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Fraud schemes quadruple in 2009

Posted on December 29, 2009 3:00 AM EST

Miami and South Florida lead the country in the number of "Ponzi" schemes uncovered in 2009. However, reports of organized schemes to defraud have popped up from coast to coast. In 2009, about 150 "Ponzi" schemes have been detected with losses that in the range in the area of $16.5 billion. Only 40 "Ponzi" schemes were uncovered in 2008, but the losses exceeded this year's mainly due to the Madoff case. The cases of fraud range from a few hundred thousand dollars to the $7.1 billion scheme allegedly perpetrated by Allen Stanford. The latest "Ponzi" scheme that unraveled in South Florida stems from the purported $1.2 billion fraud linked to Scott Rothstein, the once prominent Ft. Lauderdale lawyer. Since his arrest, Rothstein has retained a well-known Miami criminal lawyer to represent him in federal court.

Federal law enforcement agencies have stepped up their efforts to investigate and prosecute "Ponzi" schemes which is the reason for the escalation in numbers from 2008 to 2009. As with every economic downturn, especially the current recession, which is one the worst in the country's history, investor resources dry up and there is no more money to take from Peter to pay Paul. "Ponzi" schemes inevitably fail because the infusion of capital fails and there are no funds to pay older investors. When the pool of new investors dries up, so do the schemes to defraud.

Individuals at the top of the "Ponzi" schemes often reap huge returns, but when the bubble bursts newer investors sometimes lose all of their assets. For example, a retired air force sergeant lost his entire life saving investing in a Minneapolis based venture called "Follow the Money". While the architects of each "Ponzi" scheme use investors' money to fund lavish lifestyles, eventually some portion of investors lose everything once the scheme collapses. Sometimes, investments are in part legitimate, but for the most part are completely fictional.

The name "Ponzi" scheme is derived from the infamous scam artist, Charles Ponzi, an Italian immigrant who duped thousands of people out of approximately $10 million dollars back in 1919. Eventually Ponzi was tried and convicted of wire fraud, sentenced to prison and eventually deported back to Italy. Many investors who have lost life savings claimed that they entered into these schemes to defraud because the promised returns were too good to pass up. Some even claimed to have performed due diligence before investing their money. That just goes to show, the old adage if it seems too good to be true, it probably is, still holds water.

Recession Scares Off New Investors, Ponzi Collapses Nearly Quadruple in 2009, The Canadian Press, December 29, 2009.
Categories: Fraud