DealZone

Scandal round-up: Ponzi’s posse

January 27, 2009

Charles Ponzi

In the words of Warren Buffett, “You always find out who’s been swimming naked when the tide goes out.” But recent months have shown that the nudist beach extended far beyond Wall Street, and beyond the dreams of pioneering schemer Charles Ponzi (above).

For those following along at home, here is a run-down of alleged Ponzi schemes and other scams that have recently emerged during the financial crisis. Pay attention: you can’t tell the faked deaths without a scorecard.

cosmoNicholas Cosmo, Agape World Inc

This Long Island businessman purported to provide commercial bridge loans, but was instead operating a $400 million Ponzi scheme in which early investors are paid with the money of new clients, officials said.

Cosmo was previously convicted of a federal charge of felony fraud and swindle in 1999 and sentenced to 21 months in prison. According to the firm’s website it has made commercial bridge loans, construction loans, acquisition loans and financing for properties nationwide with capital obtained from private sources since 1999.

nadelArthur Nadel, Scoop Management

The SEC charged Nadel with defrauding investors at six hedge funds he controlled. Nadel overstated the value of the funds by more than $300 million, providing bogus information on their returns and sending investors false statements, the SEC said. The actual value of the funds’ holdings was about $507,000.

Nadel was reported missing by his family after he left behind a suicide note that expressed guilt for losing clients’ money and said someone might try to kill him. He was arrested on Tuesday — very much alive — by FBI agents in Tampa.

Marcus Schrenker, Heritage Wealth Management

Schrenker, wanted in Indiana on financial fraud charges alleging he misled consumers who invested money in his wealth management companies, parachuted out of his plane over Alabama and let it crash in Florida.

After he radioed a distress call over an imploded, authorities dispatched two military F-15 fighter jets, who saw that the windshield was intact, the door was open and there was no sign of the pilot. Schrenker parachuted safely to the ground, got a police officer to give him a ride to a hotel and then fled. He previously stashed a motorcycle near the hotel and got away before local police learned of the plane crash.

He was arrested a day later at a campsite and taken to a hospital with wounds to his wrists that apparently resulted from a (non-fake) suicide attempt. According to the Associated Press, Schrenker faced at least $9 million in legal judgements.

madoff-3Bernard Madoff, Madoff Investment Securities LLC

On financial scale alone, Madoff’s alleged fraud puts him well ahead by several orders of magnitude. The financier is accused of one of the biggest scams in Wall Street history, and allegedly told his sons that losses totalled $50 billion. Prosecutors allege that since 2005 he had been runing a Ponzi scheme in which early investors were paid off with money from later investors.

Madoff, a self-made titan who began in business with funds that he earned as a lifeguard, drew flocks of affluent investors in New York, Palm Beach and beyond with his track record of consistent returns in both bull and bear markets.

It emerged in the wake of the scandal that Madoff’s investment fund may never have executed a single trade.
dreier
Marc Dreier, Dreier LLP

Dreier, a prominent New York lawyer who heads the 250-attorney law firm Dreier LLP, is charged with perpetrating a brazen, $100 million real-estate investment fraud that targeted hedge funds.

Authorities said that since October, Dreier had marketed fake promissory notes, including bogus notes of a New York-based real estate development company, to hedge funds and other private investment funds, and that he had closed at least three sales.

They contend that Dreier created an elaborate cover-up to convince purchasers that the notes were real. Prosecutors said he distributed phony financial statements and audit opinion letters to keep the charade going. In one instance, prosecutors said, an unspecified New York-based hedge fund wired about $100 million to an account Dreier controlled in payment for the bogus notes. In another, Dreier is accused of enticing a Connecticut fund to wire $13.5 million to his account to purchase the notes.

israelSamuel Israel, Bayou Capital

Israel, who ran the Connecticut-based Bayou hedge fund, pleaded guilty in 2005 to charges of conspiracy and fraud for cheating investors in a $450 million scam. He and several of his partners fabricated portfolio returns and concocted a phony accounting firm to keep the ruse going for years.

In June 2008, Israel sought to dupe police into believing he had committed suicide when he abandoned his car on a New York bridge above the Hudson River with the words “suicide is painless” written in the dust on the hood.

But no body was found, and police quickly labeled him a fugitive. After hiding in a mobile home, Israel surrendered to authorities in Massachusetts on July 2 and was transferred back to New York. He has remained in a federal holding facility since.

Click here for more notorious financial scams.

Comments
3 comments so far | RSS Comments RSS

these all americans are earning it the old fashion way- they are stealing it. why so shocked? oh thats right you thought that by investing in an inside job you would be rich. hahahaha. im broke, wheres my bail out? hey how about that check for $600.00 the govt sent? you get $600 they get billions. what a country. incompetent morons voting for bush-aka-the mental midget. is that the best of america? yes, yes thats the best. losers. god bless

Posted by isiah wolf | Report as abusive
 

INVESTORS TAKE NOTE
There may be tax relief available to investors in two forms. Most time critical for the recently blown-up Ponzi scams, like Madoff, Nadel or Cosmo is to reclassify the “phantom income” that you have received and paid taxes on since 2005. Investors may be able to re-classify this “income” as return of principal. In order to make this claim this you must amend your 2005 tax return before April 15, 2009! This is a strict deadline because the returns become final after three years.
The second avenue of recovery is through the claiming of a Theft Loss deduction under Tax Code section 165. This is a much more complex undertaking and should involve a tax professional. The “sticky wicket” in the Madoff case and other recent cases will be that the IRS generally requires that the taxpayer show that to the extent of the funds are claimed, it is reasonably likely that no recovery will be made. This means that it may be some time before the extent of recovery will be known. It is possible that there will be a means of determining the amount of loss that can be claimed as this case goes forward, but at this point, it is fairly uncertain. Having a team of advisors that includes tax and legal expertise will be critical. Having participated in hundred of these types of claims in the past, I can tell you, it is not something that the IRS grants liberally!

 

WHAT IS A PONZI SCHEME?
According to SEC filing dated October 30, 2006 – Sidney D. “Trip” Camper was fired from Elandia Inc. when the Ahkoy family fell victim to investment fraud headed by Elandia’s Allen Stanford and Trip Camper. Forced to resign by Allen Stanford himself (see SEC link below), Trip Camper moved on to his next victim, a private company in Los Angeles. In true School of Stanford form, Trip Camper promised to take the private company public. Instead, Trip Camper recruited a new partner in crime, Ed Berkhof and together they formed a “shell” holding company, milked the private company of thousands of dollars, illegally obtained company stock and pretended to be the company owners- and owners of all the assets. By pretending to own the company’s assets, Trip Camper and Ed Berkhof worked to dupe private investors out of capitol that they used to pay themselves and their creditors. This is a Ponzi Scheme. Instead of taking the company public, Trip Camper and Ed Berkhof spent thousands of dollars, took a trip to London on a company American Express card, performed a hostile takeover, and ruined the honest, profitable company. Since then, the Ahkoy family is suing Elandia Inc., Allen Stanford is in Federal prison, and Trip Camper is still using The Stanford Group as a reference on his curriculum vitae. FBI will hopefully catch up with Allen Stanford’s den of thieves. Don’t let this happen to you.

http://www.secinfo.com/d14D5a.v6Q98.c.ht m

Posted by gerald | Report as abusive
 

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