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Ponzi schemes

From Madoff to Stanford Ponzi, from SEC to Congress: in dire need of political reforms

Submitted by Kaufmann on Wed, 2009-02-18 12:25

Another Ponzi scheme has allegedly been uncovered now, led by the Texas Financier R. A. Stanford, who may have swindled about 50,000 investors out of US $8 billion, or so.  The Feds have raided his house of cards but were having a hard time finding him. 

At US $50 billion, Madoff may have stood out because of the sheer magnitude of his scam.  But obviously he is not alone in large Ponzi schemes, not even within the US.  As global financial conditions have continued to deteriorate, the nakedness of those emperors without clothes is starkly exposed. 

But like the case of Madoff, this case also raises questions about whether ‘the SEC was asleep at the switch’ in this case as well.  Evidently allegations of fraud (and possible drug money laundering) have been made against Stanford over the past decade.  Yet the SEC took belated action very recently only after two former employees filed a lawsuit in civil court.

 

Satyam vs. Siemens Corruption: The Difference is in Ponzinomics

Submitted by Kaufmann on Wed, 2009-01-14 19:50

The financial crisis exposes emperors with no clothes.  Witness Madoff.  But naked truths are not only emerging for those dealings with obscure financial instruments.  Dramatic exposure in the corporate business sector is also taking place. 

Last month we discussed the corruption scandal surrounding Siemens, the multinational giant, which has agreed to pay billions in fines and fees.  With the holiday came a short truce.  New Year had not even taken place and we are hit by the enormity of the Satyam’s corporate fraud, labelled as India's Enron.

Bribery and fraud by business corporations is not new, of course.  And in fact the Siemens bribery case is a longstanding one, preceding the financial crisis.  Corporate fraud and corruption are not unique to developing or to industrialized countries, obviously.  They can take place anywhere.  They do.

The magnitude and timing proximity between the Siemens and Satyam corporate scandals may tempt some to rush and generalize, lumping such corporate scandals together as belonging to the same kilt.  That would be unfortunate.  There is a fundamental difference between those two cases.  It relates to “Ponzinomics.”  While Satyam shows clear features of a Ponzi scheme, the Siemens case doesn’t.  This difference matters.