PONZI SCHEME, BERNARD MADOFF, NICK LEESON Business Scams Bridget Wolansky.

PONZI SCHEME, BERNARD MADOFF, NICK LEESON

Business Scams

Bridget Wolansky

Business Scams

There have been a number of major business scams that have plagued international markets over the past 200 years and cost people billions of dollars.Most scams are a

variation of the basic multi level pyramid scheme, including the most well known Ponzi Scheme.Two of largest and most well known schemes were run by the American financier Bernard Madoff and British derivatives broker Nick Leeson.

Questions to Consider

How does a person get themselves involved with a business scam?

Is there a legal way of getting yourself out of a business scam?

What happens to the victims of financial scams?

Multi Level Pyramid Scheme

In this scheme, the people behind it start a fake business and find participants to invest in the business. Then all investors need to find new participants to invest more money into the business.

They entice investors with promises of high rates of return on their investments in a short period of time.

Multi-Level Pyramid Scheme

Multi Level Pyramid Scheme: The Fallout

With each growing level of the pyramid there is less money to be redistributed to other investors.

The scheme falls apart when it becomes too big that there isn’t enough money coming in from new investors to pay back the earlier investors, or if the scheme becomes uncovered.

Associated Press: How Does the Ponzi Scheme Work?

Ponzi Scheme: Origins

The scheme was named after Charles Ponzi, an Italian immigrant, who made the scheme famous in 1920.

Ponzi’s business was meant to convert International Reply Coupons (IRC) into US currency for large profits before it turned into a scam.

There was never any profit or actual investment, just cash redistribution.

The scam was uncovered by officials who questioned how Ponzi became a millionaire in the matter of months.

Ponzi was convicted and sentenced to jail for 86 counts of fraud.

Ponzi Scheme

The schemer starts by setting up a pseudo business that claims to sell goods or services.

Next investors are found to invest in the “business” and are promised high returns in a short period of time.

While the scheme is still working investors receive their returns but the money isn’t coming from profits but from new investors.

Ponzi Scheme

The conditions of when the scheme falls apart are:

• 1. Promoters vanish• 2. Scheme collapses under its

own weight• 3. Scheme is exposed

Bernard Madoff

Bernie Madoff was the chairman of the NASDQ Stock Exchange, operator of $50 billion Ponzi scheme and the head of the largest financial investor fraud committed by a single person in history.

Bernard Madoff

Madoff’s scheme was centered around the asset management division of his firm, Bernard L. Madoff Securities LLC.

His clients were charities, Jewish communities, public institutions and many well known people including Nobel Laureate Elie Weisel, Steven Spielberg, Senator Frank Lautenberg, actor John Malkovich, and the owner of the New York Mets Fred Wilpon.

Bernard Madoff

Since the early 1990s, when the scheme supposedly started, Madoff has lost over $50 billion of his clients money.

He was possibly able to get away with it the scheme for so long because over the years Madoff became close with many people in Washington and because of their relationship they were less apt to check up on him.

On December 10, 2008 Madoff was turned in by his sons to authorities and later convicted of fraud and was sentenced to 150 years in jail.

Nick Leeson

Nick Leeson was a derivatives broker for Barings Bank and was responsible for the largest financial scam in the 20th century.

He bankrupted the 233 year old British bank by raking up loses of $1.4 billion.

Nick Leeson

Leeson started working as a bank clerk in London and eventually got a job at Barings Bank and worked his way up to become the Manager of New Operations on the Singapore Monetary Exchange (SIMEX).

During Leeson’s time at the bank, the executives at Barings thought he was making a great deal of money from good investments when he was really making numerous bad deals that were costing the bank millions.

He hid his losses in an error account meant for only small sums of money.

Nick Leeson

Finally after a huge deal fell through, Leeson knew that his fraud was going to become uncovered soon and fled Singapore.

He ended up in Germany but officials soon found him there and he was extradited back to Singapore. Leeson was tried and convicted of fraud and sentences to 6 and half years in prison.

Business Scam’s Effects on Globalization

The effects of business scams the whole globe now with the interconnected markets of the world.Incidents are no longer isolated and large scandals that occur in the US can cripple foreign economies.

Ponzi Scheme by CUBLICE

Sources

www.nytimes.comwww.nickleeson.comwww.sec.gov