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Although their stories are still being written, both Carlos Hill and Bernard Madoff have established new levels of infamy in their respective jurisdictions. After the FBI arrested Madoff last month, Andrew Calamani of the Securities and Exchange Commission's New York regional office described the affair as "a stunning fraud that appears to be of epic proportions", while USA TODAY predicted that this alleged Ponzi scheme is "possibly the biggest swindle ever committed by a single person".
Similarly, when Carlos Hill was arrested here in Jamaica in April last year, Assistant Commissioner of Police Les Green told a press briefing that some $4 billion of investors' money could not be accounted for, and that this figure could increase as the investigation, which will be extended overseas, continued. My research has not yet located any other fraud case in Jamaica even close to this amount!
Another similarity between Ponzi's operation and those of Madoff and Hill, was the phenomenal (though) suspicious returns that were paid to investors in the initial stages! Whereas this is one of the most typical features of Ponzi schemes, the details are worthy of revisiting.
On July 24, 1920, the Boston Post ran a front-page feature estimating Ponzi to value $8.5 million, using a postal reply coupon scheme which "DOUBLES THE MONEY WITHIN THREE MONTHS: 50 Per cent Interest Paid in 45 Days by Ponzi - Has Thousands of Investors".
Similarly, at the height of its operations, Cash Plus investors amazingly reported receiving 10 per cent monthly from deposits of at least $100,000. In the same way, at one stage, Madoff's firm was one of the top market-maker businesses on Wall Street, and had a reputation of bypassing 'specialist firms' in order to provide steady, solid returns on investments, even in slow periods, and with volatile markets.
All these pyramid operators resisted government or other types of regulations, especially in the early, lucrative stages of their operations, and fought long battles with regulators and/or law enforcement personnel. In early 1920 for example, the postal authorities and other Federal, state and county law-enforcement officials began investigating Ponzi, but were unable to unearth evidence of criminality.
Eventually, he was arrested by US Federal authorities on August 12, 1920, received bail, but was rearrested the following day. Carlos Hill, likewise, had long, well-publicised spats with Jamaican regulators, especially the Financial Services Commission and Bank of Jamaica, until he was eventually arrested on April 10, 2008. Madoff also, according to the Wall Street Journal, was investigated at least eight times in 16 years by the Security Exchange Commission (SEC) and other regulatory authorities. Finally, he was also arrested on December 11, 2008, by the FBI.
Resistance to these men also came from non-government sources and detractors from the general public. Ponzi, for example, was hounded by the editors of the Boston Post, as well as the legendary Clarence Barron, then owner of the Dow Jones and Co, and the Wall Street Journal. Carlos Hill also had innumerable critics in the Jamaican print and electronic media with talk shows, articles and interviews held with detractors from academia, industry and commerce. Madoff was also criticised by various financial analysts, including Harry Maropolos, who, in 2005, sent a detailed 17-page memo to the SEC titled, 'The World's Largest Hedge Fund is a Fraud', specified 29 'Red Flags', and concluded that Madoff's operation was most likely a Ponzi scheme.
The ostentatious and prestigious lives enjoyed from the money received from their investors also characterised these scammers. At the height of his success, for example, Ponzi's 12-room mansion in upscale Lexington was well staffed with servant and his fleet of automobiles included a custom-built limousine. He was usually dapper, wearing expensive clothes, carried gold-handled Malacca canes, and his wife was showered with expensive diamonds and baubles.
Carlos Hill was arrested at his swanky Norbrook house last year where the police also seized what one newspaper called "high-end" vehicles, and estimated the rent in that neighbourhood to range from US$4,000-US$6,000.
Madoff also lived well. His Manhattan Upper East Side penthouse is estimated to cost above US$5 million. he owns an oceanfront house in Long Island, another waterfront home in Palm Beach, Florida, and a 55-foot yacht named Bull.
Typical of pyramid operators, all exhibited questionable business and accounting practices. Ponzi avoided giving details of his operations, claiming his methodologies were trade secrets that could not be divulged for competitive reasons. He recruited an 18-year-old secretary called Luci Meli, who also doubled as a bookkeeper, until an audit was commissioned in July 28, 1920, by the then US District Attorney General Gallagher.
Carlos Hill similarly eschewed public disclosure of his affairs, claiming, as well, competitive trade secrets, and his legal battles were also well publicised. Madoff, though regulated by the SEC, according to the Washing-ton Post, shrewdly avoided filing by selling his holdings for cash at the end of each period, an unusual tactic in financial circles. Madoff used a small two-person audit firm - one of whom was retired - and refused his clients online access to their accounts, a standard feature of other hedge-fund operators.
Again, characteristic of all pyramid operators, in the end, all three ended up bankrupt, leaving countless investors out of pocket for huge sums. When government auditor Edwin Pride ended his examination of Ponzi's books in August 1920, he found liabilities of US$7 million, with no assets to cover them.
investors burned
Carlos Hill, as well, at the time of his arrest, was in the red. According to Assistant Commissioner Les Green, about J$4 billion of investors' money could not be accounted for, and the court-appointed receiver, Kevin Bandoian, claimed that approximately 40,000 investors could not be paid.
It is understood that forensic accountants combing through documents have identified nearly 200 companies registered under the Cash Plus brand, 90 per cent of which are deemed to be dummy companies. Madoff, at the time of his arrest, is alleged to have lost US$50 billion of his investors' funds, and up to this point, the number of investors burned is still undetermined.
Madoff, however, exhibited differences from Ponzi, Hill, and other pyramid operators that not only allowed him to carry out his scam longer than most, but may, in the end, render him as the greatest-ever pyramid operator - at least, so far. Whereas most pyramids rarely outlive seven years and usually offer outrageous returns - 20 per cent and over - Madoff, according to analysts, was generous and steady, and according to The New York Times, was "unusually consistent". Madoff, for example, paid about 10 per cent consistently for about 17 years.
Collin A.A. Greenland is a forensic accountant.
New Jersey Banks , Corpus Christi Lawyers
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S.E.C. Report Details Lapses i
