Post-Madoff, Financial Fraud Grows
Bernie Madoff and his $65 billion fraud may have made modern-day Ponzi schemes front-page news, but it did little to eradicate more financial fraud incidents from happening. According to the Federal Trade Commission’s annual Consumer Sentinel Network Data Book, Americans filed more than 1.5 million financial fraud complaints in 2011 – a 62% increase in just three years.
While the Internet has made financial fraud more pervasive, many of today’s most common scams are reminiscent of touted by the snake oil salesmen in the 19th century or the Florida swamp-land salesmen in the 1960s, according to a February 2012 report by the Center for Retirement Research. Victims then and now are deceived by scammers who convince them that what they’re offering is new and ripe with potential profit.
Some frauds are more prevalent than others. For instance, a rise in elder fraud has uncovered more incidences of so-called senior financial specialists who prey on the financial fears of the elderly with financial products that promise high returns and low risk. Many times the products involved in these scams include stocks, bonds, private placements in company stock or debt, insurance, high-yield investments.
An example of senior specialist fraud occurred in southern California several years ago. Financial advisor Jeffrey Gordon Butler convinced a group of clients to put their money into an investment that he said would pay out 12% returns. A total of 130 clients ultimately “invested” about $11 million with Butler. Butler’s investment, however, was a Ponzi scheme, and the clients lost all of their money.
“Of course, we fell for it,” said Ann Poor, a 92-year-old retired school teacher who lost more than $300,000 to Butler, in a story appearing in the Orange County Register.
Poor and her husband, Wayne, a teacher who is now deceased, had been saving for retirement and hoped to leave a nice nest egg for their children and grandchildren. They met Butler when he prepared their living trusts, and jumped on board when he told them about his investment in which they could earn 12% a year, Poor said.
The Nigerian email scam is another common financial fraud scheme. This type of scam is considered advance-fee fraud, and involves victims being asked to provide money, their bank account number, or other personal information in exchange for a share of a reward.
John W. Worley became a victim of advance-fee fraud in 2001 after receiving an email from a Nigerian who purportedly needed help transferring $55 million out of South Africa to the United States. If Worley could provide money upfront to transfer the $55 million, he would be richly rewarded. Worley, a decorated Vietnam veteran and an ordained minister with a practice as a psychotherapist, never received those rewards, however. Instead, the scam ended up costing him more than $40,000.
Unique investment strategies also are a hallmark of possible financial fraud. One of the most recent cases involving this form of fraud was the $8 billion fraud case filed against Texas financier R. Allen Stanford in February 2009. The Securities and Exchange Commission (SEC) claims that Stanford touted a “unique investment strategy” to sell high-yield certificates of deposit and claimed he earned fantastic returns.
The certificates turned out to be bogus, and Stanford was found guilty in March 2012 of defrauding more than 20,000 investors out of $8 billion. Stanford faces up to 230 years in prison.