Top Ponzi Schemes of 2012

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Top Ponzi Schemes of 2012

Peter Madoff was sentenced this month to ten years in prison for his role in his brother Bernie’s multi-billion dollar investment fraud, thus wrapping up the biggest Ponzi scheme in history.

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But if you thought it ended with the Madoffs, you would be wrong; Ponzi schemes have far from fallen out of style. Other schemes, on a smaller scale, continue to take place regularly. Here are the five biggest schemes perpetrated this year alone.

1. Stanford Financial Group 

Who: Texas Financier R. Allen Stanford

How Much: $7 billion

Sentence: 110 years

An international financier from Texas, Stanford was found guilty in March of bilking around 30,000 clients of $7 billion in investments over two decades.

According to the Miami Herald, Stanford made a deal with Florida regulators in 2009 that allowed him to open a special trust office that operated without regulation. His office then sold $800 million in fraudulent certificate of deposits, then destroyed the records.

When Stanford came under criticism from those suspicious of his methods and returns, he silenced them by hiring the firm Kroll Inc. to investigate and discredit them.

His became one of the largest Ponzi schemes in US history.

2. Kabul Bank  

Who: Bank owners Sherkhan Farnood and Khalil Fruzi along with 20 other defendants, many associated with President Hamid Karzai 

How much: $861 million 

Sentence: Trial ongoing   

 

The same firm Stanford used to silence his detractors discovered through an audit this year that Afghanistan’s Kabul Bank, the country’s largest financial institution and its proudest example of economic progress, began its existence as nothing more than a basic Ponzi scheme.

According to the New York Times, which obtained a copy of the confidential audit, Kroll found that the Bank was formed to allow associates of the Karzai administration to siphon riches from depositors, who were the bank’s only substantial source of revenue. Ninety-two percent of the bank’s loans went to 19 related people and companies, the audit said.

To perpetuate the fraud, the bank forged documents, kept two sets of books, and obscured loans to themselves and shareholders by taking them out in others’ names.

President Hamid Karzai has said that he considers the audit “incomplete,” and his brother Mahmood Karzai, one of the “high-value beneficiaries” named in Kroll’s report also disputes its findings, calling the investigative firm “a piece of puke.”

3. Zeek Rewards 

Who: Paul Burks / Rex Venture Group  

How much: $600 million  

Sentence: Trial ongoing

In August, the SEC Shut down the website Zeekrewards.com, which it called a Ponzi scheme “on the verge of collapse.”  

Online marketer Paul Burks and his company Rex Venture Group ran the site, which raised money by selling securities that were not registered with the SEC as required by law. The company promised investors daily payouts, which they were led to believe came from the company’s profits. In fact the revenue paid to investors – one million Internet customers worldwide – came from funds received from new investors.

4. Hootoot660

Who: Three Chinese nationals identified only as Xie, Pang, and Yun

How much: $384 million

Sentence: Trial ongoing

In October, police issued arrest warrants for three Chinese men who allegedly operated an online-stock Ponzi scheme that cheated more than 200,000 Chinese citizens out of $384 million.

Using the website Hootoot660, based in the United States, the three men sold an online stock called Guguan purported to never drop in value. In fact the stock didn’t exist, and the site operators simply used funds from new investors to pay returns to existing investors.

5. Fair Finance Company

Who: Tim Durham, James Cochran, and Rick Snow 

How much: $200 million

Sentence: 50 years

Indiannapolis businessman Tim Durham bankrupted his first two businesses – Obsidian Enterprises and Diamond Investments – before purchasing Fair Finance to use it as a Ponzi scheme. He used the third company to take out loans that financed the first two failing companies as well as his other investors.  

At his trial, prosecutors described Durham as one of the “greediest, most selfish and remorseless of criminals.” Court records show that when Durham purchased Fair Finance, he said, “This will be like taking candy from a baby.”

By Reportingproject


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