We all know by now what a Ponzi scheme is. Some sharp hedge fund manager
or other investment guru sells fund shares, usually to close friends and
relatives, and friends and acquaintances of each, promising a higher rate
of return than could reasonably be earned in a legitimate investment.
Typically, the fund doesn’t generate earnings with which to pay
the promised interest to the investors. Instead, money paid in by later
investors is used to pay interest to early investors. It doesn’t
take much imagination to deduce that this house of cards, so to speak,
eventually will collapse. When it does, typically nobody gets paid back.
The Security and Exchange Commission (SEC) is the body with authority
to investigate these monetary funds. The SEC can impose huge fines on
these bogus companies and freeze and seize their assets. Unfortunately,
recent history has shown that the performance of the SEC leaves much to
to read about the breathtakingly inept and careless oversight that the
SEC exercised in the Bernard Madoff debacle. To make matters even worse,
it recently has been discovered that high level SEC staffers were busy
watching porn on their government computers instead of doing the job for
which they were hired. One lawyer watched as many as 8 hours of porn during the day.
Now comes an April 28, 2010 Denver Post article that reports that yet
another $122 million Ponzi scheme has been discovered operating in Colorado.
Sean Miller, a Greenwood Village-based hedge fund manager, said he was
the only person involved in the wrongdoing. Although phony financial statements
claimed $120 million in assets, there was actually only $15 million in
a Morgan Stanley account.
As in all con games, experts say the so-called victims are oftentimes
not victims at all. Lured by the promises of unusually high rates of return,
these “victims” rarely ask questions about why the investment
is consistently making investors so much money.
Will this never end?