How to spot a ponzi scheme - Starting a Ponzi Scheme

How to spot a ponzi scheme

Creating the illusion of fantastic success, of course, is chapter one in the Scammer's Handbook. But many, like R. Allen Stanford and Bernie Madoff, among the most egregious alleged billionaire bamboozlers, are taking the art of thievery to the next level. Some don't even bother opening an investor account when new monies come in, they just go shopping. It's enough to make Gordon "Greed is Good" Gecko blush. (See 25 people to blame for the financial crisis.)

Take Stephen Walsh and Paul Greenwood, operators of Westridge Capital Management, with $1.3 billion in assets, who last week were charged by The Commodity Futures Trading Commission for allegedly "misappropriating" at least $553 million for either personal expenses or to cover trading losses. The CFTC is the sister agency of the Securities and Exchange Commission and covers fraud in the commodities, futures, and foreign exchange markets. (See pictures of the demise of Bernard Madoff.)

The charge alleges Walsh and Greenwood gave themselves $8.2 million in employee "advances" and another whopping $160 million for personal expenses. The complaint detailed funds being used for buying rare books at auction, purchasing expensive horses, laying down $80,000 for a Steiff Teddy Bear and providing the ex-Mrs. Walsh with a $3 million residence.

Also last week, North Hills Management, a New York-based $40 million investment fund run by Mark Evan Bloom was charged by the same agency for "misappropriating for personal use" over $13 million from its clients' fund. (See the top 10 financial-crisis buzzwords.)

Bloom had the pluck to use other people's money to buy a $5.2 million New York apartment near the mayor's mansion in 2003 (coincidentally, the same building where Madoff's son, Andrew, lived) and then flipped it for $11.2 million in 2007, the CFTC charge states. In addition, it says Bloom and his wife owned multiple apartments in New York, beach homes in Florida and New Jersey, luxury cars and of course, boats. It also says Bloom used $1.2 million for interior design work and another $1.8 million for personal expenses.

Up until last month, Chuck Hays ran a fund called Crossfire Investment with $5.5 million in assets. What did he do with his clients' money? What else - went out and bought himself a $4 million yacht, from which he ran the alleged scam, according to CFTC and SEC complaints. In early February, the agencies dropped anchor on Hays. When the CFTC's Acting Director of Enforcement, Stephen Obie, was asked what the most outrageous use of investor money he's come across has been, his list is appropriately wacky. (See pictures of luxury yachts.)
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But you know you've really been "Ponzi-ed" when your investment guru has his own Caribbean island, a $10 million moated castle in Miami, $100 million fleet of private jets, three or four "outside wives" along with his real one, and calls himself "Sir," when not officially knighted.

Of course, the above describes financer R. Allen Stanford's lavish world, a near Madoff who, according to the SEC, allegedly pulled off a 15-year Ponzi based on suckering investors with so-called high-yield certificates of deposit, some $8 billion or more worth. According to the SEC, he has yet to hire a lawyer of record, and he could not be found for comment.