Ponzi Schemes

When talking about Ponzi schemes, people normally would think of “Bernie Madoff”,but this scheme was actually named after "Charles Ponzi" who became notorious for using the technique in 1920. “The Association of Certified Fraud Examiner defines a Ponzi scheme as an illegal business practice in which in which new investors money is used to make payments to earlier investors”.

Majority of people believe that they would never fall for a scam such as this, but most people who have suffered this scheme felt the same way. Ponzi schemes have specific characteristics which include:

* Promise of a high return on investment with little or no risk. Every investment carries some degree of risk, and the greater the return, the greater the risk. Be highly suspicious of any "guaranteed" investment opportunity.

* Overly consistent returns. Investments tend to fluctuate over time, especially those seeking high returns. Be wary of any investment that continues to generate regular, positive returns even in bad market conditions.

* Unregistered investments. Ponzi schemes typically involve investments that have not been registered. Registration is important because it provides investors with access to key information about the company's management, products, services, and finances.

* Unlicensed sellers. Most countries have laws in place that require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.

* Secretive and/or complex strategies. Avoid investments you don't understand or with incomplete and unverifiable information.

* Paperwork Issues. Never accept any excuses regarding why you can't review information about an investment in writing, and always read an investment's prospectus carefully before taking any decision. Also, account statement errors may be a sign that funds are not being invested as promised.

* Difficulty receiving payments. Be suspicious if you don't receive a payment or have difficulty cashing out your investment. Have it in mind that Ponzi scheme promoters sometimes encourage participants to "roll over" promised payments by offering even higher investment returns.

A great percentage of people who invest their hard earned money into real estate, stocks and other investment opportunities do so based on trust. Whether they actually know the person they are trusting their money with, somewhere along the line, the scam artist wins their trust, convince them to invest and make them think their money is safe and going to yield substantial profits.

Fraudsters could be anyone from our social lives. They could be family, loved ones, friends and even your granddad! My candid advice to anyone who was offered an investment opportunity and is really considering it, never give away more than you can afford to live without. Ponzi schemes seem to be on the rise so if you have friends or family members who are talking about an investment of a lifetime, make sure you put all of your red flags up and really make an honest assessment of who you are trusting with your money.

If you would like to know more about this subject matter, you are most welcome to get in touch with me via email (contact@emgfraudconsulting.co.uk).

WorldCom Fraud

In doing some research recently, I came across this information:

Ten years ago Prosecutors indicted WorldCom's former chief financial officer, Scott Sullivan, and Buford Yates Jr., WorldCom's former director of general accounting. (Sullivan, accused of overseeing a long-running conspiracy to hide operating expenses in order to boost WorldCom's earnings, later admitted guilt and was sentenced to five years in prison. Yates later pleaded guilty to securities fraud and conspiracy and agreed to help prosecutors; he was sentenced to one year and one day in prison.)

 

The WorldCom case was a classic example of financial statement fraud. WorldCom capitalized costs that should have been expensed, thus inflating profits in the short time. They also recorded fictitious revenues to achieve the same goal.

Although not all frauds involve such large, well known companies, cases like WorldCom serve as an urgent reminder that all organizations need to be proactive. If you would like to learn more about the WorldCom fraud and related topics, I invite you to contact me via email (contact@emgfraudconsulting.co.uk).

2012 Report to the Nations on Occupational Fraud and Abuse

 

The Association of Certified Fraud Examiners 2012 report to the nation on occupational fraud and abuse is based on actual fraud cases reported by CFEs. The report contains important facts very vital for business owners.

 

·         Median loss from reported fraud cases: $140,000.

·         Percent of frauds initially detected via tip: 43%.

·         Most commonly victimized industries: banking and financial services, government, public administration and manufacturing.

·         Percent of fraudsters with clean employment histories: 87%.

·         Percent of cases where a fraudster exhibited at least one red behavioural red flag: 81%.

 

This report also draws important conclusions about the impact of fraud on small businesses, the importance of “hotlines” for reporting suspected fraud and other matters.

  

An electronic version of this report is available via http://www.acfe.com/rttn.aspx