Ever since the Madoff scandal broke in December, authorities have been uncovering one suspected Ponzi scheme after another across the country.Ponzi schemes pay returns to investors out of the money paid by subsequent investors rather than from profits.
Experts suggest the number of schemes being exposed has shot up because of the current financial crisis. Ponzi schemes need a constant influx of cash. But during the current meltdown many people have stopped investing and instead want to withdraw their cash.
The SEC recently accused Joseph Forte, an investment fund manager in Philadelphia, of running a $50 million scam.
In New York, authorities recently arrested fund manager Nicholas Cosmo for allegedly running a $380 million Ponzi scheme. In Atlanta, fund manager James Ossie has been charged with a $25 million fraud.
In Sarasota, Fla., Arthur Nadel has been charged with defrauding investors of at least $300 million. He operated his six funds from a storefront in downtown Sarasota. He went missing a day before he was due to pay $50 million to some of his investors.
NPR reports that by then, many of his clients, "some spooked by the Madoff scandal, had already begun to ask probing questions about their investments and the solvency of the funds."
On Jan. 27, Nadel turned himself in to the FBI in Tampa.
NPR interviewed attorney Morgan Bentley, who represents more than 40 of Nadel's clients.
"There were more than half a dozen who specifically went into his office in November and December and said, 'How are you going to make distributions this year? How are you doing on liquidity?" Bentley told NPR. "And [they] were assured repeatedly and shown statements about cash positions -- all of which of course was bogus."
Florida in particular, with its numerous wealthy retirees, seems to be a magnet for Ponzi schemes. Madoff reportedly recruited many of his clients in Palm Beach, Fla., at the exclusive country club or at the Breakers hotel.
NPR reports that Florida attorney Michael Goldberg, a court-certified expert on Ponzi schemes, is currently helping unravel six scams.
"It's not that there are more Ponzi schemes now," he says, "it's just that more are coming to light. The reason is cash. Few people are making deposits and many are seeking withdrawals. It's a scenario that's disastrous for modern-day Ponzis."Ever since the Madoff scandal broke in December, authorities have been uncovering one suspected Ponzi scheme after another across the country. Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio