SEC Says Magnitude of Ponzi Schemes Growing |
Date: Monday, February 9, 2009
Author: Thomson Reuters.com
The frequency of Ponzi schemes is not
increasing but the magnitude of the frauds is, a Securities and
Exchange Commission official said on Friday [Feb. 6].
The SEC has been under intense scrutiny for not uncovering the
alleged $50 billion fraud carried out by former Nasdaq Chairman Bernard
Madoff, who is accused of running a massive Ponzi scheme for years.
Donald Hoerl, director of the SEC's Denver office, said the agency has
filed about 70 Ponzi cases in the last two years and has filed four
cases since Mr. Madoff was charged in early December.
"That's not a dramatic upswing in terms of the number of cases," said
Mr. Hoerl, speaking at the Practising Law Institute's annual SEC Speaks
conference. "What is different is the magnitude of the Ponzi schemes."
Ponzi schemes involve frauds in which early investors are paid with money from later investors.
Mr. Hoerl said the SEC's recent Ponzi scheme cases involve staggering
amounts of money. In late January, the agency charged then-missing fund
manager Arthur Nadel with defrauding investors at six Florida-based
hedge funds. The SEC said Mr. Nadel provided false information to
investors about the funds' returns and overstated the value of the
investments by $300 million.
"The magnitude of these schemes serves as a reminder to us we need to continue our focus in this area," Mr. Hoerl said.
He said the schemes follow a typical pattern: They are led by a very
charismatic person, they involve secretive and very successful trading
programs, and the investment advisers are seldom registered with the
SEC.
It's "a scheme that's been with us for a very long time," Mr. Hoerl
said. "It has been a constant part of the SEC's (enforcement) program."
Lawmakers grilled SEC officials earlier this week, chastising them for
not paying heed to Harry Markopolos, a former investment manager who
repeatedly tried to warn U.S. regulators about Madoff, and for not
examining Madoff's firm more aggressively.
By Karey Wutkowski and Rachelle Younglai
Reproduction in whole or in part without permission is prohibited.
