Title: Department of Commerce
1- Department of Commerce Consumer Affairs
- Business Registration Division
- Office of the Securities Commissioner
Investor Education Program
12/28/09
2Investment Fraud
The Ponzi Scheme
3What is a Ponzi Scheme?
- The Ponzi Scheme, named after the 1920s
swindler Charles Ponzi, is a ploy or a fraudulent
investment operation where earlier investors are
paid with funds given by subsequent investors.
Source NASSA Raid Response 2 Madoff A 21st
Century Ponzi Scheme
4Understanding a Ponzi Scheme
Ponzi Promoter
Investor A invests
Source NASSA Securities 101 Handbook For Law
Enforcement Officials
5Understanding a Ponzi Scheme
Ponzi Promoter
Investor A invests
Investor B invests
Source NASSA Securities 101 Handbook For Law
Enforcement Officials
6Understanding a Ponzi Scheme
Ponzi Promoter
Investor A invests
Investor C invests
Investor B invests
Source NASSA Securities 101 Handbook For Law
Enforcement Officials
7Collapse of a Ponzi Scheme
- As the number of total investors grows and the
supply of potential new investors dwindles, there
is not enough money to pay off promised returns
and cover investors who try to cash out. - The scheme starts to collapse with investors
losing all or most of their investment.
Source NASSA Raid Response 2 Madoff A 21st
Century Ponzi Scheme
8Burst of a Ponzi Scheme
- The Ponzi bubble bursts when the con artist
simply cannot keep up with the required payments.
- In many cases, the promoter or con artist has
spent the investment money on personal expenses,
depleting funds and accelerating the bursting of
the bubble.
Source NASSA Raid Response 2 Madoff A 21st
Century Ponzi Scheme
9How to Protect Yourself Against Ponzi Schemes
- Beware of promises of unrealistic returns.
- Diversify everything.
- Dont rely on reputation or word of mouth alone.
- Understand your investments.
Source NASSA Raid Response 2 Madoff A 21st
Century Ponzi Scheme
10How to Protect Yourself Against Ponzi Schemes
- For large investment schemes, ask who the auditor
is and check out the auditors on the internet. - Check registration and background of individual
selling the investment by contacting the
Securities Compliance Branch at 586-2722. - Report investment fraud by contacting the
Securities Enforcement Branch at 587-2267.
11Red Flags for Ponzi Schemes
- The investment is exclusive for only a special
group of people. - Poorly written information on the investment
product and the business. - Vague or overly complicated explanations of how
the business runs and how money is made. - Investments promoting no downside or risk.
12Red Flags for Ponzi Schemes
- Pressure to sign now and get your copies later.
- High or unrealistic returns in a short period of
time. - Not registered with the State Office of the
Securities Commissioner Compliance Branch.
13Recent Ponzi Cases in Hawaii
- Billion Coupons, Inc. (BCI)
- Marvin Ray Cooper
- 3.9 million
- WeCorp Inc.
- Stuart William Jones Payton Jones Lowe
- Over 2.2 million
- The Swiss Group
- Joseph W. Sullivan
- 8.1 million
14How We Can Help
- DCCA Securities Branches
- Regulate Call 586-2722 To check on
your broker/adviser registration - Protect Call 587-2267 To report
securities fraud (Toll Free) 1-877-477-2267 - Education Call 587-7400 To request
educational information and presentations
15Beware
Bernie Madoff 65 billion 2008
Charles Ponzi 10 million 1920
Whos next? How much? When?
16Contact Information
- DCCA Office of the Securities Commissioner
- 335 Merchant Street, Rm 203
- Honolulu, HI 96813
- Office Hours
- Mon- Fri/745am 430pm
- Website www.investing.hawaii.gov
To report investment fraud call our Scam Line
587-2267 or Toll Free
1-877-447-2267