Scandal round-up: Ponzi’s posse
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.
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.
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.
Bernard 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.
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.
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.