The name Bernie Madoff is forever etched in the dark side of America’s corporate world as the mastermind of possibly the largest Ponzi scheme in that country’s modern history.
The former Wall Street investor used his position as a trusted advisor to tank a staggering US$50 billion of investors’ money by the time the FBI and the Securities & Exchange Commission (SEC) discovered what was happening right under their noses.
For 20 years, Madoff used his successful company, Bernard L. Madoff Investment Securities, to lure wealthy investors into his scheme.
One account of the fraudulent programme outlined: “One of the most puzzling aspects of the Bernie Madoff case is the question of why he ever committed the fraud. Madoff’s legitimate brokerage business was wildly successful, making him and his family extremely wealthy. He certainly had no financial need to bilk thousands of clients out of billions of dollars.”
It was described as “a classic” fraud that was “frighteningly simple”. It detailed: “Madoff attracted investors by promising them extraordinarily high returns on their investments. However, when investors handed over the money, Madoff just deposited it into his personal bank account . . . . He paid “returns” to earlier investors using the money obtained from later investors. Clients’ trading statements, showing their alleged profits, were complete fabrications.”
Closer to home, was the charismatic, high-spending American businessman Allan Stanford, who wined and dined his way into the Caribbean through his underwriting of cricket in the region.
Madoff has died, but Stanford, the former chairman of Stanford International Bank, was sentenced to 110 years in prison in 2012 for orchestrating a 20-year investment fraud scheme in which the US Justice Department said he misappropriated US$7 billion.
Stanford, the larger-than-life businessman, flaunted his wealth and influence in Antigua, his Caribbean base, while socialising with the most influential personalities in regional and international cricket.
It is alleged that to this day, some well-known cricket legends lost substantial funds after they were convinced by Stanford to reinvest some of the cricket largess into his businesses.
As the BBC put it in its production The Man Who Bought Cricket, it was all about “money laundering, the FBI, drug cartels, Ponzi schemes, extramarital affairs, offshore banks, and of course some cricket”.
This is all interesting background for those who are still fascinated by the desire for a quick buck, even if they place themselves at great risk of losing what little they have.
Even closer to home was a recent scheme that most people were not alerted to until the Financial Services Commission (FSC) placed an ominous warning about the risks of such arrangements.
The fact is that by the time most people were fully aware of the mess they had placed themselves in, the operations of TKY had collapsed leaving several counting thousands of dollars in losses.
It had the characteristics of a typical pyramid scheme. You solicit “investors” who obtain the first set of attractive dividends, and they then recruit others who seldom receive similar gains, and the scheme continues until it eventually collapses because it is not a real investment, but a way for its operators to benefit from others’ desire for a quick return.
What is a Ponzi scheme? It is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organisers frequently promise to invest the money and generate high returns with little or no risk.
So, it was a valuable piece of advice from the General Manager of the Barbados Cooperative & Credit Union League (BCCULL), Anthony Pilgrim about these unregulated sham investment schemes.
“Before you make such a decision, you must do your research on the institution to determine whether it is credible. Are there financials that are available that you can analyse? What is its track record as an institution? Use age-old wisdom, if it looks too good to be true, it probably is not true,” the experienced finance boss said during the launch of the BCCULL’s public education campaign on Tuesday.
“You must interrogate the data that is put before you, and do not ask the questions of persons who are basically trying to create the situation; you may find that you may not recover that investment. You need to find your own sources of information,” he wisely cautioned.
In the current conditions where there are extremely low or no returns on commercial bank savings and few short-term investments around, people are expectedly vulnerable to schemes like TKY. However, caution is the watchword.
