More than 150 Ponzi schemes collapsed in 2009, compared to about 40 in 2008, according to the AP’s examination of criminal cases at all US attorneys’ offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state levels.
The 2009 scams ranged in size from a few hundred thousand dollars to the $7 billion bogus international banking empire authorities say jailed financier Allen Stanford orchestrated, as well as the $1.2 billion scheme they say was operated by disbarred Florida lawyer Scott Rothstein. Both have pleaded not guilty.
While enforcement efforts have ramped up - in large part because of the discovery of Madoff’s fraud, estimated at $21 billion to $50 billion - the main reason so many Ponzi schemes have come to light is clear.
“The financial meltdown has resulted in the exposure of numerous fraudulent schemes that otherwise might have gone undetected for a longer period of time,’’ said Lanny Breuer, assistant attorney general for the US Justice Department’s criminal division.
A Ponzi scheme depends on a constant infusion of new investors to pay older ones and furnish the cash for the scammers’ lavish lifestyles. This year, when the pool of people willing to become new investors shrank and existing investors clamored to withdraw money, scams collapsed across the country.
“Some portion of the investors in the Ponzi scheme always get the short end of the stick and do not get paid,’’ said Elizabeth Nowicki, a former Securities and Exchange Commission attorney who teaches law at Boston University.
Even those who say they did their homework before investing ended up losing everything.
A retired Air Force sergeant, Tom Annis, searched the Internet for red flags like complaints or lawsuits involving Minneapolis-based host Patrick Kiley after hearing about his investment on a weekly Christian radio show called “Follow The Money.’’
