Ponzi scheme

Haba Yousif

Lassal Inungu

Joe Elian

Why you should care…

• A ponzi scheme can target anyone

• It is vital to understand what it is and how it works

• How to avoid it

• Effect on our economy

• Government actions toward these scandals

WHAT IS A PONZI SCHEME?

• Named after Charles Ponzi

• Also known as a “Pyramid Scheme”

• It is an investment fraud that promises high returns with little risk.

How a ponzi scheme works

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How to identify a ponzi scheme

• High Profit Returns with Little or no Risk

• Consistent Returns

• Unlicensed Sellers

• Unregistered Investments

• Private and/or Complex Strategies

• Issues with Paperwork

How a ponzi scheme fails

• Usually fails when there are no more investors.

• Collapses under its own weight

• Securities and Exchange committee discovers the Ponzi Scheme

Effects of Ponzi Schemes on Economy

Pump and Dump Method• http://www.youtube.com/watch?v=K6aVQDs

Z30Q

Methodology of the Fraud

Over the Counter

Effects of Ponzi Schemes on Economy

Johnathan Lebed

Enron

Short and Distort

Biggest Ponzi Scheme

• Chairman of Nasdaq

• He ran a $56 billion ponzi scheme for over a decade

• He was discovered by the Security Exchange Commission in 2008.

• Investors included banks, celebrities, and everyday hard-working people.

IT’S ALL FUN TILL YOU get CAUGHT

• Madoff pleaded guilty to all eleven felony counts.

• Sentenced to 150 years in jail.

• Madoff’s lawyer pleaded for 12 years.

• The judge was particularly moved by one victim’s statement.

What about the investors?

• http://www.youtube.com/watch?v=f23GM8EZo8I&feature=related

They are receiving…• Tax breaks• Payouts from the Securities Investor

Protection Corp.

• The tax breaks are helping out a lot of victims.

• Victims can recover a good 40% in their losses.

• However, it is not helping everyone.

After the Madoff SCANDAL…

• Legislators and judges are ruling tough sentences on people using a ponzi scheme.

• James Nicholson was sentenced to 40 years in prison for defrauding investors of $141 million.

• Martin Royster may be serving up to 10 years in prison for his $2 million ponzi scheme.

Public opinion

• $56 billion dollars gave Madoff many enemies.

• The scandal also played an important factor in Wall Street’s image.

• According to NBC and Wall Street Journal poll, it shows that 58% do not trust the stock market.

• Lawmakers are pressured by lobbyists to weaken the reform legislation.

The michigan case

• Reviewing Ponzi Scheme, it is important to understand what aspect should raise a red flag.

• For example in the Royster case he:• Promised a 240% annual return on investments• Investors received no financial statements• Royster didn’t provide any paper or

documentation that the products were registered with the state.