Monday, April 25, 2011

How a ponzi scheme works

From the end credits of "The Other Guys", quite a bit of interesting information about the 2008 Ponzi scheme and other aspects of the current financial crisis.

http://www.youtube.com/watch?v=tvuDGyUkzoI
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5 comments:

  1. Chris DendrinosApril 25, 2011 at 5:36 PM

    Well I feel like there is some distorted information presented here as in all documentaries which try to portray a particular point. Obviously there are some things that cannot be distorted and those are hot topics for debate. As for ponzi schemes they are clearly a form of corruption that exists in the finance industry, but I think there is corruption in every industry. I find it disappointing that the finance industry seems to take all the heat though.

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  2. EMeisheApril 25, 2011 at 7:01 PM

    I think it actually broke down the information well. And I thought there were some funny shots about the finance industry throughout the movie. One part makes fun of how easy it is to misdirect negative attention with gifts/bribes. I agree with Chris that there is corruption in every industry but I think the scale tends to be bigger in finance (Madoff). Then again Enron was pretty big as well.

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  3. JaredCohenApril 25, 2011 at 9:19 PM

    Obviously, most likely as a result from the Madoff ordeal, the SEC has been dedicating many more resources to the investigation of Ponzi Schemes. The problem is, by the time these schemes are identified, it is very often WAY too late for investors. The money is gone (don't ask me where it goes, most likely just lavish spending).

    The SEC publishes a lot of good information on their website about Ponzi schemes, this is how they recommend to investors that they recognize a scam:

    What are some Ponzi scheme “red flags”?

    Many Ponzi schemes share common characteristics. Look for these warning signs:

    * High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.
    * Overly consistent returns. Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions.
    * Unregistered investments. Ponzi schemes typically involve investments that have not been registered with the SEC or with state regulators. Registration is important because it provides investors with access to key information about the company’s management, products, services, and finances.
    * Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
    * Secretive and/or complex strategies. Avoiding investments you don’t understand or for which you can’t get complete information is a good rule of thumb.
    * Issues with paperwork. Ignore excuses regarding why you can’t review information about an investment in writing, and always read an investment’s prospectus or disclosure statement carefully before you invest. Also, account statement errors may be a sign that funds are not being invested as promised.
    * Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out your investment. Keep in mind that Ponzi scheme promoters sometimes encourage participants to “roll over” promised payments by offering even higher investment returns.

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  4. Ankur JainApril 25, 2011 at 11:20 PM

    I like Jared's characterization and in depth summary of the major red flags that should alert you to a ponzi scheme. I agree that there is corruption in every industry and that finance does take the brunt of the negative press. I do think that the economic impact of the financial industry's corruption are felt through other industries and institutions as well. The Other Guys took a comedic approach to the ponzi schemes and took numerous jabs at Madoff, NASDAQ, the government, and financial institutions as a whole. Madoff's scheme was terrible for the way it affected so many different people. He falsified gains, committed securities frauds and investment advisory fraud, and the list goes on and on. The fact is that this egregious crime affected educational institutions, many Jewish federations, and hospitals. His actions have forced great charities and organizations to close. I want to reiterate Jared's comments and make sure everyone is aware even the most intelligent investors can get caught up in a ponzi scheme, so everyone should approach investment opportunities that yield high investment returns with little to no risk with some caution.

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  5. RichardApril 26, 2011 at 3:51 AM

    Why do government 'regulators' always seem to be the last ones to the party? What, its not a problem until billions of dollars get stolen? Ponzi schemes have been going on forever, its not like this is some new phenomenon. By the time they say they have a handle on things, there will be some other scam around to take people's money. Such as it is when we live in a nation that values the dollar over all else.

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