[Corp. Watch] Is there a difference between global finance and other Ponzi schemes?

[Corporation Watch]

Alleged $8 Billion CD Fraud Latest in Rash of Ponzi Busts

  By Robert Chew

(Time magazine, Feb. 17) -- The Securities and Exchange Commission  
(SEC) filed charges today against high-flying Houston-based financier  
R. Allen Stanford for orchestrating what it calls a multi-billion- 
dollar investment fraud of "shocking magnitude."

	The complaint says Stanford perpetrated a "massive fraud based on  
false promises and fabricated historical return data to prey on  
investors." The alleged fraud centers on an $8 billion certificate-of- 
deposit (CD) program.

	In the past few weeks, Stanford -- who operates the Antigua-based  
Stanford International Bank -- and his companies had fallen under the  
eye of the FBI, the SEC, and other regulatory bodies.

	The complaint says Stanford Bank has more than 30,000 clients in 131  
countries and $7.2 billion in assets. It says the company's larger  
group, Stanford Financial Group, is a privately held entity with $50  
billion "under advisement."

	The SEC action also charged the bank's chief financial officer, James  
Davis, as well as Laura Pendergest-Holt, chief investment officer of  
Stanford Financial Group.

	A temporary restraining order entered by U.S. District Court Judge  
Reed O'Connor froze Stanford's assets, and a receiver has been  
appointed to marshal them.

	The SEC's outgoing enforcement chief, Linda Thomsen, said Stanford  
promised "improbable and unsubstantiated high interest rates"  
allegedly earned through a unique investment strategy.

	The bank purportedly achieved double-digit returns on its investments  
during the past 15 years.

	"Stanford, and the close circle of family and friends with whom he  
runs his businesses, perpetrated a massive fraud based on false  
promises and fabricated historical return data to prey on investors,"  
said Thomsen.

	"We are moving quickly and decisively in this enforcement action to  
stop this fraudulent conduct and preserve assets for investors," she  
said.

	The SEC's regional director in Fort Worth, Rose Romero, said, "We are  
alleging a fraud of shocking magnitude that has spread its tentacles  
throughout the world."

	Not counting Stanford's alleged crime, seven new hedge-fund or Ponzi  
scams have been busted since January 1, totaling some $814 million  
lost by more than 2,100 investors, according to the Commodity Futures  
Trading Commission (CFTC).

	This does not include financial transgressions such as penny-stock  
swindles, insider trading, foreign bribery, or general market  
manipulation. A Ponzi scheme is a fraud in which money from new  
investors is used to pay off previous investors.

	The reason for the sudden deluge of these crimes, according to  
Stephen Obie, acting director of enforcement for the CFTC, is that  
hard economic times are stripping away fraudsters' camouflage.

	And, of course, Bernard Madoff's stunning $50 billion Ponzi [scheme]  
-- which wiped away billions of dollars from thousands of duped  
investors around the world -- has brought global attention to such  
capers, encouraging both whistle-blowers and just plain nervous  
investors to come forward, he said.

	Last week, Obie uncovered two Ponzi schemes in the $30 million range.  
Once considered a good size, the amount now barely raises an eyebrow.  
The CFTC, a sister agency to the SEC, handles commodities, futures,  
and foreign-exchange regulation and fraud.

	The CFTC filed a complaint against Mark S. Trimble of Edmond, Okla.,  
and his company, Phidippides Capital Management, for running a private  
hedgefund alleged to be a $30 million Ponzi scheme.

	Before that, Obie and his enforcement team filed an enforcement  
action against Charles E. Hays and his Crossfire Trading of Rosemount,  
Minn., charging fraud and misappropriation in connection with a $25  
million Ponzi scheme that affected 75 people.

	In the Oklahoma case, the CFTC's complaint alleges that, beginning in  
2005, Phidippides Capital operated a $34 million hedgefund with  
approximately 60 investors.

	Since at least October 2007, the CFTC says, Trimble allegedly issued  
"false account statements, failed to disclose the fund's actual multi- 
million trading losses, and operated the fund as a Ponzi scheme."

	Trimble allegedly received more than $1 million in management fees  
based on false reports of trading profits. Trimble's lawyer, Mack  
Martin, said Trimble is cooperating with the CFTC but made no further  
comment.

	In the Minnesota case, the CFTC complaint charges Hays with  
misappropriating investor funds to purchase a $4 million yacht, among  
other things. Hays could not be located for comment.

	"Hays ran his Ponzi scheme from his yacht but was grounded when the  
tide turned as federal authorities exposed this egregious fraud," said  
Obie in a prepared statement.

	When asked why the Ponzi surge is so great now, Obie said, "What  
you're seeing is the collapse of Ponzi funds in hard economic times --  
but I'm afraid as times get tougher, we're going to see new fraud  
develop, especially foreign-currency fraud."

	Given his enforcement staff of 110 people, Obie said he relies as  
much on whistle-blowers and insiders as he does on his own force.

	"Over 50% of our cases come from insiders or victims, but by then  
it's usually too late -- the damage is done," he said. "Look, we need  
the victims to prosecute the case. Victims calling us is crucial for  
our work."

	Last month, Obie guessed that his Ponzi caseload would hit about one  
per month, but he later increased that prediction to two a month. With  
six such cases in the first 45 days of the year, it looks to be an  
easy target to hit.

	"The lessons we've learned from Madoff are two-fold," Obie said.  
"First, no matter how reputable the firm or individual is -- and  
Madoff was highly reputable -- you have to check them out."

	"And second, as an agency, we have to follow up on every allegation,  
no matter who calls it in or how unsubstantiated it might be."