by Guest Columinst
Seymour Jones
Clinical Professor of Forensic Accounting & Fraud at NYU Stern School of Business & former Senior Partner of Coopers & Lybrand
New York, NY
With the recurrence of a number of recent Ponzi schemes it is well to be reminded of the defenses available to both individual investors and certain institutions of a charitable or club nature that have been adversely impacted by the schemes. Investors should be alerted to certain flags that smack of Ponzi schemes and therefore they should be avoided:
· Investment opportunities that promise a fixed rate of return that far exceeds the more rational normal rate are indeed too good to be true.
· Investments that promise a return of your dollar at your request, other than regulated financial institutions such as banks, are suspect.
· Investments that do not clearly define the detailed nature of the related investments together with periodic financial statements certified by recognizable certified public accountant have been employed by Ponzi schemers in the past.
· Secrecy involved in the investment strategy utilized by the investment manager should alert investors to the distinct possibility of the existence of a Ponzi scheme.
· Institutions that are involved in charitable activities and private clubs should be forewarned that to the event that the Ponzi schemer has used such institutions to advertize his investment opportunities by attracting investors through his charitable and therefore “honorable” intentions may fall into the following traps.
When the Ponzi scheme ultimately fails and files for bankruptcy, as is often the case, the trustee in bankruptcy may go after the contributions to the charitable institutions and/or private clubs made by the Ponzi schemer on the basis that these are considered fraudulent conveyances because they were used to promote the fraud. In such cases the foregoing organizations may be hard pressed to come up with the required funds since two or more years worth of such contributions, depending on the state location, may be requested by the trustee in bankruptcy. It is therefore required that organizations become familiar with and monitor the actions of major contributors.
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