Tens of thousands of investors watched more than $16.5 billion evaporate in 2009 as Ponzi schemes unraveled, according to an Associated Press analysis of scams in the 50 states. That number doesn’t include the year’s star Ponzi schemer, Bernard Madoff, whose Ponzi scheme counts toward 2008 numbers (see “Madoff Gets Life—and Then Some”).
In 2009, 150 Ponzi schemes collapsed, compared to 40 in 2008, according to the AP’s analysis of criminal cases at all U.S. attorney’s offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state level.
The Ponzi scheme has come a long way since Charles Ponzi concocted a postal investment scam in 1919. The Italian immigrant bilked investors out of $10 million before he was caught and jailed (see “Ponzi Schemes: Side by Side”).
Ponzi schemes both big and small have graced the financial news this year, including the $7-billion fraud from Allen Stanford (see “Another Billion-Dollar Investment Advisor Fraud Unfolds”). Experts said the recession was the main reason for the exposure of so many Ponzi schemes, the AP reported (see “Recession Foils Ponzi Schemers’ Game”).
Since Madoff’s scheme rocked the world, enforcement efforts and public awareness has ramped up. Although some might say it’s too late, the Securities and Exchange Commission (SEC) has taken steps to make it harder for Ponzi schemes to exist in the future (see “SEC Tightens Adviser Custody Rules”).
Ponzi scheme investigations now make up 21% of the SEC’s enforcement workload, compared with 17% in 2008 and 9% in 2005, according to the AP. Furthermore, the SEC issued 82% more restraining orders against Ponzi schemes and other securities fraud cases this year than in 2008, and it opened about 6% more investigations.
The FBI opened more than 2,100 securities fraud investigations in 2009, up from 1,750 in 2008, according to the AP.