It has been almost exactly four years since Bernie Madoff was revealed as the operator of the largest Ponzi scheme in history (estimated at $64.8 billion by prosecutors). One might think that with all the publicity and news coverage, people would have become more cautious and avoid falling prey to investment fraudsters. Unfortunately, a review of the list of SEC enforcement actions against Ponzi schemes suggests otherwise. To summarize, in each of the years from 2010 to 2012 (through December 10th), there were 13 to 16 enforcement actions with total amounts ranging from $1.5 to $2.7 billion. A summary of the enforcement actions is shown below. While the SEC has clearly become better at identifying Ponzi schemes after Madoff, the same cannot be said for the population at large. P.T. Barnum’s famous saying about the frequency of the birth of suckers comes to mind.
Some Ponzi schemes are so outrageous that they would truly be humorous if they did not involve the wrecking of lives. Here is one of my favorite examples which I wrote about a few months ago, When Truth is Stranger than Fiction. A common element among Ponzi schemes is their targeting of an affinity-based group. For example, Madoff famously pursued the Jewish community, especially those connected to certain Florida country clubs. The Ponzi operators do not simply exploit the human emotion of greed, but they take full advantage of peoples’ longing to belong to a group that they perceive as desirable. Madoff was a master of creating an aura of exclusivity around his fund.
One of my favorite shows on CNBC (in fact, the only show I watch on CNBC) is “American Greed” which tells the stories behind the “Scams, schemes, and broken dreams”. Many of the Ponzi schemes from the SEC list have been covered in this show. As much as I enjoy watching “American Greed”, I await the day when it will be canceled for lack of good material. As of now, that day will not be arriving anytime soon.