Category Archives: Information

Stanford Ponzi Scheme

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In an article from the Associate Press, Lawyers for jailed Texas financier R. Allen Stanford and two of his former executives on Thursday tried to shoot down claims by a fraud examiner that their clients took part in the massive Ponzi scheme that authorities say helped bilk investors out of $7 billion.

Stanford’s financial dealings were being examined during a court hearing in which a federal judge was to decide if Stanford and the two ex-executives of his now defunct companies will continue having their legal bills paid for by an insurance policy as they fight charges connected to the alleged Ponzi scheme.

The insurer, Lloyd’s of London, says the policy doesn’t pay on charges of money laundering, one of the many counts faced in a federal indictment by Stanford and Gilbert Lopez, the ex-chief accounting officer, and Mark Kuhrt, the ex-global controller. Stanford and the executives, who say they are not guilty, sued Lloyd’s to force it to honor the policy, which so far has paid more than $15 million in legal fees to them and a third executive in their criminal and civil cases.

Stanford and the former executives are accused of orchestrating a colossal pyramid scheme by advising clients from 113 countries to invest more than $7 billion in certificates of deposit at the Stanford International Bank on the Caribbean island of Antigua, promising huge returns. Stanford’s businesses were headquartered in Houston.

Berenblut, testifying for Lloyd’s, said Stanford took $1.7 billion in deposits made to his bank and used them for loans to himself. Prosecutors have accused Stanford of using this money to help pay for his lavish lifestyle. Berenblut also said his review of the bank’s records showed another $1.8 billion in loans were secretly made to related Stanford corporations.

Berenblut called the loans “one of the examples of financial manipulation” he found in reviewing Stanford’s records.

Berenblut, a certified fraud examiner and accountant, also said Stanford made a $63.5 million Caribbean land purchase in 2008 and later artificially inflated it to $3.2 billion to boost the bank’s revenues and hide the loans. Stanford has contended the land purchase was legitimate and he had planned to use it to build a super exclusive resort in Antigua.

However, another fraud examiner, Alan Westheimer, found fault with Berenblut’s conclusions.

Berenblut also testified Kuhrt and Lopez were aware that investment reports from the bank were made up and the work of reverse engineering.

“I believe Mr. Berenblut is incorrect in assuming there was any reverse engineering going on here,” Westheimer said.

Stanford’s attorneys on Thursday, while questioning Berenblut, suggested the loans actually went to support other business ventures or investments managed by the financier’s companies. Stanford’s attorneys also said he didn’t have direct involvement in preparing his company’s financial statements but was always open to having his records reviewed by regulatory authorities.

Kuhrt and Lopez have tried to put the blame for what happened at the bank on James Davis, Stanford’s former chief financial officer, who has pleaded guilty in the case and is cooperating with prosecutors.

The hearing before U.S. District Judge Nancy Atlas, which began Tuesday, is providing a preview of the upcoming criminal trials in the case. The hearing was to continue on Friday.

The insurer’s case mirrors the accusations made against Stanford and the two ex-executives by prosecutors in the criminal case in Houston and by the Securities and Exchange Commission in a lawsuit it filed in Dallas.

Stanford and the two executives are not testifying at the hearing. Stanford has been jailed since being indicted in June 2009 while Kuhrt and Lopez are free on bond.

Stanford’s trial, being handled by another Houston federal judge, is set to begin Jan. 24. The others will be tried after that. Besides money laundering, Stanford and his one-time colleagues have also been indicted on charges of wire and mail fraud.

Suit for Madoff Related Losses

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A new lawsuit in U.S. District Court in Manhattan has been brought against Sterling Equities Associates, which owns the Mets, baseball team and also named Fred Wilpon, the Mets chief executive officer and principle owner for letting their workers put more than $16 million in 401k assets into accounts controlled by Bernard Madoff.

The complaint alleges that Sterling Equities and several of its top executives should have known that Madoff was carrying out a massive Ponzi scheme that cost thousands of investors billions of dollars.

Start Date of Ponzi Scheme Is Critical to Claims

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I found this really interest article from the New Times the other day. The article states that there is a motion pending in Federal Bankruptcy Court in Manhattan that contends that Bernard Madoff long term investors cannot accurately calculate their loses unthil they know whether any of their orginal profits were legitimate. And to determine that, the motion continues, they must know when the Ponzi scheme began.

The Madoff bankruptcy trustee is calculating investor losses as the difference between the cash paid into an account and the cash taken out.

But if some of an investor

Ponzi Scheme Victims Get a Tax Break

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The IRS announced unprecedented tax relief for victims of Ponzi schemes, syaing many of those affected could deduct up to 95% of their losses, immediately. The move represents a significant relaxation of longstanding limits on tax relief for victims of investment scams.

In broad terms, the IRS said Ponzi scheme victim who aren’t suing to recover their losses can generally deduct up to 95% of their qualified losses – minus any potential recoveries from insurance or the Securities Investor Production Corporation (or SIPC) – in the year the fraud is discovered. Those pursuing third party recoveries can deduct 70% of relevant investments, after potential recoveries.

The SIPC, is an organization designed to help investors at failed brokerage firms.

The IRS said victims wouldn’t be subject to limits that apply to personal casualty or theft losses and could carry back net operating losses five years to offset taxes paid, or forward 20 years. Under prior rules, many investors had to subtract $100 and 10% of their adjusted gross income from their loss deductions, and could carry back losses only three years, or forward 20 years.

In another change, the IRS said investors can include their principal, as well as any so-called phantom income they have received over the years, in their theft-loss deductions. Previously, the IRS allowed some Ponzi scheme victims to deduct only their principal as a theft loss, not phantom income.

However these changes still leave open some questions like what happens if you participated in a Ponzi scheme through a IRA account or indirectly through feeder funds.

At the end of the day with all these changes and Congress trying to find ways to help victims who were swindled by Bernard Madhoff, its best to consult any attorney to figure out where you stand and how all the changes in the law can affect you.

Ponzi Scheme & Pyramid Scheme – Difference

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Today the terms Ponzi scheme and pyramid scheme are often used to mean the same thing. However, there is a slight difference.

A true Ponzi scheme usually promotes what appears to be a real investment opportunity which investors may contribute to without actually being an affiliate, distributor, and etc. A pyramid scheme, on the other hand, usually requires that participants make a payment for the right to recruit other people into the scheme, at which point they will receive money. They have no real product, the only real money being is the entry fee.

That’s why, when you are considering any investment, online or offline, a good product is one of the key criteria you should look for.


At the end of the day, this is splitting hairs a little. All you need to know is that people lose money in either of these schemes. Avoid them like the plague. Evaluate your business opportunities in a logical manner – and pay particular attention to the product or range of products being offered – and you will easily avoid being caught up in one of these illegal schemes.

Ponzi Scheme Orgins

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The scheme is named after Charles Ponzi, who became notorious for using the technique in early 1920. He had emigrated from Italy to the United States in 1903. Ponzi did not invent the scheme. Charles Dickens’ 1857 novel Little Dorrit described such a scheme decades before Ponzi was born, but Charles Ponzi’s operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted investors’ money to support payments to earlier investors and Ponzi’s personal wealth.

What is a Ponzi Scheme

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A Ponzi scheme is a fraudulent investment scheme that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering return other investments cannot guarantee, in the form of short-term returns that are abnormally high. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the recent example of Bernard Madoff powerfully illustrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for long periods.