Tomer and Madoff: A Common Thread

With the recent arrest of Bernie Madoff, it is hard not to notice the similarities between Madoff's ponzi scheme and YTB. Apparently this did not go unnoticed by others either as is evidenced in a recent press release calling for more stringent enforcement by the SEC and the FTC against pyramid schemes.

The release states that with the current economy, the proliferation of these schemes will only increase and the end game will be more money lost by more consumers who can ill afford to lose it.

Some excerpts:

• The Bernard Madoff Ponzi Scheme is the tip of a far wider pattern of pyramids and Ponzis. In a letter to the chairmen of the FTC and SEC, PSA charges that the lapse of FTC and SEC regulation has led to an epidemic of pyramid frauds, and it demands renewed regulation.
• Eight "direct selling" companies that operate as endless chain recruitment schemes are now listed on major stock exchanges or on the over-the counter markets. The aggregate capitalization of these eight schemes is approximately $5 billion. One of these, Your Travel Biz.com, is currently prosecuted by the California Attorney General who called it "a gigantic pyramid scheme." The other publicly trade companies using the pyramid model operate with impunity.
• The basic fraud of a pyramid or Ponzi can be revealed only upon closer examination of the operations. Reliance upon complaints or blatant financial irregularities as cause for government action leaves the public exposed and allows the schemes to operate unfettered. Normal market mechanisms such as word of mouth warnings from consumers that were harmed or obvious indicators such as bankruptcies or police records of promoters do not apply in the white collar and well disguised world of pyramids. Until his first indictment, the infamous Charles Ponzi never missed a payment to investors in his namesake fraud of the 1920's and, therefore, did not generate "complaints."

A letter has been sent to both the FTC and the SEC calling for greater enforcement and can be found by clicking here.

Meet Mr. Ponzi

There was an article on the AP wire today that I thought was very interesting, and eerily similar to a cause near and dear to this blog. As many know, Bernard Madoff has been arrested and accused of running the world's largest Ponzi scheme. The experts that were interviewed for this AP article were quick to point out some commonalities of the con men who run the schemes.

• They seem trustworthy because of their charm, their command of finance and the unshakable confidence that they portray
• A Ponzi scheme, or pyramid scheme, is a scam in which people are persuaded to invest in a fraudulent operation that promises unusually high returns.
• People who run Ponzis generally fall into two categories: hucksters like Ponzi who plan to cheat investors and get out quickly, often fleeing the country, and people who start a legitimate investment venture but lose money, then try desperately to cover it up and dig themselves into a deeper and deeper hole.
• "Looking successful is the key because everyone's first question is going to be, `If this is such a great deal, then why are you wearing a cheap suit?'" said Eric Sussman, a former federal prosecutor from Chicago who helped on about a dozen Ponzi cases. "They have to have all the accoutrements of success."
• The Madoff debacle appears to be typical of Ponzi schemes in another way: They are typically orchestrated by people who look to their own churches.
• "Any Ponzi scheme is built on trust. People can't ask too many questions."

Wow, does this sound liek a familiar story? Perhaps the most telling was the opening line.....

They're smart and charming. They have an aura of success about them and exude respectability. Above all, they instill confidence.

Which is, after all, why they are called con men.