Ten Years After Madoff, Updated Ponzi Database Shows Schemes Are Thriving

December 2018 marked the ten-year anniversary of the collapse of Bernard Madoff's massive Ponzi scheme, a cataclysmic event that catapulted the term "Ponzi scheme" into the everyday lexicon and was the likely impetus for the Associated Press's decision to crown 2009 as “The Year of the Ponzi Scheme.  While the sheer economic destruction of that scheme and $17 billion in losses will likely (and hopefully) never be equaled, many may not realize that Madoff's scheme was literally one of hundreds of Ponzi schemes to collapse in the recent ten-year period that Ponzitracker has termed the "Madoff Era."  Indeed, an extensive and exclusive recent analysis by Ponzitracker shows that over 800 Ponzi schemes were discovered from 2008-2018 that collectively caused nearly $60 billion in losses.  Believed to be the first database compiling Ponzi scheme discoveries and sentences during the "Madoff Era," the analysis provides jaw-dropping context to the continuing destruction caused by these financial schemes.  

“Only When The Tide Goes Out Do You Discover Who’s Been Swimming Naked”

Ponzi schemes can generally be thought of as a lagging economic indicator – the hallmark outsized and consistent gains promised by the fraudsters at least appear more realistic and possible amidst a booming economy, and investors are generally content to watch their accounts steadily climb in the midst of continuing market gains.  As long as these times continue and new investor funds continue rolling in, the scheme stays afloat and is able to meet its obligations to existing investors.  Indeed, from October 2002 to October 2007, the S&P 500 Index gained over 100% – nearly 2% per month.  It is not surprising, then, that very few Ponzi schemes were uncovered during that period.  Many did not realize that they were unwitting participants in what would soon be a staggering loss of wealth.

In 2008, the metaphorical tide began to go out as stock markets plummeted amidst unprecedented market turmoil.  The S&P 500 suffered its largest annual decline that year (-38.49%) since 1937.  Jittery investors began safeguarding their capital, including turning to their “safe” investments that had been touted as impervious to risk and historically delivered consistent returns in any market.  The continuity of new investor funds is the lifeblood of a Ponzi scheme, and schemes began to collapse in droves as both new investor funds dried up and redemption requests soared.  Three of the largest Ponzi schemes in U.S. history (Madoff, Stanford, and Petters) collapsed in the span of ten months and alone involved approximately $25 billion in investor losses.  Those schemes were among more than 150 schemes that were uncovered in 2008 and 2009 - including nearly 120 in 2009 alone.

"Are we at high tide?"

Since the S&P 500 bottomed out in March 2009, it has since posted an increase of nearly 270% by the end of 2018 in one of the longest bull markets in history.  As the bull market picked up steam after the “Great Recession,” the number of schemes uncovered in the immediate aftermath appears to support the hypothesis that Ponzi schemes can be thought of as a lagging economic indicator.  Below is a chart of discovered Ponzi schemes from 2008 - 2018 (generally featuring losses of roughly $1 million or more):

• 2008: 40

• 2009: 118

• 2010: 80

• 2011: 99

• 2012: 103

• 2013: 65

• 2014: 66

• 2015: 73

• 2016: 65

• 2017: 60

• 2018: 42

In total, approximately 811 Ponzi schemes were uncovered from 2008 to 2018.  The actual number is likely higher; Ponzitracker's analysis was generally limited to Ponzi schemes that raised approximately $1 million or more from investors.  Those 811 schemes involved over $58 billion of investor funds, with an average scheme size of $71.8 million and a median size of $8 million.   To put that number in comparison, the $58 billion involved in those Ponzi schemes is just shy of Costa Rica's 2018 gross domestic product.  These figures only account for Ponzi schemes in the United States - a country with one of the most aggressive and proactive regulatory frameworks - and thus the worldwide total is unfortunately most likely a multiple of this number. 

The data shows that Ponzi scheme discoveries peaked from 2009 to 2012 with at least 90 schemes discovered each year during that period.  Several factors can be attributed to this increase.  First, Madoff and other large schemes had a violent ripple effect across the financial industry as jittery investors caused a wave of redemption requests.  These redemption requests quickly overwhelmed Ponzi schemes that had been on the brink of collapse given tumultuous market conditions and the lack of new investors.  Second, regulators began taking a much more aggressive approach to rooting out fraud amidst claims that they had not acted quick enough to detect Madoff and other schemes.  These increased enforcement efforts were successful at rooting out roughly 400 Ponzi schemes from 2009 - 2012 alone. 

After 103 Ponzi schemes were discovered in 2012, the next five years saw a potential post-Recession “new normal” with the number of schemes uncovered each year holding in a range from 60-73.  After 60 schemes were uncovered in 2017, that number dropped by 30% to just 42 in 2018 - the lowest number of discoveries since at least 2008.  The theories for this decrease are both encouraging and ominous.  For example, the decrease could be due to increased regulatory efforts that have corrected previous inefficiencies and succeeded in identifying the schemes before they were able to proliferate.  The Securities and Exchange Commission disclosed in its most recent Regulatory Priorities that it was continuing to focus on increasing its examinations of registered investment advisors and that it now covered 17% of investment advisors - an increase from a 10% coverage rate earlier this decade.  Another positive potential reason could be that efforts to educate investors about spotting fraud are paying dividends.  The rationale could also be ominous if the previous bull market from 2002-2007 is any indicator of what to expect when the current market runs into headwinds; the number of schemes uncovered in 2008 nearly doubled in 2009 in the wake of economic turmoil and it was not for ten years until the number of annual discoveries returned back to 2008 numbers. 

What do we know about our accused Ponzi schemers?  For starters, nearly nine of ten are men.  From 2008 to 2018, men never accounted for less than 84% of all Ponzi schemes and collectively comprised 89% of individuals charged with running Ponzi schemes.  The percentage of women accused in Ponzi schemes hovered at a high of around 15% in 2014 and 2015 but has since decreased to less than 7% in 2018. Each of the 50 states is represented in Ponzitracker’s database, but the majority of schemes were concentrated in a handful of states with large populations (including retirees).  California topped the list, with nearly 20% of the nearly-1,000 individuals accused of masterminding or assisting in Ponzi schemes from 2008-2018 hailing from the state.  Florida, New York, Texas, and Illinois rounded out the top 5, with nearly 60% of all individuals in the database hailing from those five states. In a surprising statistic, Utah had the sixth-highest number of Ponzi schemers despite ranking 31st in population.  The disparate rate of Ponzi schemes in Utah is likely attributable at least in part to the state’s large Mormon population which has been a hotbed for affinity fraud.  Eight states also had collective investor losses of at least $1 billion during the pertinent period.  

One trend has remained constant over the years: Ponzi schemers are often (and some would say rightly) harshly punished by the legal system for their misgivings.  The prospect of a harsh sentence is likely more certain in federal court proceedings where prosecutors have an arsenal of criminal fraud statutes at their disposal that carry lengthy potential sentences.  For example, most Ponzi schemers typically face charges of mail fraud, wire fraud, and/or securities fraud which each carry a maximum twenty-year prison term.  That, coupled with federal sentencing guidelines that heavily emphasize the amount of economic losses, generally makes a federal courtroom an unfriendly place for a Ponzi schemer awaiting his/her fate.

From 2008-2018, Ponzitracker’s database shows that at least 715 individuals were sentenced for their roles in a Ponzi scheme. This equated to nearly 8,000 years of collective prison sentences with an average sentence of 130 months and a median sentence of 97 months.  While the 150-year and 110-year sentences handed down to Madoff and Stanford are not surprising given the billions in losses, some outliers have resulted in lengthy sentences for schemers with considerably smaller losses.  For example, Florida resident James Jackson Jr. saw a judge hand down a 90-year sentence for a scheme with approximately $2 million in losses.  Juan Miguel Lopez, of Texas, received a 79-year sentence for a $4.9 million scheme.  While the rationale for those sentences is uncertain, one certainty is that the disparities are not likely to evoke sympathy from the aggrieved victims. 

 The Full Database is below:

Disclaimer - This database was compiled using publicly available news sources.  As a general rule, the database includes schemes of $1 million or more.  The names and sentences displayed are based off news reports, and are not independently verified.  Please contact Ponzitracker here with any clarifications or comments.

CFTC Alleges Florida Forex Venture Offering 12% Guaranteed Returns Was $75 Million Ponzi Scheme

The Commodity Futures Trading Commission recently unsealed an action in Florida federal court accusing five men of operating a Ponzi scheme that raised at least $75 million from at least 650 investors nationwide.  The action, filed in the Middle District of Florida, charges Michael DaCorta, Joseph S. Anile, II, Raymond P. Montie III, Francisco “Frank” Duran, John Haas, and various entities with violations of the Commodity Exchange Act and seeks various relief including a permanent injunction, disgorgement of ill-gotten gains, restitution, and imposition of civil monetary penalties.  A temporary receiver was also appointed at the Commission’s request to marshal assets for the benefit of defrauded victims.

The Complaint alleges that the Defendants operated several entities, Oasis International Group Ltd., Oasis Management LLC, and Satellite Holdings Company, collectively as “Oasis” and  began soliciting victims in mid-2014 to invest in two commodity pools - Oasis Global FX, Limited (“Oasis Pool 1”) and Oasis Global FX, SA (“Oasis Pool 2” (collectively, the “Oasis Pools”) with promises of minimum 12% annual returns derived from trading forex.  Potential “lenders,” as investors were called in an apparent effort to avoid implicating federal securities laws, were told that the Oasis Pools had never had a losing month (indeed, one Defendant allegedly claimed the operation had never had a down day), that there was no risk of loss, and that the only way forex trading could be a bad investment was “if all the banks in the world closed.”  Oasis also allegedly offered a referral program designed to incentivize the recruitment of new investors.

Potential investors were told that DaCorta was the “brains of the operation” who was able to obtain consistent returns by trading forex, with the Oasis Pools purportedly returning 22% in 2017 and 21% in 2018.  Investors were also told that the guaranteed annual return of 12% was a minimum return, as investors would also be entitled to share the daily profits their funds purportedly generated from trading.  Oasis also allegedly made numerous representations concerning the safety of investor funds, including Defendant Duran’s purported statements that Oasis owned at least $15 million in real estate and precious metals that served as collateral for its investments and that “the Oasis Pools’ trading platform could not lose money unless there was a bigger problem in the financial markets and people were going to supermarkets with shotguns.”  Investors were received regular account statements showing the purported growth of their account.  Oasis ultimately raised roughly $75 million from at least 650 investors nationwide (despite claiming on its website that it was not open to U.S. investors). 

According to the Commission, however, all of these claims were false and designed to conceal Oasis’s operation of a classic Ponzi scheme by paying fictitious returns using investor funds.  For starters, the Commission alleges that potential investors were not told that DaCorta was effectively permanently banned from the forex trading industry in 2010 after several rules violations during his time as President of a forex trading firm.  While Oasis did engage in some legitimate trading, the Commission alleges that it suffered near total losses of investor funds (and not the consistent above-20% returns in 2017-2018).  For example, Oasis’s actual returns in 2017 and 2018 were -45% and -96%, respectively.  And contrary to Defendants’ representations regarding the safety of investor funds, the Commission alleges that the forex trades in the Oasis accounts had a 100:1 leverage ratio.  

Of the approximately $47 million that was not invested as promised, the Commission claims that Defendants misappropriated those funds to, among other things, make $28 million in Ponzi payments, purchase nearly $8 million of real estate, live a luxurious lifestyle, and make transfers to related third parties.  

A copy of the complaint is below:

Ohio Man Charged With $50 Million Off-Road Tire Ponzi Scheme

Although the product that Jason Adkins was purporting to buy and sell—oversize tires—was unusual, the operation of his scheme was not. It was right out of Ponzi’s playbook.”

An Ohio man was charged with, and has agreed to plead guilty to, allegations that he masterminded a $50 million Ponzi scheme that apparently offered above-average returns from buying and selling off-road tires. Jason Adkins, of Jackson, Ohio, will plead guilty to three counts of wire fraud, six counts related to money laundering, and one count of tax evasion as part of his plea agreement with federal prosecutors. The wire fraud and money laundering charges each carry a maximum twenty-year term while the tax evasion charge carries a maximum five-year term.

Adkins operated various companies, including Landash Corporation and Midwest Coal, LLC, telling potential investors that he specialized in the profitable purchase and resale of off-the-road tires typically used in earth-moving and mining equipment. Those investors were told that they could expect annual returns ranging from 15%-20% derived from Adkins’ purchase of tires at a steep discount and subsequent resale at a tidy profit. In total, Adkins raised more than $50 million from at least 46 investors.

According to prosecutors, Adkins ran a classic Ponzi scheme by using money from new investors to pay fictitious returns to existing investors. He also allegedly took steps to conceal the scheme by, for example, creating more than a dozen corporate bank accounts to receive investor funds and also sending investor funds through a long series of wire transfers to many bank accounts. Authorities also alleged that Adkins used investor funds to bankroll a lavish lifestyle that included, among other things, the purchase of cars, vacations and property. This included building a pool at his home and more than $20,000 in private jet lease payments.

It appears that Adkins’ scheme began to run into difficulties as far back as 2017 when he and his companies were the subject of multiple lawsuits. According to the lawsuits, Adkins sought purchase financing for transactions he had arranged involving off-road tires by providing fabricated work orders and sale documents. The purported transactions never took place and Adkins allegedly misappropriated those funds and failed to pay back the loan. After these lawsuits were filed, both Landash and Adkins filed bankruptcy in early 2018 which allowed them to stay those lawsuits.

The Department of Justice has asked that any victims of Adkins’s scheme should contact the U.S. Attorney’s Office Victim Witness Coordinator, Barbara Vanarsdall, at 614-469-5715.

450% Returns in 40 Days? Rhode Island Man Indicted For Running $14 Million Ponzi Scheme

A Rhode Island man who once offered investors 450% returns in 40 days was indicted by a federal grand jury on charges he ran a decade-long Ponzi scheme that raised more than $14 million from investors. Thomas Huling, 55, of West Warwick, Rhode Island, was arrested on twenty-one counts of wire fraud, money laundering, and tax evasion. Each of the wire fraud charges carries a maximum twenty-year prison term, while each money laundering and tax evasion charge carries a ten-year and five-year maximum term, respectively.

According to authorities, Huling - a former mortgage broker - began promoting several purported investment projects to potential investors as early as 2008 including offshore high-yielding bond trading platforms, a car emissions reduction technology, and an online advertising and marketing company. Investors were lured with promises of substantial returns with little to no risk, including the allure of up to 450% returns within 40 days - an annualized return of over 3,000%. As unfortunately seen in an increasing number of fraudulent schemes, authorities also claim that Huling incorporated various religious aspects and themes to both enhance his credibility and build rapport with investors.

Over the course of the ten-year period from 2008 to 2018, Huling allegedly opened more than 50 bank accounts at nine different banks using entity names such as HTH Enterprises LLC; Global Funding Group LLC; Global Investment Company S.A. LLC; 46 Well Realty LLC; Global Technology LLC; World Holding Group LLC; and WebDreams LLC. In total, Huling raised more than $14 million from investors.

But prosecutors allege that Huling’s promises, including massive returns with little to no risk, were the result of a Ponzi scheme rather than legitimate business activity. Huling allegedly failed to pay taxes from 2009 to 2018 while using millions of dollars in misappropriated investor funds to sustain a lavish lifestyle that included a $15,000 2012 Can-Am Spyder motorcycle, a $34,000 2013 Mercedes Benz, and expenditures at the Foxwoods Resort Casino. Proscutors allege that Huling used investor funds to pay returns to existing investors - a classic hallmark of a Ponzi scheme. Of the $14 million he raised from investors, Huling is accused of causing losses of at least $6 million.

Huling pleaded not guilty to the charges and was released on a $50,000 bond. He was also ordered not to have any contact with any investors and to refrain from gambling.

A copy of the indictment is below:

Former CPA Accused Of Running $29 Million "Pure" Ponzi Scheme

A California woman faces civil and criminal charges over allegations that she ran a $29 million Ponzi scheme that promised 8% annual returns by investing in “federally guaranteed” securities. Carol Ann Pedersen, 65, was the subject of charges filed by the Securities and Exchange Commission and the U.S. Attorney’s Office for the Central District of California. Pedersen consented to entry of a final judgment in the Commission’s action and also pleaded guilty to a single wire fraud charge in the criminal case. Pedersen could face up to twenty years in prison on the wire fraud charge, although she will likely receive a lower sentence under non-binding federal sentencing guidelines.

According to the Commission, Pedersen received her CPA license in California in 1977 and provided accounting services to numerous California individuals and families. Beginning in 1991, Pedersen also began soliciting those same clients to offer money management and investment adviser services. Potential clients were told either that their funds were used to purchase specific securities on their behalf or that their funds were being pooled with other investor funds to invest in an extensive stock portfolio. For clients in the former category, Pedersen promised that she would only purchase investments offering at least 8% annual returns. Those in the latter category had their funds invested in the CA Pedersen Client Investment Pool and signed limited partnership agreements granting Pedersen sole authority to invest their funds.

To conceal her alleged wrongdoing, Pedersen generated periodic account statements that were provided to both individual and pooled investors purportedly showing their various investment holdings. From September 2010 to July 2017, Pederson raised over $29 million from 25 investors. The scheme began to fall apart in 2017 when Pedersen was unable to make scheduled distributions to investors. Several investors filed suit against Pedersen and a receiver was subsequently appointed.

With one known exception, the Commission alleges that Pedersen failed to invest any of the funds she received from investors and instead ran a “pure” Ponzi scheme by using investor funds to make distributions to other investors “almost from the moment of inception.” Pedersen is also accused of misappropriating nearly $2 million of investor funds for her own use including car payments, medical costs, and home renovation expenses.

Unfortunately, this is another tale where standard due diligence might have prevented the scheme from continuing until implosion. As the Commission alleges, Pedersen concealed her failure to invest practically any funds in the securities she promised by generating account statements that were sent to investors. Thus, Pedersen would likely have had difficulty accomodating an investors’s request to provide statements from the entity(ies) custodying those assets. Rather than focusing on a promised rate of return, potential investors should focus on verifying the claims made by an investment professional.

A copy of the Commission’s complaint is below: