to prevent them from falling victims. However, people still become victims either because they trust the promoter or because they do not have adequate knowledge
  14. 14. regarding the schemes. Comment by Lamar, Angelo: Indent. When one becomes a prey in a Ponzi scheme, they are encouraged to seek help from a financial advisor. There are legal punishments that are accorded participation in this fraudulent illegal business. However, a victim must seek legal redress to expose a fraudulent business. Upon exposure, a Ponzi scheme is sued by the Securities and Exchange Commission and the legal system appoints a legal trustee to recover the lost money. This benefits even the other investors who had not realized that the investment was a scam. The money is recovered from assets, and the consequences may extend to the bankers of the Ponzi scheme perpetrator. Comment by Lamar, Angelo: Indent In cases where a Ponzi scheme perpetrator had contributed to charity using the embezzled funds, the amount donated may be required to be returned when the scheme is exposed regardless of the state of the receiver. Comment by Lamar, Angelo: Indent Conclusion In conclusion, Ponzi schemes are fraudulent investments that began as early as the 1920’s. The business involves incorporating investors into a non-existent investment promising high returns on the investment. Investors are paid using the funds of new investors who are convinced into the scheme by an influential character into the scheme. Technology and innovation in this fraudulent business are also perceivable. The industry has grown and its products also diversified. People need to be vigilant and be on the lookout for the warning signs of a Ponzi scheme to avoid becoming victims. It is imperative that investors differentiate between legal pyramid schemes and fraudulent Ponzi schemes. Comment by Lamar, Angelo: Indent.
  15. 15. References (Dulitzky), D. K. (2018, March 5). The Challenges of Identifying and Preventing Ponzi Schemes. Retrieved Feb 7, 2019, from NYU JLB: https://www.nyujlb.org/single- post/2018/03/05/The-Challenges-of-Identifying-and-Preventing- Ponzi-Schemes Maglich, J. (2012, May 20). Top Pozi Schemes. Retrieved Feb 11, 2019, from Ponzitracker: http://www.ponzitracker.com/top- ponzi-schemes/ Schain, P. J. (2011). The Never Ending Attraction of the Ponzi Scheme. Retrieved Feb 7, 2019, from Sacred Heart University: https://digitalcommons.sacredheart.edu/cgi/viewcontent.cgi?refe rer=http://int.search.myway.com/search/GGmain.jhtml?p2=&ptb =53C68D6A-8052-4221-9DC4- FD2622AF635B&n=&cn=US&ln=en&si=&tpr=hpsb&trs=wtt&b rwsid=48bce492-f84d-4e2c-953e- d2c542921485&st=tab&searchfo Surendranath R. Jory, P. a. (2011). Ponzi Schemes: A Critical Analysis. Journal of Financial Planning. US SEC. (2018). Ponzi schemes Using virtual Currencies. Investor Education, 1-3. Ms. Smith please find my comments above as it relates to your assignment. I have pointed out several errors that appear to repeat itself over and over throughout your assignments. Try to
  16. 16. make a mental note or write them down and keep it close to you when writing to avoid these errors in the future. The information written in the assignment itself is good along with sentence structure and flow of thoughts, but one huge thing you forgot is that the majority of the information used was to come from your coursebook and not what is considered as secondary sources. You did not learn anything in class from the listed references so how can you construct a paper from them? You write the majority of information from the book you learn from. There is enough information in there to write your own book if you desired. Remember this in the future. Have a good weekend and I enjoyed you in class.

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