Ponzi schemePonzi scheme

Haba YousifHaba Yousif

Lassal InunguLassal Inungu

Joe ElianJoe Elian

Why you should care…Why you should care…

• A ponzi scheme can target anyoneA ponzi scheme can target anyone

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

• How to avoid itHow to avoid it

• Effect on our economyEffect on our economy

• Government actions toward these scandalsGovernment actions toward these scandals

WHAT IS A PONZI WHAT IS A PONZI SCHEME?SCHEME?

• Named after Charles PonziNamed after Charles Ponzi

• Also known as a “Pyramid Scheme”Also known as a “Pyramid Scheme”

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

How a ponzi scheme How a ponzi scheme worksworks

A

B

C

D

E

F

How a ponzi scheme How a ponzi scheme failsfails

• Usually fails when there are no more Usually fails when there are no more investors.investors.

• Collapses under its own weightCollapses under its own weight

• Securities and Exchange committee Securities and Exchange committee discovers the Ponzi Schemediscovers the Ponzi Scheme

IT’S ALL FUN TILL YOU IT’S ALL FUN TILL YOU get CAUGHTget CAUGHT

• Madoff pleaded guilty to all eleven felony Madoff pleaded guilty to all eleven felony counts.counts.

• Sentenced to 150 years in jail. Sentenced to 150 years in jail.

• Madoff’s lawyer pleaded for 12 years. Madoff’s lawyer pleaded for 12 years.

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

• Source: Source: http://www.time.com/time/business/article/0,8599,1907677,00.html

What about the What about the investors?investors?

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

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

Protection Corp.Protection Corp.

• The tax breaks are helping out a lot of The tax breaks are helping out a lot of victimsvictims

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

• However, it is not helping everyoneHowever, it is not helping everyone

• http://online.wsj.com/article/SB10001424052748704825504574584310679694216.html

After the Madoff After the Madoff SCANDAL…SCANDAL…

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

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

• Royster may be serving up to 10 years and Royster may be serving up to 10 years and pay a fee of $250,000 in prison for his $2 pay a fee of $250,000 in prison for his $2 million ponzi scheme. million ponzi scheme.

• A poll shows that 58% do not trust the stock A poll shows that 58% do not trust the stock marketmarket

How to identify a ponzi How to identify a ponzi schemescheme

• High Profit Returns with Little or no RiskHigh Profit Returns with Little or no Risk

• Consistent ReturnsConsistent Returns

• Unlicensed SellersUnlicensed Sellers

• Unregistered InvestmentsUnregistered Investments

• Private and/or Complex StrategiesPrivate and/or Complex Strategies

• Issues with PaperworkIssues with Paperwork