Ponzi Scheme Claims Billions of Dollars
June 26, 2009
The FBI provides an overview of Ponzi Schemes, related charges, and types of tips useful when investigating these crimes.
Mr. Schiff: Hello I’m Neal Schiff and welcome to Inside the FBI, a weekly podcast about news, cases, and operations. There have been a lot of stories about money fraud in the news. The FBI has a case involving a man who, along with some co-conspirators, allegedly bilked more than $8 billion from a bunch of investors who didn’t know they were part of a scheme—a Ponzi scheme.
Mr. Nanz: “A scheme whereby the perpetrator uses money received from recent investors to pay earlier investors.”
Mr. Schiff: That’s Supervisory Special Agent Dave Nanz; he’s the Chief of the FBI’s Economic Crimes Unit in the Criminal Investigative Division in Washington.
Mr. Nanz: “ It creates the fiction to the earlier investors that they’re actually getting a return on their investment, when in fact, the money that they are receiving, is simply coming from the later investors.”
Mr. Schiff: As for this $8 billion scam, Nanz says this investigation began with the Securities and Exchange Commission, the SEC, looking into investment activities of the man at the top of a company called the Stanford Financial Group.
Mr. Nanz: “Robert Allen Stanford operated Stanford Financial Group and also a bank in Antigua called Stanford International Bank. And, amongst other things, they marketed Certificates of Deposit and the promised rates of return on those Certificates of Deposit, I’ll call them CDs, were greater than those typically offered by U.S. banks. So that, amongst other things, got the SEC involved; ultimately the FBI got involved. And as alleged in the recent indictment of Robert Allen Stanford and a number of his executives that worked with him, essentially, the whole Certificate of Deposit program was a Ponzi Scheme, whereby Stanford was not actually investing the money as promised, but used false representations and false statements to the investors suggesting that his investments were producing X amount of return when, in fact, the evidence suggests, according to the indictment, that he was using the money for personal use .”
Mr. Schiff: What charges do these people face?
Mr. Nanz: “The indictment charges, amongst other things, mail fraud, wire fraud, securities fraud, conspiracy to commit those, as well as money laundering.”
Mr. Schiff: What is a Ponzi scheme?
Mr. Nanz: “Well, a Ponzi scheme, named after an Italian immigrant named Charles Ponzi in the early 1900s, is a scheme whereby the perpetrator uses money received from recent investors to pay earlier investors, and it creates the fiction to the earlier investors that they’re actually getting a return on their investment when, in fact, the money that they’re receiving is simply coming from the later investors. So the perpetrator says whatever his investment vehicle is, and, usually promises a rate of return, which is generally high, and the earlier investors believe that their investments are actually working because they’re getting paid money from the later investors. But these Ponzi schemes ultimately collapse when the new investors are no longer coming in or there is a request for redemption because the whole thing is built on a house of cards .”
Mr. Schiff: Nanz says the Stanford case involved millions and a lot of victims.
Mr. Nanz: “According to the indictment, Stanford claimed to have more than 30,000 investors and approximately $8.5 billion in assets. But the investigation is continuing as to exactly what the numbers will be, in terms of victims and dollar loss .”
Mr. Schiff: So it could be, conceivably, a lot higher?
Mr. Nanz: “It remains to be seen. As I said, you know, according to the indictment, about 30,000 investors and $8.5 billion in assets; those are the representations by Stanford. So the investigation will bear out whatever the true numbers are .”
Mr. Schiff: What was Stanford and his co-conspirators doing and how did they rip-off the unknowing victims?
Mr. Nanz: “They made numerous representations to investors, as alleged in the indictment, through in-person meetings and also through their brochures, prospectuses, other mailings they mail out to investors, representing certain returns on their assets. And according to the indictment, in fact, there were misstatements made in the books and records of the company, as well as basically fraudulent transactions whereby property was transferred back and forth between Stanford personally, and his various corporate alter-egos to create the illusion of successful real estate transactions as well as personal loans made to Stanford that were undisclosed to investors .”
Mr. Schiff: How serious are these types of crimes as we reach mid-2009?
Mr. Nanz: “They’re very serious. Not only do these types of crimes harm the specific investors, but arguably it harms overall market confidence. We’ve seen all sorts of investors withdraw their investments; ask for redemptions due to the economic decline. And where you have these schemes being publicized and we’re identifying new ones on a weekly basis, certainly hurts market confidence, but certainly for the individual investors, some of these people have lost their live savings.”
Mr. Schiff: Now the FBI, SEC, IRS, are taking these types of illegal activities very seriously and have many investigations going on.
Mr. Nanz: “Oh yes. The FBI right now, currently, has hundreds of open cases involving corporate and securities fraud. We take it very seriously. It is a priority within the FBI. A lot of these financial crimes investigations have effect on our financial markets and we take it very, very seriously, and when allegations come in the door, or we identify corruption in these areas by different means, the FBI is very aggressive in investigating these .”
Mr. Schiff: What tips can the FBI offer people so they do not become victims of the various types of financial frauds that are out there?
Mr. Nanz: “It’s very important for investors to do their due diligence. All too often, unfortunately, we see victims of these crimes who have invested a large sum of money without really understanding what their investment is. So, as part of the due diligence process, number one, you should understand what the investment is. If the person you are investing the money with can’t explain to you exactly how the investment works, that’s a big red flag. Unless you understand what you’re investing in, don’t invest. Secondly, make sure you obtain and carefully read all written material, whether it be a prospectus or any other documents, from the person offering the investment, so that you fully understand what you’re getting into. And also, diversification is very, very important. We see in a lot of cases where people have invested their entire life savings with a particular individual; and if that individual turns out to be bad, then they’ve lost their entire life savings. So, it comes down to due diligence. Fully understand. Do your homework; fully understand what the investment is; what the background is of the person offering the investment, so that you’re making a wise choice.”
Mr. Schiff: Learn much more about economic crimes on the Internet at www.fbi.gov. That concludes our show. Thanks for listening. I’m Neal Schiff of the FBI’s Office of Public Affairs.
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