Ponzi scheme

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-- Also see pyramid scheme and commodity pool fraud entries.

A Ponzi scheme is 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. A Ponzi scheme works on a "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses.[1] Two of the better-known examples that emerged following the recent financial crisis are Bernard Madoff's fraudulent investment scheme in the U.S. and a high-interest loan scam that fleeced tens of thousands in Colombia, both in 2008.

Examples of Ponzi Schemes

  • In October of 2008, a federal judge sentenced 53-year-old Stephen Lee Turpin to five years in prison. Prosecutors say Turpin was linked to multiple Ponzi schemes blamed for more than $2 million in losses to several individuals. Turpin in May 2007 pleaded guilty to conspiring to commit wire fraud and mail fraud and his activities were said to include convincing a woman to open a bank account in Zurich, Switzerland, and to transfer $1 million in a "high-yield European bond trading opportunity." Turpin, who's been in custody since April 2007, had to pay more than $2.1 million in restitution, plus forfeit houses and a sportscar.[2]
  • In May of 2013, a U.S. Federal Court ordered Kevin and Keelan Harris of Ohio and Canada-based Karen Starr, and their Companies, Complete Developments, LLC and Investment International Inc., to Pay over $23 Million for Fraud in Foreign Currency Ponzi Scheme. They were charged with "fraudulently soliciting customers to trade forex and misappropriating customer funds. The Opinion further finds that, from about November 2006 until October 2008, CDL and I3 fraudulently solicited and accepted funds from customers seeking to open “professionally managed” forex trading accounts and that customers invested more than $23 million. Rather than trading forex on their customers’ behalf, the Opinion finds that CDL and I3 operated as a Ponzi scheme and used customers’ money to make payments to other customers and for Kevin Harris, Keelan Harris, and Starr’s own personal use."[3]

Tips To Avoid Ponzi Schemes

  • Beware of claims that you will make money by recruiting new members rather than by sales you make yourself.
  • Beware of promises about high profits or claims about "miracle" products.
  • Beware of "shills" or people paid by the operator to make grandiose claims about the success of a plan.
  • Refuse to make a financial commitment or sign a contract in a high-pressure situation. Take time to review and re-evaluate a plan.
  • Seek legal advice or consult relevant statutes if you are unsure what constitutes a pyramid scheme.[4]

References

  1. "Ponzi" Schemes. SEC.
  2. Houston-Area Man Gets 5 Years In Ponzi Scheme. Chron.com - AP Texas News.
  3. Federal Court Orders Ohioans Kevin and Keelan Harris, Canada-based Karen Starr, and their Companies, Complete Developments, LLC and Investment International Inc., to Pay over $23 Million for Fraud in Foreign Currency Ponzi Scheme. U.S. Commodity Futures Trading Commission.
  4. Ponzi Scheme. RCMP.