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In the US the term "PONZI SCHEME" is used to  describe what the rest of the world calls "Pyramid Scheme" or in Spanish "ESTAFA PIRAMIDE". Since the current crsis is revealing a deluge of Ponzi/Piramides this page deals with them.

capt.cps.nsb51.260908092202.photo00.photo.default-512x387.jpg

THE WORLD'S GREATEST PONZI SCHEME
Let’s say there is $10 trillion of central bank notes everywhere in the world...The central bank then prints $1 trillion more and gives it to whoever. Now there is $11 trillion. As that new money goes into circulation, the $10 in yesterday’s dollars is now worth about $8.89 in today’s dollars. Or, in reverse, what cost you $10 today will cost you $11 tomorrow, on average. You’ve just been ripped off, and the beneficiaries are whoever received that extra $1 trillion that the central bank just printed.

PONZI SCHEME MAP: Interactive with names, locations & amounts of loss (click here)

PONZI LIVES ON
charlesponzi.jpg
PONZI LIVES ON

Madoff Aide Reveals Details of Ponzi Scheme

Mr. DiPascali described how he, Mr. Madoff and unidentified other people created fake account statements, shuffled money between bank accounts and perpetuated a years-long fairy tale that they were making money for clients of Bernard L. Madoff Investment Securities. No purchases or sales of securities were actually taking place in their accounts, Mr. DiPascali said. It was all fake. It was all fictitious. It was wrong, and I knew it was wrong at the time. And, from his account, keeping the scheme afloat and investors and regulators duped was a full-time job. To give the appearance that Mr. Madoffs firm had mastered the markets, Mr. Madoff and his employees would track stock prices and then simply pretend to buy stocks whose trajectories matched the firms investment goals, Mr. DiPascali said. They created and mailed out reams of account statements and trading slips for trades that had never taken place. Prosecutors said that the ruse extended as far as designing a fake computer stock-trading platform and using a random-number generator to assign times and amounts to trade records, so that no one would detect any pattern.

It was time someone explained this.  Here it is!
Because of its importance the followng article is presented in its entirety:
 
Ponzi Schemes Are
 
Busting Out All Over

 

It seems almost unimaginable that

Americans who are rightfully cheering

 Madoff's 150-year sentence don't

 understand that their President, along

 with  governors and legislators across

the fruited plain, are involved in the very

 same scam, and with their money.

 

The same week Ponzi schemer Bernard Madoff was sentenced to 150 years in prison, and Ponzi schemer Allen Stanford was denied bail, government Ponzi schemes in states across the country exploded.

If you fail to see the irony and/or the connection, you mustn't understand what a Ponzi scheme really is.

Without getting too technical, such a scam raises money by promising investors extraordinary returns. To attract more victims, interest payments are made out of the pool of invested dollars to give the appearance the fund manager is doing a good job.

As high-yielding "dividends" continue to be distributed in a timely fashion, more and more investors give the con artist their money. When the flow of new dollars ends, the scam explodes, and the schemer is exposed.

Sadly, this is how governments

across the nation - including the

one in Washington - have been

behaving for many decades.

They distribute more and more money - much like a Ponzi schemer's interest payments or "dividends"- in anticipation that additional investments will be made in the future - i.e. taxes.

Fortunately for the feds, since there is no balanced budget requirement, the Treasury can just sell more bills, notes, and bonds to make up for the shortfall, although this ironically adds to the Ponzi scheme since the buyers are hoping to some day get their money back.

But, in states like California, whose Constitution demands a balanced budget, this is not an option thereby forcing it to issue IOUs to employees, which comically is what Ponzi scheme investors often get once the scam is exposed.

The saddest part of this story is that governments around the country- including the feds - were warned about their exploding Ponzi schemes in the early part of this decade.

When tax receipts plummeted after the tech stock bubble burst and a recession ensued in 2001, governments from coast to coast including in Washington were suddenly awash in red ink they never anticipated.

But did they do anything about it? Did legislators, governors, and presidents learn anything by this and become fiscally responsible?

Of course not, for much like a Ponzi scheme, once the economy began growing again, and tax receipts started to rise, so did expenditures.

The "finest" example was Washington expanding Medicare at the end of 2003 to include payments for prescription drugs. Rather than learning from the previous years' massive budget shortfalls, our elected officials actually added exponentially growing costs to the ledger.

Was this ignorance or arrogance?

Probably both, as top economists advised California back in 1999 for example, that the explosion in tax receipts the state was enjoying was non-recurring, and that they shouldn't create budgets anticipating this revenue growth to continue.

Of course, they didn't listen, and California not only entered into an easily avoidable budget crisis several years later resulting in Gov. Gray Davis' recall, but his supposedly more fiscally adroit replacement ended up making the same mistake in subsequent years leading to the current calamity.

3,000 miles east in the nation's capital, after years of fiscal irresponsibility by the Republicans in power, the new Democrat regime has taken the Ponzi scheme to an unprecedented level.

Unconscionably, the current explosion in expenditures is happening at the exact same time tax receipts are shrinking due to the ongoing recession.

As this is typically when Ponzi schemes explode and the perpetrators are arrested, it seems almost unimaginable that Americans who are rightfully cheering Madoff's 150-year sentence don't understand that their President, along with governors and legislators across the fruited plain, are involved in the very same scam, and with their money.

Noel Sheppard is the Associate Editor of the Media Research Center's NewsBusters.org. He welcomes feedback at    nsheppard@newsbusters.org. 

Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. Ponzi thought he could take advantage of differences between U.S. and foreign currencies used to buy and sell international mail coupons. Ponzi told investors that he could provide a 40% return in just 90 days compared with 5% for bank savings accounts. Ponzi was deluged with funds from investors, taking in $1 million during one three-hour period—and this was 1921! Though a few early investors were paid off to make the scheme look legitimate, an investigation found that Ponzi had only purchased about $30 worth of the international mail coupons.

Decades later, the Ponzi scheme continues to work on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses. For more information, please read pyramid schemes...


PONZI LIVES!!!!!!!
Charles Ponzi
Charles Ponzi (click on photo to go to Ponzi page)

In little more than eight months, some 40,000 investors had handed Ponzi a reported $15 million. In the end, tens of thousands of people had lost their life savings and half-a-dozen banks had crashed. Click here to read full article.

"In Ponzi we trust"- Article from Smithsonian Magazine

MY PERSONAL OPINION
The three greatest PONZI schemes in all of human history:
 
1.  Financing of the Government of the United States of  America
          2. Financing of the US Social Security System
              3.  Operation of the New York Stock Exchange
                                             JW 
PS: Most other similar organizations do the same.
 
 
"Well Madoff, where did you get the idea of paying the oldest investors with the money from the newest investors?..."

"Well Madoff, where did you get the idea?"
madoffss.jpg
"From Social Security!"

             "From Social Security!"

Stocks in a Bull Market - The Respectable Ponzi Scheme

Ponzi's Grandson?...Madoff Jr.?...
 
It's a bird, it's a plane, whatever it is, it's flying away with YOUR BAILOUT MONEY...
 
Meet Citigroup's golden fingered trader whose claim to a  $100,000,000.00 "bonus" proves what we said above about the NY Stock Exchange and all others. What benefit to the economy is the work of these "high producing traders?  Or are they better described as "traitors" to the free enterprise system? - JW

Citigroup trader's $100 million pay deal highlights executive comp dilemma

The Eternal Recurrence of Financial Corruption

Lessons for today from the infamous industrialist/crook Ivar Kreuger

As America is sprawled in the dirt, stunned and battered by turmoil in its financial markets, Frank Partnoy, a law and finance professor at the University of San Diego and previously author of Infectious Greed: How Deceit and Risk Corrupted the Financial Markets, looks back at a mighty industrialist and financier of the 1920s and '30s, Ivar Kreuger, in his new book The Match King: Ivar Kreuger, the Financial Genius Behind a Century of Wall Street Scandals. Partnoy convincingly frames Kreuger as the fountainhead of modern financial shenanigans and crimes, and the proximate cause of the securities laws that govern todays markets. Yes, despite what you may have heard, Partnoy makes a case that it wasnt the 1929 crash or the Great Depression that prompted New Deal innovations in financial market regulations. Rather, it was the disgraceful and mysterious fall of Swedish man of money and mystery Kreuger, known as the Match King, whose various companies securities were owned in the early 1930s by more Americansand Earthlingsthan any other. Kreuger started in the building trades. Later, the humble safety match (which only ignites if struck against its own box, rather than against any old surface) became the linchpin of his sprawling international empire. That empire made him as famous as Lindbergh, a consort to Garbo, and filled him with a sense of grandiosity that made him loathe to ever leave well enough alone. In that last characteristic, at least, hes a blood brother to the U.S. government that never got a chance to try him for his frauds, even as the government reshaped its financial regulatory system in reaction to those frauds.

Financial Shenanigans
corruption
Crime & Punishment
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falsification
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The Talented Mr. Madoff

By JULIE CRESWELL and LANDON THOMAS Jr.
New York Times, Published: January 24, 2009

TO some, Bernard L. Madoff was an affable, charismatic man who moved comfortably among power brokers on Wall Street and in Washington, a winning financier who had all the toys: the penthouse apartment in Manhattan, the shares in two private jets, the yacht moored off the French Riviera.

Enlarge This Image
Jason Decrow/Associated Press

Times Topics: Bernard L. Madoff

 

Enlarge This Image
Associated Press

Bernard Madoff, right, in 1993 at a House hearing with David S. Ruder, formerly of the S.E.C., center, and Richard Grasso of the New York Stock Exchange.

Although hardly a household name, he secured a longstanding role as an elder statesman on Wall Street, allowing him to land on important boards and commissions where his opinions helped shape securities regulations. Along the way, he snared a coveted spot as the chairman of a major stock exchange, Nasdaq.

And his employees say he treated them like family.

There was, of course, another side to Mr. Madoff, who is 70. Reclusive, at times standoffish and aloof, this Bernie rarely rubbed elbows in Manhattan’s cocktail circuit or at Palm Beach balls. This Bernie was quiet, controlled and closely attuned to his image, down to the most minute details.

He was, for instance, an avid collector of vintage watches and took time each morning to match his wedding ring — he owned at least two — to the platinum or gold watch band he was wearing that day.

Per his directives, the décor in his firm’s New York and London offices was stark. Black, white and gray — or “icily cold modern,” as one frequent visitor to the New York operation described it.

Despite nurturing a familial atmosphere in his offices, he installed two cameras on the small trading floor of the firm’s London operations so he could monitor the unit remotely from New York.

This Bernie also ran a money management business on the side for decades that he kept hidden far from colleagues, competitors and regulators.

While he managed billions of dollars for individuals and foundations, he shunned one-on-one meetings with most of his investors, wrapping himself in an Oz-like aura, making him even more desirable to those seeking access.

So who was the real Bernie Madoff? And what could have driven him to choreograph a $50 billion Ponzi scheme, to which he is said to have confessed?

An easy answer is that Mr. Madoff was a charlatan of epic proportions, a greedy manipulator so hungry to accumulate wealth that he did not care whom he hurt to get what he wanted.

But some analysts say that a more complex and layered observation of his actions involves linking the world of white-collar finance to the world of serial criminals.

They wonder whether good old Bernie Madoff might have stolen simply for the fun of it, exploiting every relationship in his life for decades while studiously manipulating financial regulators.

“Some of the characteristics you see in psychopaths are lying, manipulation, the ability to deceive, feelings of grandiosity and callousness toward their victims,” says Gregg O. McCrary, a former special agent with the F.B.I. who spent years constructing criminal behavioral profiles.

Mr. McCrary cautions that he has never met Mr. Madoff, so he can’t make a diagnosis, but he says Mr. Madoff appears to share many of the destructive traits typically seen in a psychopath. That is why, he says, so many who came into contact with Mr. Madoff have been left reeling and in confusion about his motives.

“People like him become sort of like chameleons. They are very good at impression management,” Mr. McCrary says. “They manage the impression you receive of them. They know what people want, and they give it to them.”

As investigators plow through decades of documents, trying to decipher whether Mr. Madoff was engaged in anything other than an elaborate financial ruse, his friends remain dumbfounded — and feel deeply violated.

“He was a hero to us. The head of Nasdaq. We were proud of everything he had accomplished,” says Diana Goldberg, who once shared the 27-minute train ride with Mr. Madoff from their homes in Laurelton, Queens, to classes at Far Rockaway High School. “Now, the hero has vanished.”

If, in the end, Mr. Madoff is found to have been engaging in fraud for most of his career, then the hero never really existed. Authorities say Mr. Madoff himself has confessed that he was the author of a longstanding and wide-ranging financial charade. His lawyer, Ira Lee Sorkin, declined to comment.

During the decades that Mr. Madoff built his business, he cast himself as a crusader, protecting the interests of smaller investors and bent on changing the way securities trading was done on Wall Street. To that end, like a burglar who knows the patrol routes of the police and can listen in on their radio scanners, he also actively wooed regulators who monitored his business.

“He once mentioned to me that he spent one-third of his time in Washington in the early 1990s, late 1980s,” says a person who has known Mr. Madoff for years but requested not to be identified because he does not want to be drawn into continuing litigation. “He was very involved with regulators. I think they used him as a sounding board and he looked to them like a white knight.”

“He was smart in understanding very early on that the more involved you were with regulators, you could shape regulation,” this individual adds. “But, if we find out that the Ponzi scheme goes back that far, then he was doing something much smarter. If you’re very close with regulators, they’re not going be looking over your shoulders that much. Very smart.”

MR. MADOFF spent his early years in Laurelton, a close-knit, Jewish enclave where he and his friends ate ice cream at the local five-and-ten and attended activities at the community center.

“It was an idyllic place to grow up in,” recalls Vera Gitten, who attended elementary school with him. She remembers him as “very thin,” a good student and extremely outgoing. She recalls a musical skit that he and his best friend wrote, rehearsed and performed for the class when they were in fifth or sixth grade.

“It was a broad company, sort of a ‘Sheik of Araby’ kind of thing where they wore costumes, which were their parents’ bedsheets, that made them look like they were desert sheiks,” Ms. Gitten says. “They would have us rolling.”

None of Mr. Madoff’s former elementary school friends could recall what his parents, Ralph and Sylvia, did for a living. According to Securities and Exchange Commission documents from the 1960s, it appears that his mother had a brokerage firm called Gibraltar Securities registered in her name with an address in Laurelton.

In 1963, the S.E.C. began investigating whether a number of firms, including Ms. Madoff’s, had failed to file financial reports and whether that required revoking their registrations. Early the next year, Ms. Madoff withdrew her registration and the S.E.C. dropped its proceedings against her.

While Mr. Madoff’s friends remember little about his parents, they all clearly recall his childhood sweetheart, and future wife, Ruth Alpern, a pretty, bubbly blonde who was voted “Josie College” by her Far Rockaway High School class.

Mr. Madoff, after graduating from high school in 1956, spent a year at the University of Alabama, where he joined Sigma Alpha Mu, a Jewish fraternity. A year later, he transferred to Hofstra University, where he graduated in 1960 with a degree in political science. He later became a Hofstra trustee, but the university never invested with him.

Mr. Madoff spent the next year at Brooklyn Law School, attending classes in the morning and running his side business — installing and fixing sprinkler systems — in the afternoon and evening, recalled Joseph Kavanau, who attended law school with Mr. Madoff. When Mr. Kavanau married his wife, Jane, who was Mrs. Madoff’s best friend from Queens, Mr. Madoff was the best man.

“Bernie was very industrious,” Mr. Kavanau explains. “He was going to school and working at the same time.”

Mr. Madoff was never interested in practicing law, Mr. Kavanau says. Instead, Mr. Madoff left law school and, using $5,000 saved from being a lifeguard and from his sprinkler business, joined the ranks of Wall Street in the 1960s.

“For many years when we were first married, my wife and I would go to their house or we would all go out to dinner, maybe a couple of nights a month,” said Mr. Kavanau, who says that the first home Mr. Madoff shared with his bride was a modest, one-bedroom apartment in Bayside, Queens.

Over the years, however, the two couples drifted apart. From time to time, Mr. Kavanau said he turned on the television and caught a glimpse of Mr. Madoff — now a successful financier — being interviewed, realizing that he had made his mark on Wall Street.

“The last time I saw him, we had run into him and Ruth on Worth Avenue in Palm Beach,” Mr. Kavanau recalls. “We were definitely aware of how well he was living.”

When asked if he can understand what happened, what may have motivated or prompted Mr. Madoff to eventually take such risks after building up a seemingly successful business, Mr. Kavanau paused.

“There is no way to. I can’t make it add up. It doesn’t make sense,” he says, growing increasingly frustrated. “I cannot take the Bernie I knew and turn him into the Bernie we’re hearing about 24/7. It doesn’t compute.”

WHEN Mr. Madoff arrived on Wall Street in the 1960s, he was an outsider. His small firm, Bernard L. Madoff Investment Securities, got its start by matching buyers of inexpensive “penny stocks” with sellers in the growing over-the-counter market. This hardscrabble market was made up of stocks that were not listed on the tonier New York Stock Exchange or American Stock Exchange.

In the O.T.C. market, it was common practice — and completely legal — for firms like Mr. Madoff’s to try to attract big trades to their shop by offering to pay clients a penny or two for every share they traded. His firm would make money by pocketing the difference in the “spread,” or the gap between the offering and selling price for the stocks.

During the mid-1970s, when changes in the rules allowed his firm and others like it to trade more expensive and more prestigious blue-chip stocks, Mr. Madoff began gaining market share from the Big Board.

“He was a man with a good idea who was also a terrific salesman,” says Charles V. Doherty, the former president of the Midwest Stock Exchange. “He was ahead of everyone.”

While completely legitimate, the practice of paying for trading orders was entirely distasteful to blue bloods on the established exchanges who saw the actions, ultimately, as a threat to their livelihood. Around this time, Mr. Madoff began cultivating key relationships with regulators.

“He was the darling of the regulators, without question. He was doing everything the regulators wanted him to do,” says Nicholas A. Giordano, the former president of the Philadelphia Stock Exchange. “They wanted him to be a fierce competitor to the New York Stock Exchange, and he was doing it.”

Current and former S.E.C. regulators have come under fire, accused of failing to adequately supervise Mr. Madoff and being too cozy with him.

Arthur Levitt Jr., who served as S.E.C. chairman from 1993 to early 2001, has acknowledged that he occasionally turned to Mr. Madoff for advice about how the market functioned. But Mr. Levitt strongly denies that Mr. Madoff had undue influence at the S.E.C. or that the agency’s enforcement staff deferred to him.

Mr. Levitt said that he was unaware that Mr. Madoff even ran an investment management business, and that Mr. Madoff never had special access to him or other S.E.C. officials. He also noted that he and Mr. Madoff opposed one another on several key industry issues.

“The notion that Madoff came to my office many times is a fiction,” Mr. Levitt says. “And the notion that he did my bidding is so fantastic that it defies belief.”

Mr. Madoff’s firm was an early adopter of new trading technologies. And, during the early 1990s, he served three one-year stints as head of the Nasdaq, an electronic exchange that has competed vigorously and won market share from brick-and-mortar exchanges like the Big Board.

Despite this flair for the experimental, Mr. Madoff routinely told his employees to adopt the mantra “KISS,” or “keep it simple, stupid.” He was, after all, a man of precise and controlled habits. He smoked Davidoff cigars and, in London, tailored his suits at Kilgour on Savile Row and bought many of his watches at Somlo Antiques.

Associates and others acquainted with him said his punctilious ways sometimes veered into obsessive-compulsive behavior. His office, for example, always had to be immaculate.

According to a former employee, who requested anonymity because of continuing litigation and because, he said, regulators have told Madoff employees not to speak to the media, Mr. Madoff scouted the office for potential filth. Once, when he spotted an employee eating a pear at his desk in New York, this person said, Mr. Madoff spied some juice dripping onto the gray carpet.

“What do you think you are doing?” this person recalls Mr. Madoff demanding. Eating a pear, the employee replied. Mr. Madoff ripped the soiled carpet tile from the floor, then rushed to a closet to retrieve a similar swatch to replace it.

Julia Fenwick, who was the office manager for Mr. Madoff’s London operation from 2001 until the unit was shuttered in December, said that “everything had to be perfect” and that “you never left paper on your desk — ever.”

Although he visited the London office only a couple of times a year, usually on the way to his vacation home in France, Mr. Madoff still reveled in micromanaging everything there, including the office décor.

The London unit recently finished spending about $700,000 for a refurbishment that recreated the black and gray palette of Mr. Madoff’s New York office and his private jet, Ms. Fenwick says. The result was office furniture made from black ash, black trimming on gray walls, black computers, black mouse pads and even a black refrigerator on the trading floor.

But former employees and friends say Mr. Madoff’s obsession with order and control of his environment never led them to believe that deeper problems were afoot.

“He appeared to believe in family, loyalty and honesty,” said one former Madoff employee, who asked to remain anonymous because of the continuing litigation and investigations. “Never in your wildest imagination would you think he was a fraudster.”

Despite all of the easy money that rolled into Mr. Madoff’s firm for much of its existence, financial pressures began to emerge there during the last several years after Wall Street changed the way securities were priced and as new competition emerged.

In his asset management business, however, Mr. Madoff continued to haul in fresh rounds of money from unsuspecting investors hungry for the predictable and handsome returns he booked year after year, without missing a beat.

Employees who were veterans in the New York and London offices were even allowed to invest with Mr. Madoff, according to people who worked at the firm. Some employees are said to have given Mr. Madoff a large portion of their life savings — all of which now appears to be gone.

Like so many others who invested with him, his employees weren’t lured to his funds simply by a promise of outsize returns. Rather, they say, they sought the security of investing with a man they knew and trusted. The Bernie they thought they knew.

Mr. Madoff’s confidence reminds J. Reid Meloy, a forensic psychologist, of criminals he has studied.

“Typically, people with psychopathic personalities don’t fear getting caught,” explains Dr. Meloy, author of a 1988 textbook, “The Psychopathic Mind.” “They tend to be very narcissistic with a strong sense of entitlement.”

All of which has led some forensic psychologists to see some similarities between him and serial killers like Ted Bundy. They say that whereas Mr. Bundy murdered people, Mr. Madoff murdered wallets, bank accounts and people’s sense of financial trust and security.

Like Mr. Bundy, Mr. Madoff used a sharp mind and an affable demeanor to create a persona that didn’t exist, according to this view, and lulled his victims into a false sense of security. And when publicly accused, he seemed to show no remorse.

Television footage of Mr. Madoff entering his apartment building on East 64th Street at Lexington Avenue after federal authorities charged him with fraud in December doesn’t seem to show a man exhibiting any sorrow or regret. With a battery of reporters asking him whether he felt remorse, he declined to respond and pushed his way into his building. (Thus far, his only public apology has apparently been in letters left in his lobby for fellow tenants who suffered through the media circus outside their building.)

To some extent, analysts of criminal behavior say, defining Mr. Madoff is complicated by the wide variety of possible explanations for his scheme: a desire to accumulate vast wealth, a need to dominate others and a need to prove that he was smarter than everyone else. That was shown, they say, in an ability to dupe investors and regulators for years.

Like the former F.B.I. agent Mr. McCrary, Dr. Meloy cautions that he has not met Mr. Madoff and can’t make a clinical diagnosis. Nevertheless, he says individuals with psychopathic personalities tend to strongly believe that they’re special.

“They believe ‘I’m above the law,’ and they believe they cannot be caught,” Mr. Meloy says. “But the Achilles’ heel of the psychopath is his sense of impunity. That is, eventually, what will bring him down.”

He says it makes complete sense that Mr. Madoff would have courted regulators, even if he ran the risk of exposing his own actions by doing so.

“In a scheme like this, it’s very important to keep those who could threaten you very close to you,” Dr. Meloy explains. “You want to develop them as allies and shape how they go about their business and their attitudes toward you.”

INDEED, if it is shown that Mr. Madoff fooled regulators for decades, that would have been a “heady, intoxicating” experience and would have fueled a sense of entitlement and grandiosity, Mr. McCrary says.

And by reeling in people from the Jewish community, from charities, from public institutions and from prominent and relatively sophisticated investor networks worldwide, Mr. Madoff wreaked havoc on many lives.

That’s why Mr. McCrary says it’s not too far-fetched to compare Mr. Madoff to serial killers.

“With serial killers, they have control over the life or death of people,” Mr. McCrary explains. “They’re playing God. That’s the grandiosity coming through. The sense of being superior. Madoff is getting the same thing. He’s playing financial god, ruining these people and taking their money"

Stanford Indicted in $7 Billion Scam With Regulator 

Texas financier Allen Stanford was indicted with a former Antiguan regulator on charges they helped direct a $7 billion fraud that U.S. prosecutors said put the integrity of the markets at risk. Also charged June 19 in a 21-count indictment was Gilbert Lopez, the chief accounting officer at Stanford Group, and Laura Pendergest-Holt, Stanfords chief investment officer, who was previously charged with obstruction. Stanford, 59, faces charges of conspiracy to commit securities, mail and wire fraud.

Hard Sell Drove Stanford's Rise and Fall

By STEVE STECKLOW

Stanford Financial Group flew more than 200 overseas employees to Miami in January for a weekend meeting and yacht cruise. In a pep talk, the company's billionaire chairman, R. Allen Stanford, announced a quarterly sales contest called the Top Performers Club.

Leading sellers of Stanford's certificates of deposit, he said, would compete for big bonuses, recalls an employee who was there. Attendees watched a video of a Stanford financial adviser in Switzerland who, during an earlier incarnation of the contest, received more than $400,000 in pay for three months of sales.

[R. Allen Stanford]

R. ALLEN STANFORD

What Mr. Stanford didn't reveal, says the employee who attended, was that his financial empire desperately needed cash from the sales to survive. Clients recently had redeemed about $500 million from the bank. Its assets were depleted and bills were piling up, federal court records indicate.

Federal authorities now say much of the $8 billion Stanford Financial raised selling CDs is missing. In court papers, the Securities and Exchange Commission has described Stanford Financial as "a massive Ponzi scheme" in which new investments were used to pay off early investors.

Interviews with numerous former employees and people involved in the investigation, along with internal Stanford documents, paint a picture of a turbocharged sales machine. Stanford pushed employees hard to sell CDs with an incentive program some of them called "bank crack," while simultaneously misleading investors who pressed for details about its investments. In the end, mounting pressure from the SEC triggered a series of tense internal meetings in which one top executive broke into tears and an outside lawyer suggested prayer.

A rash of alleged Ponzi schemes have surfaced during the financial crisis, including Bernard Madoff's, but Mr. Stanford's operation stands out in one respect. It had a huge and conspicuous marketing presence -- a sprawling network of offices that made his company appear both legitimate and durable.

In February, the SEC filed a civil lawsuit accusing Mr. Stanford and two other executives -- James M. Davis and Laura Pendergest-Holt -- of engineering a massive fraud. A federal judge in Dallas has placed Mr. Stanford's companies in receivership, and their operations have ceased. Ms. Pendergest-Holt also faces a separate criminal complaint alleging obstruction of justice.

[Stanford]

Reached on his cellphone, Mr. Stanford, 59 years old, declined to comment. David Finn, a lawyer for Mr. Davis, Stanford Financial's chief financial officer, said, "We are fully cooperating with the federal investigation." Through an attorney, Ms. Pendergest-Holt, Stanford Financial's chief investment officer, denied wrongdoing.

Stanford Financial looked like a solid company. It had posh offices, many adorned with green marble and mahogany, throughout the U.S., in Switzerland and in Latin American nations including Mexico, Venezuela and Peru, staffed by about 430 financial advisers. It spent $12 million last year to host the Stanford St. Jude Championship golf tournament in Memphis, Tenn., and $2 million for an endorsement contract with golfer Vijay Singh, according to people familiar with the matter.

Yet there were signs that Mr. Stanford, a Texas native, wasn't a typical banker. After graduating from Baylor University, where he roomed with Mr. Davis, he unsuccessfully tried his hand at running health clubs, then shifted to real-estate investing.

He set up a bank in 1985, on the Caribbean island of Montserrat, to hold funds for his real-estate investors. Five years later, amid a British crackdown on Montserrat's offshore-banking industry, he moved his bank to Antigua, another tax haven. U.S. regulators blacklisted Antigua for lax regulation in the late 1990s, then lifted the sanctions in 2001.

The 6-foot-4-inch financier became a towering figure on the island, which granted him citizenship in 1999 and knighted him in 2006. He served as chairman of the government board that oversaw its offshore financial industry, was a major lender to the government, launched an airline and a construction firm, and purchased the island's biggest newspaper. He poured considerable sums into West Indian cricket, hosting a tournament last fall that awarded the winning team $20 million. He told people his life had been changed by an encounter with a local Catholic priest with wounds in his hands and feet that Mr. Stanford believed to be the stigmata of Jesus Christ. He began carrying with him a vial of congealed fluids from the priest's foot.

The core of his financial empire was his Antiguan bank, Stanford International Bank Ltd. The bank issued the CDs, many of which were sold in Latin America. In the U.S., the CDs were sold by a brokerage unit, Stanford Group Co. The brokerage targeted well-heeled clients and recruited financial advisers from the likes ofMerrill Lynch & Co. and UBS AG. Its headquarters in Houston featured a concierge, a multimedia theater for client presentations and a half floor of private offices for Mr. Stanford. Employees say he hardly ever used them.

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Hard Sell Drove Stanford's Rise and Fall
Joseph Jones

In happier times, financier R. Allen Stanford is thanked by a cricket fan at a tournament he staged last fall, where the winning team got $20 million.

Hard Sell Drove Stanford's Rise and Fall
Hard Sell Drove Stanford's Rise and Fall

The CDs promised yields several percentage points higher than U.S. bank CDs. Stanford said that was possible because of its offshore bank's tax advantages. They were pitched to clients as conservative instruments. "Our strategy is based on an investment methodology that seeks to minimize risk, and achieve liquidity," said a 2007 disclosure statement that came with the CDs.

Michael Kogutt, 51, of Coppell, Texas, says he and several relatives met with two Stanford financial advisers in November 2007 after a German company purchased his family's promotional-products business. "We told them that we were extremely risk-averse," he recalls.

He says he initially invested about $700,000 in several mutual-fund products, and about $700,000 in five-year "flex" CDs, which allowed partial withdrawals up to four times a year. Last summer, after the stock market declined, he liquidated the mutual-fund products and invested most of his life savings -- $2 million -- in the CDs. He said the Antiguan bank promised 9.87% compounded annual interest, about six percentage points higher than prevailing U.S. bank CD rates at the time.

Stanford financial advisers had incentive to push the CDs, which earned them higher commissions than other products -- a straight fee of 1%, plus a chance to earn an additional 1% a year over the term of the CD if they sold at least $2 million worth in a quarter. Some Stanford employees referred internally to the CD compensation program as "bank crack," says former Stanford financial adviser Charles Rawl, "because it seemed to be addicting."

Advisers around the world belonged to CD sales teams with names like the "Superstars," "The Deal Hunters" and "Money Machine," according to internal emails reviewed by The Wall Street Journal. Spreadsheets and tables reported the latest sales, broken down by team, offices and individuals.

Managers pushed advisers hard. "Unfortunately, the fourth quarter has gotten off to a REALLY SLOW start," stated a Nov. 3, 2005, email from Jason Green, then a managing director in the Baton Rouge, La., office. "We only have about $1.7MM of production for October, well short of our $21MM monthly goal! However, I'm counting on a really strong November and December!!!!"

The email added, "Of course, as always, don't try to force it, if it's not the right thing for your clients/prospective clients." Mr. Green declined to comment.

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Hard Sell Drove Stanford's Rise and Fall
Associated Press

Customers of Stanford Bank outside one of its offices in Caracas, Venezuela, in February. The U.S. Securities and Exchange Commission has accused Mr. Stanford and two other executives of engineering a massive fraud.

Hard Sell Drove Stanford's Rise and Fall
Hard Sell Drove Stanford's Rise and Fall

Advisers sometimes accompanied wealthy potential CD buyers on all-expenses-paid, three-day trips to Antigua so they could meet bank officials. If the potential sales reached $5 million, they flew by private jet, says D. Mark Tidwell, who worked from 2004 to 2007 as a financial adviser and sales manager in Stanford Group's Houston office.

Mr. Tidwell says when one of his corporate clients once asked what the bank invested in, Juan Rodriguez-Tolentino, the bank's president, deflected the question, replying: "You don't ask what Bank of America is investing in." Mr. Rodriguez-Tolentino declined to comment.

The second most lucrative product for Stanford's U.S. operations was a mutual-fund product called Stanford Allocation Strategy, or SAS. It was made up of third-party funds purchased from companies like Putnam Investments and Vanguard Group Inc. In 2007 and 2008, Stanford's brokerage arm sold about $1.2 billion of the products, according to the SEC.

Charts shown to clients claimed the SAS funds beat the S&P 500 index year after year. One 2006 chart showed that over a five-year period, the SAS Growth fund posted a 13.82% annualized return, versus 6.19% for the S&P 500. In its lawsuit, the SEC calls the SAS performance results from 1999 to 2004 "fictional and/or inflated."

Steve Riordan, a Boston-based performance-measurement reporting consultant, says Stanford Group hired him in November 2006 to review the figures after some clients complained that they hadn't received the robust returns reported in the tables.

"Nobody could tell me with certainty how these numbers were being calculated," Mr. Riordan recalls. "I didn't know how they were getting their returns. I just knew that they were wrong."

He says he helped Stanford provide accurate returns, which were lower than suggested, for SAS funds from 2005 onward. He couldn't correct the prior performance tables, he says, because Stanford told him it didn't have underlying data.

Mr. Riordan says he also tried to calculate the returns on the CDs. But Stanford's Antiguan bank, he says, refused to provide any information, citing client confidentiality.

Stanford Financial also exaggerated how much money it oversaw, according to several former employees. This year, the company's Web site claimed it had "over $50 billion in assets under management or advisement." But several former employees say that number was inflated by including the total value of portfolios for which Stanford played only a minor role, such as providing brokerage services.

For example, Stanford Group occasionally sold government securities to the Dallas Fort Worth International Airport Board, but it didn't manage the board's investments or provide it with advice, says a person familiar with the matter. "The airport manages its own money completely in house," says David Magana, a board spokesman. Nevertheless, Stanford counted the board's entire $1 billion investment portfolio in its money-management total, says Charles Satterfield, who worked in Stanford Group's fixed-income unit.

"My understanding was they were doing that," says Benjamin Finkelstein, Stanford Group's former senior managing director of public funds. "I was concerned about that, and I expressed those concerns, and I was told that they were not being used for that purpose."

Over the years, Mr. Stanford's operations attracted considerable attention from U.S. regulators and investigators. He is involved in a long-running dispute with the Internal Revenue Service over back taxes. The agency says he and his wife currently owe $226.6 million, including penalties and interest.

In 2007, the Financial Industry Regulatory Authority, Wall Street's self-policing body, fined Stanford Group for, among other things, using sales material that contained "misleading, unfair and unbalanced information" about the CDs. By June 2008, Mr. Stanford's companies were being investigated by the Federal Bureau of Investigation, the SEC, the IRS and the U.S. Postal Inspection Service for possible fraudulent CD sales, federal court records show.

The U.S. brokerage unit grew rapidly, to more than 20 offices last year from a half-dozen in 2004. The costly operation, it now appears, was being kept afloat by revenue from CD sales. Deposits in Mr. Stanford's Antiguan bank jumped to $8 billion last year, from $3 billion in 2004, internal Stanford documents indicate. The U.S. brokerage unit lost tens of millions of dollars over that period, according to the SEC. Over that time, the bank and Mr. Stanford transferred hundreds of millions of dollars to the unit, the SEC says.

As recently as December, in a report to clients following the Madoff scandal and global stock-market turmoil, the Stanford bank stated it was "strong, safe and fiscally sound." By then, serious pressure was building. Spooked by the global financial crisis, clients had begun trying to pull money out.

Around that time, Mr. Kogutt, the investor from Texas, told a Stanford adviser, Patrick J. Cruickshank, that he wanted to do just that. "I wanted to have more diversified investments, but he said these were the safest things you could do with that kind of rate of return," Mr. Kogutt recalls. "He said, 'No. Leave it. Leave it.' " Mr. Cruickshank didn't return calls seeking comment.

Between Jan. 21 and Feb. 6, top Stanford executives discussed the mounting problems in a series of meetings in Miami, according to an FBI affidavit included with the criminal complaint against Ms. Pendergest-Holt. The purpose of the meetings, the FBI says, was to prepare for testimony before the SEC, which was investigating Mr. Stanford's companies and seeking an accounting of the assets behind the CDs.

During one meeting, Ms. Pendergest-Holt disclosed that one pool of assets had declined to $350 million from $850 million in June, the FBI says. She displayed a pie chart of a much larger pool that held more than $3 billion in real estate and a $1.6 billion loan to Mr. Stanford.

The affidavit, which describes conversations that took place during the meetings, doesn't provide the names of the other executives involved. The Wall Street Journal identified them through interviews with people familiar with the matter.

In a subsequent telephone conversation, Stanford Financial's outside attorney, Thomas Sjoblom, told Stanford's general counsel, P. Mauricio Alvarado, "The assets may or may not be there," the affidavit said, without identifying the men by name.

Mr. Rodriguez-Tolentino stated that if Ms. Pendergest-Holt's pie chart was accurate, then Stanford International Bank would be insolvent. Danny Bogar, Stanford Group's president "broke down crying" at one point, according to the affidavit, again without naming names. Mr. Sjoblom later "suggested they begin to pray together."

The affidavit said Mr. Sjoblom told another executive, Lena Stinson, "The party is over."

Mr. Sjoblom, who later withdrew as Stanford's attorney, didn't return calls seeking comment. Messrs. Bogar and Alvarado and Ms. Stinson all declined to comment.

On Feb. 19, two days after the SEC filed its civil lawsuit, Mr. Kogutt, his father and brother -- all three had invested in CDs -- boarded a plane to Antigua in hopes of retrieving their savings from Stanford International Bank. For two days, says Mr. Kogutt, they joined about 30 other frantic people, mostly from Mexico and South America, inside the bank's lobby, with a single bank employee trying to handle the crowd.

After learning the bank had been placed in receivership, they returned to Texas, leaving behind instructions to wire their money home. To date, they have received nothing.

Investigators now estimate that less than half of the $8 billion raised through CD sales will ever be recovered...WSJ

Stanford was forced to fly on a commercial plane for the first time in almost two decades after the government seized his fleet of six private jets. "They make you take your shoes off and everything, it's terrible," he complained about the airport security that apparently came as a surprise to him.(Click to read interview)

Madoff's auditor claimed it didn't do audits
Friehling & Horowitz, the small New York auditing firm that certified the financial statements of Bernard Madoff Investment Securities, has been telling the AICPA for 15 years that it doesn't perform audits. By denying it did audits, the firm avoided reviews by the AICPA. New York is one of only six states that doesn't require accountants to be peer-reviewed. "The plain fact is that this group hasn't submitted for peer review and appears to have done an audit," said AICPA spokesman Bill Roberts, noting the Institute has now launched an investigation into the firm. CNNmoney.com/Fortune
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Stanford Financial: el ascenso y caída de una máquina de ventas financieras

Por Steve Stecklow

En enero, Stanford Financial Group llevó a más de 200 empleados internacionales a Miami para una reunión de fin de semana y un viaje en yate. En un discurso, el presidente de la compañía, el millonario R. Allen Stanford, anunció un concurso de ventas trimestrales.

Lo que Stanford no reveló, cuenta un empleado que asistió a la reunión, era que su imperio financiero necesitaba desesperadamente el efectivo de las ventas para sobrevivir. Los clientes recientemente habían retirado unos US$500 millones del banco. Sus activos se habían agotado y las facturas se acumulaban, según documentos judiciales.

Ahora, las autoridades de Estados Unidos dicen que gran parte de los US$8.000 millones que Stanford Financial recaudó vendiendo certificados de depósito (CD) ha desaparecido. En documentos judiciales, la Comisión de Bolsa y Valores de EE.UU. (SEC) ha descrito a Stanford Financial como una pirámide financiera masiva, en el que las nuevas inversiones eran utilizadas para pagarles a los previos inversionistas.

Entrevistas con varios ex empleados y personas involucradas en la investigación, además de documentos internos de Stanford, ofrecen una descripción del banco como una máquina de ventas que presionaba duramente a sus empleados para que promocionaran CD con un programa de incentivos y engañaba a inversionistas que pedían detalles sobre sus inversiones.

En febrero, la SEC presentó una demanda civil acusando a Stanford y otros dos ejecutivos —James M. Davis y Laura Pendergest-Holt— de tramar un masivo fraude. Un juez federal de EE.UU. ha puesto las compañías de Stanford bajo administración judicial y sus operaciones han cesado. Pendergest-Holt también enfrenta una demanda criminal aparte por obstrucción a la justicia.

Contactado a su teléfono celular, Stanford, de 59 años, declinó hacer comentarios. David Finn, abogado de Davis, el director general de finanzas de la empresa, señaló que están "cooperando completamente con la investigación". A través de un abogado, Pendergest-Holt, la directora general de inversión, negó haber actuado inapropiadamente.

Stanford Financial parecía una compañía sólida. Poseía oficinas lujosas, muchas de ellas adornadas con mármol verde y caoba, a lo largo de EE.UU., Suiza y en países latinoamericanos como México, Venezuela y Perú, en las que tenía 430 asesores financieros.

Stanford, oriundo de Texas, se dedicó a invertir en inmuebles desvalorizados y, en 1985, fundó un banco en la isla de Montserrat, en el Caribe, para depositar los fondos de sus inversionistas en bienes raíces. Cinco años después, debido al estricto control del gobierno británico sobre la industria bancaria en el exterior, trasladó su banco a Antigua, otro paraíso fiscal.

El financista se convirtió en una figura prominente en la isla. El eje de su imperio financiero era su banco en Antigua, Stanford International Bank Ltd., que emitió los CD vendidos en EE.UU. y América Latina. En EE.UU., fueron vendidos por una filial de corretaje, Stanford Group Co.

Rentabilidad excesiva

Los CD prometían rendimientos más altos que los de bancos estadounidenses. Stanford Financial aseguraba que eso era posible gracias a sus ventajas tributarias en el exterior. Fueron promocionados a los clientes como instrumentos conservadores. "Nuestra estrategia se basa en una metodología de inversión que busca minimizar el riesgo y lograr liquidez", afirmaba en un documento que venía con los CD.

Los asesores financieros de Stanford tenían incentivo para promocionar los certificados de depósito, los cuales les daban mayores comisiones que otros productos: un pago fijo de 1% más la posibilidad de obtener un 1% extra al año sobre el término de la cuenta si vendían por lo menos US$2 millones en un trimestre.

Los asesores a veces acompañaban a potenciales compradores de CD en viajes pagados de tres días a Antigua para que pudiera conocer a los directivos bancarios.

Mark Tidwell, quien trabajó de 2004 a 2007 como asesor financiero y gerente de ventas en la oficina de Houston de Stanford Group, dice que cuando uno de sus clientes corporativos le preguntó en una ocasión en qué invertía el banco, Juan Rodríguez-Tolentino, el director general del banco, esquivó la pregunta, contestando: "Uno no le pregunta a Bank of America en qué está invirtiendo". Rodríguez-Tolentino declinó realizar comentarios.

El segundo producto más lucrativo para las operaciones de Stanford en EE.UU. fue un producto de inversión de fondos mutuos llamado Stanford Allocation Strategy, o SAS. Estaba conformado por fondos de terceras partes comprados de compañías como Putnam Investments y Vanguard Group Inc. En 2007 y 2008, el brazo de corretaje de Stanford vendió unos US$1.200 millones en productos, según la SEC.

La unidad de corretaje de EE.UU. creció rápidamente, pasando de tener media docena de oficinas en 2004 a más de 20 oficinas el año pasado.

La costosa operación, parece, se mantenía a flote con ganancias de las ventas de CD. Los depósitos en el banco de Stanford en Antigua aumentaron de US$3.000 millones en 2004 a US$8.000 millones el año pasado, indican documentos internos de Stanford. La unidad de corretaje de EE.UU. perdió decenas de millones de dólares en ese periodo, según la SEC. En ese tiempo, el banco y Stanford transfirieron cientos de millones de dólares a la unidad, según la SEC.

En diciembre mismo, en un reporte a clientes tras el escándalo Madoff y la tormenta en los mercados financieros, el banco Stanford afirmó ser "fuerte, seguro y financieramente sólido". Pero la presión iba en aumento. Espantados por la crisis financiera global, los clientes empezaron a retirar dinero.

Entre el 21 de enero y el 6 de febrero, los ejecutivos de Stanford hablaron sobre los crecientes problemas en una serie de reuniones en Miami, según una declaración jurada del FBI incluida en una denuncia contra Pendergest-Holt. El propósito de las reuniones, dice el FBI, era prepararse para testificar ante la SEC, que estaba investigando a las compañías de Stanford e indagando en la contabilidad detrás de los activos ligados a los CD.

Durante una reunión, Pendergest-Holt reveló que un grupo de activos se había reducido de US$850 millones en junio a US$350 millones, dice el FBI. Mostró un gráfico que contenía mucho más de US$3.000 millones en bienes raíces y un préstamo de US$1.600 a Allen Stanford. La declaración jurada, que describe conversaciones que se desarrollaron durante las reuniones, no incluye los nombres de los otros ejecutivos involucrados. The Wall Street Journal los identificó a través de entrevistas con fuentes al tanto.

En una conversación telefónica posterior, el abogado externo de Stanford Financial, Thomas Sjoblom, le dijo al abogado general de Stanford, P. Mauricio Alvarado: "Los activos podrían o no estar ahí", según la declaración jurada, sin identificar a los hombres por su nombre.

Rodríguez-Tolentino indicó que si el gráfico de Pendergest-Holt era preciso, entonces Stanford International Bank sería insolvente. Danny Bogar, el presidente de Stanford Group, "se puso a llorar" en un momento, según la declaración jurada, una vez más sin mencionar nombres. Luego, Sjoblom "sugirió que comenzaran a rezar juntos". La declaración jurada afirmó que Sjoblom le dijo a una ejecutiva, Lena Stinson: "La fiesta terminó".

Sjoblom, quien luego dejó de representar legalmente a Stanford, no devolvió llamados en busca de comentarios. Bogar, Alvarado y Stinson declinaron hacer comentarios.

Los investigadores ahora estiman que menos de la mitad de los US$8.000 millones recaudados a través de ventas de CD será recuperada...WSJ

PONZI LIVES

Madoff II Texas financier R. Allen Stanford is accused of cheating 50,000 customers out of $8 billion dollars but despite raids Tuesday of his financial empire in Houston, Memphis, and Tupelo, Miss., federal authorities say they do not know the current whereabouts of the CEO.

The Securities Exchange Commission alleges Stanford ran a fraud promising investors impossible returns...

Allegations of fraud and possible drug money laundering have been made against Stanford in the past ten years, but the SEC took action only after two former employees filed a lawsuit in civil court.

_____________________________

Thomas L. Friedman on Madoff:

"I have no sympathy for Madoff. But the fact is, his alleged Ponzi scheme was only slightly more outrageous than the “legal” scheme that Wall Street was running, fueled by cheap credit, low standards and high greed. What do you call giving a worker who makes only $14,000 a year a nothing-down and nothing-to-pay-for-two-years mortgage to buy a $750,000 home, and then bundling that mortgage with 100 others into bonds — which Moody’s or Standard & Poors rate AAA — and then selling them to banks and pension funds the world over? That is what our financial industry was doing. If that isn’t a pyramid scheme, what is?

Far from being built on best practices, this legal Ponzi scheme was built on the mortgage brokers, bond bundlers, rating agencies, bond sellers and homeowners all working on the I.B.G. principle: “I’ll be gone” when the payments come due or the mortgage has to be renegotiated..."

"The Madoff affair is the cherry on top of a national breakdown in financial propriety, regulations and common sense. Which is why we don’t just need a financial bailout; we need an ethical bailout. We need to re-establish the core balance between our markets, ethics and regulations."

______________________________

Even estimating conservatively, Madoff stole more than $1.6 million every workday of his criminal career. Based on my calculations, Madoff’s bilking rate topped $200,000 an hour, or almost 60 bucks a second. He may have been the most efficient thief in history.

______________________

Big Victory Against Global Bribery

A record fine against Siemens hints at success in the US and Europe in curbing payoff

"In the world of business and finance, 2008 ranks as a year of superlatives – and not the good kind. Biggest government bailout of Wall Street. Biggest Ponzi scheme (the Madoff case). Now, the biggest US fine for bribery – $800 million levied against Germany's engineering giant, Siemens AG...

The trail of Siemens's alleged bribery wound around the world to Argentina, China, Mexico, Israel, and elsewhere. Payoffs were reportedly made to government officials via suitcases stuffed with cash and bogus consulting contracts.

Worldwide corruption amounts to roughly $1 trillion a year, including bribes."

See full article  in The Christian Science Monitor

COSMIC FRAUD
Mail, Wire Fraud Ponzi Scheme
By Patricia Hurtado

Nicholas Cosmo, accused by prosecutors last week of operating a Ponzi scheme that swindled at least 6,000 people out of $413 million, was indicted today on charges of wire and mail fraud.

Cosmo, owner of Agape World Inc. and Agape Merchant Advance LLC on New York’s Long Island, has been in custody since Jan. 26, when prosecutors charged him with operating a fraud scheme that they initially believed cheated at least 3,000 investors out of $370 million.

Prosecutors in the office of U.S. Attorney Benton Campbell in Brooklyn, New York, today unsealed a 32-count indictment against Cosmo that includes 10 counts of wire fraud and 22 counts of mail fraud. Cosmo claimed Agape solicited investor funds that were used to make short-term bridge loans. Agape received about $413 million from investors, while only about $30 million in loans were made, prosecutors said.

“Although he told investors that their money was needed to fund specific bridge loans, Cosmo and account representatives working at his direction solicited investments well in excess of what was needed to fund the specific loans,” the U.S. said in the indictment.

“Cosmo also claimed that Agape was making certain loans to particular borrowers when, in fact, as defendant then well knew and believed, Agape was not,” the U.S. said in the indictment.

Prison, Fines

Robert Nardoza, a spokesman for Campbell, said that each count of mail or wire fraud carries a prison term of as long as 20 years in prison and fines of at least $250,000. Cosmo remains in custody until at least an April 29 hearing.

In the indictment, the U.S. said Cosmo operated his scheme, from October 2003 to this January, a longer period than prosecutors previously alleged. Cosmo is accused of pocketing the money that investors believed would be used for bridge loans.

When Cosmo was arrested, prosecutors charged him with one count of mail fraud in a scheme that allegedly operated from October 2003 to last October.

Prosecutors also said today they are seeking about $413 million in assets which they say are the proceeds of Cosmo’s illegal enterprise, including property on Long Island and accounts in his name atBank of America Corp.  In March, the bank was sued by Agape investors who claimed it assisted Cosmo with the swindle. In the lawsuit, the investors seek at least $400 million in damages, saying that the bank assigned representatives to work in Cosmo’s offices and gave him direct access to Bank of America accounts.

Firms in Scheme

The indictment gives new details of how Cosmo defrauded investors through entities he controlled, including those operating out of Agape’s offices in Hauppauge on Long Island and in New York City.

Cosmo ran Agape Merchant, which claimed to loan money to businesses at high interest rates through an entity called Professional Merchant Advance Capital LLC, or PROMAC. Cosmo was president and 20 percent shareholder in PROMAC and controlled the funds, prosecutors said.

Cosmo also operated Premium Protection Plan LLC, which offered Agape investors policies claiming to insure their principal and a portion of their expected interest in case of a default. Cosmo was firm’s president and owned 51 percent of Premium’s shares, the U.S. said in the indictment.

According to the indictment, Cosmo made very few of the purported loans and grossly inflated any profits from these entities. He is also accused of drawing upon Agape Merchant accounts at Bank of America for his own use. He then used money solicited from new investors to pay off earlier investors, prosecutors said.

Limousines, Restitution

Cosmo also used investor funds to pay for limousines, fund a children’s baseball league and pay off a restitution order to victims of his earlier fraud, federal investigators said in an affidavit released at the time of his arrest.

He also invested more than $100 million in commodity futures trading accounts, with losses of about $80 million, agents with the U.S. Postal Service said in January.

Assistant U.S. Attorney Grace Cucchissi said at a hearing last week that investigators determined that Agape paid its brokers $63 million as part of the fraud scheme, compared with an earlier estimate of $55 million. Postal Inspectors said Cosmo paid the brokers, some of whom were ex-convicts with criminal records that included robbery and heroin importation, to recruit investors.

Cucchissi said investigators have identified victims of the alleged fraud in Hong Kong, Germany, Switzerland, Brazil, China and Colombia.

The case is U.S. v. Cosmo, 09-CR-255, U.S. District Court, Eastern District of New York (Central Islip).

 Poor Economy Unearthing 'Rampant Ponzimonium'

Commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission said scam artists are increasingly being uncovered amid the floundering economy, unearthing "rampant Ponzimonium."..."The Ponzi scamsters we have caught certainly didn't live low-profile lives," Chilton said. "They used their stolen money for everything from expensive cars and boats, to clothes and jewelry, homes and ranches."

The commissioner's comments come in the wake of...disgraced financier Bernard Madoff's decades-long Ponzi scheme...and Texas financier R. Allen Stanford, who stands accused of running an $8 billion Ponzi scheme. Chilton said these schemes have led many investors to question the safety and soundness of their financial assets and double-check the legitimacy of their assets. According to Chilton, the CFTC is in the process of investigating hundreds of individuals and entities, many of which are related to Ponzi scams.

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Pobres, víctimas preferidas de estafas piramidales

25 de noviembre de 2008

LA PAZ (AP) - Familiares de inmigrantes que envían remesas a Bolivia, funcionarios públicos que cobraron jubilaciones en Perú, campesinos y gente de clase media en Colombia son el blanco preferido de las estafas piramidales, un delito inventado hace más de un siglo, que sigue cobrando víctimas, sobre todo entre los más pobres.

En Ecuador también fueron estafados jueces, políticos, jefes policiales y militares en un sonado caso descubierto en 2005 cuando el presunto estafador apareció muerto, según expertos que participaron en un Seminario Internacional sobre estafas en pirámide realizado en La Paz la semana pasada.

Miles de millones de dólares son captados por delincuentes que ni siquiera manejan un software sofisticado. "Un disco duro con la lista de los clientes es suficiente", dijo Camilo Valdivieso, asesor de la Superintendencia de Ecuador.

El dinero fluye tan rápido y en tal cantidad que en Perú las autoridades hallaron "habitaciones abarrotadas de billetes" enmohecidos en 1993 en una empresa intervenida, reveló Eduard Ascensio Domínguez de la Superintendencia de Banca y Seguros de ese país.

Con frecuencia cuando sale a luz pública el fraude provoca crisis sociales debido a que las víctimas, que se cuentan por miles, se movilizan, irónicamente en defensa del estafador, con la ilusión de recuperar sus ahorros.

"Esos desórdenes públicos impiden a veces que las autoridades actúen mejor", dijo Valdivieso. "Son masas activas que muchas veces son financiadas por los mismos estafadores", acotó Ascensio Domínguez.

El caso más reciente ocurre en Colombia, donde el gobierno acaba de intervenir varias de estas firmas ante la sospecha de que lavaban dinero del narcotráfico.

La más grande DMG, manejada por un ex panadero de 28 años estafó, según estimaciones de las autoridades, a 200.000 familias y captó ahorros de la gente por 435 millones de dólares sólo este año.

El caso tuvo repercusiones inmediatas en Ecuador donde la policía allanó locales de captación ilícita de dinero en Quito, Guayaquil, Cuenca y Lago Agrio.

Al principio estas operaciones son legales, operan silenciosamente, inventan empresas de fachada y hasta colocan anuncios en la televisión, lo que hace difícil detectarlas. Se ubican en barrios estratégicos donde fluye el comercio informal y captan ahorros con la promesa de jugosos intereses.

En Bolivia una de ellas llegó a financiar un equipo profesional de fútbol entre 1992 y 1993.

Una compañía intervenida en La Paz a principios de año prometía duplicar el capital ahorrado en ocho meses y ofrecía casas y autos para captar más dinero, dijo el superintendente de Bancos de Bolivia, Marcelo Sabalaga. Otra en Perú pagaba jugosas comisiones a clientes que convencían a otros a entregar sus ahorros. En Colombia ofrecían entre 70 y 150% de intereses mensuales.

Las estafas piramidales son organizadas alrededor de "negocios imposibles de realizar". "Funcionan mientras siguen ingresando fondos y llega un momento en que los depósitos de la base ya no cubren los intereses de los depósitos anteriores. En ese momento la pirámide colapsa y el estafador desaparece", explicó el investigador boliviano, Oscar Pamo.

No fue el caso de Colombia, donde DMG diseñó un sofisticado sistema de captación de recursos a través de la entrega de bienes, servicios y dinero en efectivo a cambio de ahorros. La empresa no había entrado en cesación de pagos, pero las autoridades la intervinieron ante la sospecha de que se alimentaba con recursos de actividades ilícitas.

El primer caso documentado de esta forma de estafa ocurrió en Boston, Estados Unidos, con el italiano Charles Ponzi, que amasó una fortuna después de la Primera Guerra Mundial con sellos postales.

Quizá la más grande sea la desbaratada en España en 2006. Unos 400.000 españoles perdieron hasta 5.100 millones de euros en un fraude piramidal basado en sellos postales que operó durante 25 años con la promesa de atractivos intereses, según se expuso en el seminario.

Esta forma de embaucar puede ser considerada como uno de los "virus financieros más perniciosos", señala un documento distribuido por los organizadores.

Florecen en medio de la crisis o en tiempos como los actuales de abundante liquidez financiera por el auge de precios de las exportaciones. "En los 80 fueron timados en Bolivia miles de mineros que habían cobrado sus indemnizaciones tras quedar cesantes. Cincuenta millones de dólares de unos 20.000 ahorristas se esfumaron entonces", señaló Sabalaga.

En Ecuador un notario del pueblo de Machala en la Provincia del Oro llegó a captar entre 400 y 1000 millones de dólares que se esfumaron entre 1992 y 2005 en un caso de novela que salió a la luz cuando el funcionario apareció muerto.

Entre los 30.000 depositantes figuraban empresarios, agricultores, jueces, militares, policías y profesionales. La conmoción fue tal en Ecuador, recordó Valdivieso, que la turba llegó a profanar la tumba del notario para cerciorarse que estaba muerto ante el rumor de que el hombre se había fugado con el dinero.

En Perú la empresa Clae desbaratada en 1993 estableció con eficacia mecanismos ilegales para garantizar el cobro de préstamos a través de un sistema de llegaba a utilizar la fuerza bruta. Más de 150.000 peruanos fueron estafados por un monto de 350 millones de dólares por un sujeto que tras salir de la cárcel por estafa volvió a engañar a gente que siguió confiando en él.

A principios de este año la Superintendencia de Bancos de Bolivia intervino la empresa Roghel de un persuasivo ex pastor evangélico que captó unos 40 millones de dólares a 20.000 personas en poco tiempo.

Los estafadores dicen a sus clientes que sus inversiones están afuera del país en empresas que operan en la bolsas pero que nadie conoce. Una de ellas, tras ser intervenida en Bolivia, colocó un aviso en los diarios anunciando que había sido estafada por su socia mayor por lo que los ejecutivos tuvieron que viajar a Estados Unidos para recuperar los dineros.

En Colombia uno de los abogados de DMG renunció a la defensa porque había sido engañado por sus clientes cuando presentó a dos extranjeros cercanos a esa empresa como socios de un conocido magnate estadounidense.

Los mecanismos de control no siempre son eficientes y oportunos, reconocieron los expertos y por ello recomendaron a los países a esforzarse para reforzar sus legislaciones frente a hábiles estafadores que se ingenian nuevos métodos para engañar a la ley.

Una tarea urgente, señalaron, es incrementar las campañas de información y prevención para evitar que más incautos caigan en la trampa.

Sabalaga señaló que "la norma debiera ser más severa porque desde el inicio el estafador tiene la intención de delinquir", lo que no está legislado.

Una gran mayoría de los víctimas son engañadas por una falsa ilusión pero otros son una mezcla de "ingenuos y malévolos", y por tanto se constituyen en cómplices, lo que tampoco legisla la ley, dijo el funcionario boliviano.

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Fiserv Inc., which already has been named in two class-action suits for its alleged role in “aiding and abetting” Ponzi schemes, is likely to face a third suit, this time related to the Bernard Madoff scandal...Fiserv-owned companies acted as custodians for self-directed IRAs and had a contract with $300 million Ponzi scheme perpetrator Louis Pearlman In June 2008, Fiserv agreed to pay an $8.5 million settlement in a class action case filed in U.S. District Court in California. That case involved a $100 million Ponzi scheme by D.W. Heath & Associates.

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El fiscal general de Nueva York, Andrew Cuomo, acusó el

lunes a J. Ezra Merkin de fraude por supuestamente haber

"traicionado a cientos de inversionistas" al canalizar

US$2.400 millones en dinero de sus clientes, sin

conocimiento de estos, hacia la multimillonaria operación

 Ponzi de Bernard Madoff.

Merkin -financista de Nueva York, líder filántropo y ex titular del directorio de la compañía financiera GMAC, recaudó miles de millones de dólares para obras de caridad, universidades, fondos e inversionistas individuales- mintió sobre la asignación de un gran monto de estas inversiones a Madoff, no divulgó el conflicto de intereses y recibió más de US$470 millones en comisiones procedentes de sus fondos de inversión, según la queja.

"Merkin se presentó a los inversionistas como un gurú de inversiones (...). En realidad, era un mercader maestro", dijo Cuomo en la acusación.

Bloggingheads: Obama's Ponzi Scheme

Law professors Jack Balkin, left, of Yale University and Eric Posner of the University of Chicago discuss whether President Obama could get stuck in the political version of a Ponzi scheme.

Ponzi Schemes - Click here for Times Topics Page

More brazen than Madoff?

Of all the frauds that have come to light in this season of financial pain, none can match the brazen theatricality of the scam allegedly pulled off by superlawyer Marc Dreier.

By Roger Parloff, senior editor
CNN Money.com, April 1, 2009

improvisational daring of a high-wire aerialist. Despite the pain his crimes have wrought, a dark side in each of us cannot but admire the sheer nerve of the man
 
 

(Fortune Magazine) -- In a year of fabulous frauds, the one that glitzy Manhattan attorney Marc Dreier has been charged with is in some ways the most fabulous of all. Not the biggest, of course. The biggest fraud of 2008 was metaphorical: the nation's economy itself, which had been built upon house-of-cards financial products. The most tragic fraud of the year was Bernie Madoff's decades-long Ponzi scheme, which gulled charities, widows, and orphans out of tens of billions of dollars while whistleblowers blew themselves hoarse before deaf and dumb regulators. Yet Dreier's comparatively modest, alleged $700 million fraud, which left victims with $400 million in losses, was sui generis. What differentiated it from the pack was that it was just so much more - well, we don't want to use the precise word that comes to mind, but "brazen," "cheeky," and "cocky" begin to capture it. While Madoff did his dirty work in seclusion behind locked doors, Dreier allegedly duped his victims with the theatrical,

Click here to read full Marc Drier article.

Pyramids & Ponzis

A successful pyramid scheme combines a fake yet seemingly credible business with a simple-to-understand yet sophisticated-sounding money-making formula. The essential idea is that the mark, Mr. X, makes only one payment. To start earning, Mr. X has to recruit others like him who will also make one payment each. Mr. X gets paid out of receipts from those new recruits. They then go on to recruit others. As each new recruit makes a payment, Mr. X gets a cut. He is thus promised exponential benefits as the ''business'' expands.

Such ''businesses'' seldom involve sales of real products or services to which a money value might be easily attached. However, sometimes the ''payment'' itself may be a non-cash valuable. To enhance credibility, most such scams are well equipped with fake referrals, testimonials, and information. Clearly, the flaw is that there is no end benefit. The money simply travels up the chain. Only the originator (sometimes called the "pharaoh") and a very few at the top levels of the pyramid make significant amounts of money. The amounts dwindle steeply down the pyramid slopes. Of course, the worst off are at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves.

Some network or multi-level marketing businesses, which sell real products and rely on the price differentials between the manufacturer's dispatch ramp and the retail counter, may verge on the borderline between ''smart'' and ''scam''. When a pyramid does involve a real product, such as Holiday Magic cosmetics in the United States in the 1970s, new "dealers" who've paid enrolling fees are encouraged, in addition to selling their products, to become "managers" and recruit more new "dealers" who will also pay enrolling fees. As the number of layers of the pyramid increases, new recruits find it harder and harder to sell the product because there are so many competing salespeople. Those near or at the top of the pyramid make a lot of money on their percentage of the enrolling fees and on commissions for the supplied products, but those at the bottom are left with inventories of products they can't sell. However, most multi-level marketing businesses are not pyramid schemes.

Pyramid schemes are not to be confused with Ponzi schemes, named after Charles Ponzi. In a Ponzi scheme, all new money is paid to "Mr. Ponzi" for investment in his incredibly profitable business and he distributes a portion of it to other members as "interest" or "investment income" whereas in a pyramid, money is paid to the next level upward in the pyramid. 

A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned. The Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi did not invent the scheme (Charles Dickens' 1857 novel Little Dorrit described such a scheme decades before Ponzi was born, for example), but 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.

Whenever you find you are on the side of the majority, it is time to pause and reflect

                     --- Mark Twain

We have never observed a great civilization with a population as old as the United States will have in the twenty-first century; we have never observed a great civilization that is as secular as we are apparently going to become; and we have had only half a century of experience with advanced welfare states...Charles Murray

Kella
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