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Ponzi Schemes: A Critical Analysis

2011; RELX Group (Netherlands); Linguagem: Inglês

1556-5068

Surendranath Rakesh Jory, Mark Perry,

Cybercrime and Law Enforcement Studies

The 2009 conviction and sentencing of American investment adviser Bernard Madoff to 150 years in prison for 11 federal crimes involving a $65 billion Ponzi scheme has increased public, investor, and financial industry awareness of this type of investment and securities fraud. The literature for a financial adviser audience on Ponzi schemes is limited, and this paper attempts to help fill that void. We provide an overview of how these fraudulent investment schemes operate and offer a detailed analysis of how financial advisers and their clients can detect them. Other topics covered include a discussion of the motivations and traits of Ponzi perpetrators and the conditions under which they operate their illegal schemes. Next, we discuss the legal consequences of being involved in such schemes, and provide an overview of how regulators have fared against Ponzi perpetrators. Most importantly, we develop an itemized and detailed checklist to help investors, financial advisers and brokerage clients identify fraudulent investment schemes. Ponzi perpetrators depend on finding willing investors, and the better informed and educated both financial planners and their clients become about Ponzi perpetrators, the less likely financial con artists like Bernard Madoff will find and exploit victims.