Despite nearly a decade passing since Bernard Madoff was arrested for masterminding a $65 billion fraud in one of the biggest Ponzi schemes in history, similar investor fraud scams are surviving and thriving.
Last year 59 such schemes were uncovered in the U.S. with losses totaling $2.4 billion, according to data compiled by website Ponzitracker. A Ponzi scheme is commonly defined as a fraudulent investing scam promising high rates of return with little risk to investors.
Jordan Maglich, the site’s creator, told the Financial Times that the number of Ponzi schemes discovered and number of perpetrators sentenced have stayed reasonably consistent over the past five years.
Since 2012, about 65 Ponzis a year have been discovered, with a median scheme size of around $6 million. The median size last year shrank to $3.5 million.
“The slightly smaller size of schemes could suggest regulators are doing a better job rooting out frauds before they get too big,” Maglich, an attorney at Tampa firm Wiand Guerra King, told the FT.
Highly educated people are often victims of these frauds. “Criminals target people with money,” says Owen Donley, chief counsel of the SEC’s Office of Investor Education and Advocacy. “The people who run these are often very charismatic.”
The SEC’s investor protection website outlines how investors can identify a Ponzi scheme.
“Markets go up and down. No one is consistent over long periods. If someone claims otherwise they’re probably lying,” Donley says.
To be sure, one of the most respected economic minds of our times warns investors to always be vigilant about such financial deception, even though he doubts it will ever totally be eradicated from the world.
Nobel laureate economist Robert Shiller of Yale University warns that much like a carnival runway, the financial world will never be rid of “fraud and fools” since free markets creative incentives for businesses to "phish,” or sell bad products or peddle misinformation to customers.
“Free markets have generated unprecedented prosperity for individuals and societies alike. But, because we can be manipulated or deceived or even just passively tempted, free markets also persuade us to buy things that are good neither for us nor for society,” he wrote in a blog for Project Syndicate.
Madoff was arrested on Dec. 12, 2008 for running a Ponzi scheme at Bernard L. Madoff Investment Securities LLC over several decades and is serving a 150-year prison sentence, Reuters reported.
(Newsmax wires services contributed to this report).