Recession forces unraveling Ponzi schemes into the open

Credit the recession, says Barry Minkow, who became a fraud investigation consultant after serving a federal prison term for using his ZZZZ Best carpet-cleaning business to scam investors during the 1980s. Ponzi scheme operators must constantly raise tens of thousands of dollars from new investors to cover redemption requests and keep the scam running, he says.

"That isn't available anymore. You can't get new money, in short, which is why all these are collapsing simultaneously," says Minkow. "It's not that the SEC hired 500 more people. The SEC is being helped by an economic climate" in which investors "complain quicker, plus they're more suspicious than before because of what's gone on with things like Madoff and Stanford."

Shortly before Madoff's arrest, he said he was struggling to meet $7 billion in redemption requests, according to a sworn FBI deposition. Last month, the former Nasdaq chairman pleaded guilty to running a scam with too-good-to-be-true investment returns that defrauded charities, celebrities, hedge funds, trusts and average investors worldwide.

The collapse prompted participants in other supposedly high-return investments to ask questions. Federal court records show a partner in Florida hedge funds run by Arthur Nadel specifically cited Madoff as an example while pressing for an independent audit of the business.

Nadel agreed in early January, but then disappeared, leaving behind a purported suicide note. He was subsequently captured and accused of criminal and civil fraud for an alleged scam that took in an estimated $60 million from more than 100 investors.

The recent enforcement actions involve losses lower than the nearly $65 billion listed in Madoff's client account records. Yet court and other records show several of the defendants lived large, rivaling the Madoffian lifestyle of multiple yachts, a French chateau, Florida and Montauk, N.Y., vacation homes and a tony Manhattan apartment.

Stanford, a Texan accused by the SEC of misappropriating at least $1.6 billion of investors' money through bogus personal loans, is a cricket fan who successfully lobbied the sport's governing body in England to endorse his plans to spend $100 million on five tournaments.

The first match, pitting teams from England and the West Indies, was played in November at Stanford's cricket facility in Antigua, where he holds dual citizenship and was knighted by the island government.

Stephen Walsh, a former New York Islanders hockey team co-chairman, and business partner Paul Greenwood are charged with orchestrating an investment scheme that allegedly misappropriated at least $553 million from universities, public pension systems and retirement plans.

An SEC civil complaint alleges they used clients' money "as their personal piggy bank to furnish lavish and luxurious lifestyles, which include the purchase of multimillion-dollar homes, a horse farm, cars, horses and rare collectibles, such as Steiff teddy bears."

Texas businessman Ray White was accused in March of defrauding more than 250 investors in a foreign currency trading scheme that raised $10.9 million. He allegedly diverted some of the money to buy a new home, fund the car-racing career of his son, Christopher White, and buy Hurricane Motorsports, a manufacturer of replica sports cars and kits.

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