Ponzi Schemes on Rise, Notes Forensic Accountant

As part of the fallout from the Madoff scandal, federal authorities have redoubled their efforts to identify and stop Ponzi schemes. The FBI, SEC, and Commodity Futures Trading Commission all report increases in investment fraud cases and Ponzi schemes. A recent article by forensic accountant, Sareena Sawhney, notes the following:

  • The FBI opened more than 2100 securities fraud investigations in 2009, up from 1750 in 2008. The FBI also had 651 agents working in 2009 on high-yield investment fraud cases, which include Ponzis, compared with 429 last year.
  • The SEC, in 2009, issued 82 percent more restraining orders against Ponzi schemes and other securities fraud cases…than in 2008, and it opened about 6 percent more investigations.Ponzi scheme investigations now make up 21 percent of the SEC’s enforcement workload compared with 17 percent in 2008.
  • The Commodity Futures Trading Commission filed 31 civil actions in Ponzi cases in 2009, more than twice the 2008 amount.
  • Financial bubbles tend to spawn Ponzi schemes, according to Sawhney. “As the bubble grows, investors seek ever higher yields, and their healthy skepticism takes a backseat to their enthusiasm,” she says. “Then, when the bubble bursts, investors rush to withdraw their capital. But the capital is, of course, long gone, and therefore the schemes are exposed.”

    Contact Frohsin & Barger to report an SEC violation or to speak with someone in our Government Investigations Defense Group.