Big banks may not be evil. But what's becoming increasingly clear is that the bigger they are, the more evil stuff they are involved with.
Hidden in the document detailing Tuesday's settlement between the Department of Justice and JPMorgan Chase over Bernie Madoff's Ponzi scheme was this nugget: JPMorgan was essentially shorting Madoff.
In other words, it wasn't only that JPMorgan (JPM) ignored and failed to report to authorities the numerous red flags its employees encountered over the 20 years it served as the main banker to the largest financial fraud in history. To be sure, JPMorgan did that. But on top of that, the bank was actually betting that Madoff was a fraud, and presumably expecting to collect when others found out.
Given that fact, it's not much of a surprise that JPMorgan decided to settle for $1.7 billion rather than fight the charges.
JPMorgan is essentially being penalized for being Madoff's banker. But the big bank did a lot of business with Madoff over the years. It had the Madoff funds' main bank account. It also invested in Madoff through feeder funds. And it created derivatives that it sold to people who couldn't get into a Madoff fund but still wanted to profit from the performance of Madoff's hedge fund. The derivatives were supposed to rise and fall with Madoff's performance. But since it was all faked, the derivatives only rose. And people wanted them.
That last bit is how JPMorgan got into the messy business of shorting Madoff, which actually was the right call, but now looks pretty bad.
It is normally very hard to short a hedge fund. Most don't have shares that trade. And when they do, they are for the parent company and not the fund. But when you create a derivative based on a hedge fund, as JPMorgan did, you create the opportunity for a short. The buyer of the derivative is going "long," and the seller is going "short." And in this case, it was JPMorgan that was the seller of Madoff-linked derivatives, at one point as much as a few hundred million.
For a time, JPMorgan hedged its bet, in part by putting some of the bank's own money into Madoff-related funds. But in the fall of 2008, JPMorgan suddenly pulled nearly 80% of that money out. That left it essentially short Madoff.
But it didn't get its short right either. According to the settlement, JPMorgan bankers were worried that they were "exposed to substantial risk in the event that Madoff Securities continue to perform successfully." Madoff, even if it was a fraud, could continue to fake his returns for a while longer. That would mean losses for JPMorgan's short position.
So they eventually decided just to get out of Madoff completely. In late 2008, the bank spent nearly $75 million canceling all the equity derivatives it had left related to Madoff, except for $5 million. It held onto that position even after finally reporting in mid-October 2008 to British authorities that it feared Madoff was a fraud.
In late November 2008, just two weeks before Bernie was arrested, JPMorgan, according to the Justice Department's settlement, got an offer to rip up that last $5 million short bet against Madoff. The bank declined, with a trader replying that they thought the short bet was "as of today ... very valuable."
That was the best Madoff trade JPMorgan made; that is, until Tuesday.
Source: CNN Money
Showing posts with label Ponzi Scheme. Show all posts
Showing posts with label Ponzi Scheme. Show all posts
Wednesday, January 8, 2014
Monday, July 9, 2012
Massive Ponzi Scheme Proves Age-Old Adage
If It’s Too Good to Be True…
If a respected member of your community offered you an investment opportunity, you might consider it. Especially if it’s a man of the cloth. For nearly a decade, Martin Sigillito — a bishop in the American Anglican Convocation and a St. Louis attorney — convinced 200-plus people to do more than just consider it: they actually entrusted him with their money to invest in a financial venture. But this venture turned out to be an old-fashioned Ponzi scheme, and in April of this year, Sigillito was convicted of leading a conspiracy that swindled $52 million from victim investors.
How the scam began. In late 2000, Sigillito opened a law office but didn’t actually practice law—instead, he advertised his “international business consulting services.” One of the “services” he offered was participation in the British Lending Program (BLP), transformed by Sigillito into a Ponzi scheme. Through the BLP, investors could “loan” money to a real estate developer in the United Kingdom for short periods of time, mostly one year, at high rates of return—between 10 and 48 percent.
This real estate developer, according to Sigillito, had a knack for spotting undervalued properties he could flip for a profit, had options on land that would become valuable when re-zoned, and had inside connections with British authorities. It sounded like a win-win for investors.
Unfortunately, this British developer was not the wunderkind Sigillito made him out to be—he was just another link in the criminal conspiracy.
How did Sigillito convince his investors to part with their money? He exploited his personal ties to people and particular groups he was affiliated with—like his church, social clubs, professional acquaintances, family, and neighbors—in a technique known as affinity fraud. He also held himself up as an expert in international law and finance and claimed he was a lecturer at Oxford University in England (when in reality he had simply taken part in a summer legal program at Oxford).
Sigillito, who also conspired with another American attorney, insisted that his investors’ funds initially be placed into his trust account, from which he would take exorbitant fees for himself and his co-conspirators. Even though he told investors he would then transmit the money to the U.K., Sigillito actually kept most of the funds in one or more American bank accounts he controlled.
For a while, the scam was self-sustaining: Many investors let their interest payments accrue and rolled their loans over every year, plus Sigillito brought in enough new investors to make interest and principal payments to any previous investor who asked for payment. And all the while, he made enough in “fees” to support his affluent lifestyle: exclusive club memberships, expensive vacations, a country home, a chauffeur, private school for his kids, and collections of rare and antique books, maps, prints, coins, jewelry, and liquor.
How the scam ended. Eventually, an increasing number of investors meant increasing payout requirements, which resulted in the BLP making late interest payments or missing interest payments all together. Then investors began clamoring to withdraw their funds. And finally, Sigillito’s own assistant became suspicious of his activities and contacted the FBI.
The takeaway from this case? Fully investigate any investment opportunity before handing over your hard-earned money—see our sidebar for tips on how to avoid being victimized.
Source: FBI
If a respected member of your community offered you an investment opportunity, you might consider it. Especially if it’s a man of the cloth. For nearly a decade, Martin Sigillito — a bishop in the American Anglican Convocation and a St. Louis attorney — convinced 200-plus people to do more than just consider it: they actually entrusted him with their money to invest in a financial venture. But this venture turned out to be an old-fashioned Ponzi scheme, and in April of this year, Sigillito was convicted of leading a conspiracy that swindled $52 million from victim investors.
How the scam began. In late 2000, Sigillito opened a law office but didn’t actually practice law—instead, he advertised his “international business consulting services.” One of the “services” he offered was participation in the British Lending Program (BLP), transformed by Sigillito into a Ponzi scheme. Through the BLP, investors could “loan” money to a real estate developer in the United Kingdom for short periods of time, mostly one year, at high rates of return—between 10 and 48 percent.
This real estate developer, according to Sigillito, had a knack for spotting undervalued properties he could flip for a profit, had options on land that would become valuable when re-zoned, and had inside connections with British authorities. It sounded like a win-win for investors.
Unfortunately, this British developer was not the wunderkind Sigillito made him out to be—he was just another link in the criminal conspiracy.
How did Sigillito convince his investors to part with their money? He exploited his personal ties to people and particular groups he was affiliated with—like his church, social clubs, professional acquaintances, family, and neighbors—in a technique known as affinity fraud. He also held himself up as an expert in international law and finance and claimed he was a lecturer at Oxford University in England (when in reality he had simply taken part in a summer legal program at Oxford).
Sigillito, who also conspired with another American attorney, insisted that his investors’ funds initially be placed into his trust account, from which he would take exorbitant fees for himself and his co-conspirators. Even though he told investors he would then transmit the money to the U.K., Sigillito actually kept most of the funds in one or more American bank accounts he controlled.
For a while, the scam was self-sustaining: Many investors let their interest payments accrue and rolled their loans over every year, plus Sigillito brought in enough new investors to make interest and principal payments to any previous investor who asked for payment. And all the while, he made enough in “fees” to support his affluent lifestyle: exclusive club memberships, expensive vacations, a country home, a chauffeur, private school for his kids, and collections of rare and antique books, maps, prints, coins, jewelry, and liquor.
How the scam ended. Eventually, an increasing number of investors meant increasing payout requirements, which resulted in the BLP making late interest payments or missing interest payments all together. Then investors began clamoring to withdraw their funds. And finally, Sigillito’s own assistant became suspicious of his activities and contacted the FBI.
The takeaway from this case? Fully investigate any investment opportunity before handing over your hard-earned money—see our sidebar for tips on how to avoid being victimized.
Source: FBI
Saturday, January 2, 2010
Investors lose millions in illegal scheme
More than 700 people stand to lose more than R200 million in investments after an investigation into the southern Cape-based Minne Trading investment scheme found it to be operating illegally.
The Registrar of Banks appointed auditing firm Deloitte to determine whether the company and two individuals, Graeme and Caroline Minne, were conducting the business of a bank, in contravention of the Banks Act. Investigators found that the business was receiving deposits from people and was thus operating as a bank. At the end of November, the business was told to stop taking investments and to repay all its investors.
The organisation had been promising investors returns of between 48 and 65 percent. The investigators found that while some investors were receiving these payments, "they never realised payments and were operating at a loss". "In practice, this means that Investor B's investment was used to pay the return on Investor A's investment."
The company was apparently involved in training, and in the trading of foreign exchange. The inspection revealed that the company "did not nearly generate enough profits on the forex market to pay the returns promised to investors".
Source: IoL
The Registrar of Banks appointed auditing firm Deloitte to determine whether the company and two individuals, Graeme and Caroline Minne, were conducting the business of a bank, in contravention of the Banks Act. Investigators found that the business was receiving deposits from people and was thus operating as a bank. At the end of November, the business was told to stop taking investments and to repay all its investors.
The organisation had been promising investors returns of between 48 and 65 percent. The investigators found that while some investors were receiving these payments, "they never realised payments and were operating at a loss". "In practice, this means that Investor B's investment was used to pay the return on Investor A's investment."
The company was apparently involved in training, and in the trading of foreign exchange. The inspection revealed that the company "did not nearly generate enough profits on the forex market to pay the returns promised to investors".
Source: IoL
Tuesday, October 27, 2009
Arrest warrant issued for Barry Tannenbaum
A warrant of arrest has been issued for mastermind of a recent multibillion-rand Ponzi fraud scam, said Finance Minister Pravin Gordhan on Tuesday. Over 700 investors have been affected by the scheme and about R12-billion was involved, it has been revealed.
Gordhan spoke strongly about the need to quell corruption and fraud in South Africa. A warrant for Tannenbaum's former lawyer, Dean Rees, has also been issued. Tannenbaum has been living in Australia, according to reports, while the assets of Rees had reportedly been frozen.
Tannenbaum was said to have lured investors with the promise of 200% annual returns linked to pharmaceutical imports and was accused of forging HIV/Aids drug orders to give reassurance when money started to dry up.
Source: Mail & Guardian
Gordhan spoke strongly about the need to quell corruption and fraud in South Africa. A warrant for Tannenbaum's former lawyer, Dean Rees, has also been issued. Tannenbaum has been living in Australia, according to reports, while the assets of Rees had reportedly been frozen.
Tannenbaum was said to have lured investors with the promise of 200% annual returns linked to pharmaceutical imports and was accused of forging HIV/Aids drug orders to give reassurance when money started to dry up.
Source: Mail & Guardian
Saturday, August 1, 2009
Investigators begin to unravel Ponzi scheme
A High Court order has frozen R43-million linked to the Ponzi scheme allegedly headed by Barry Tannenbaum.
On Friday, the High Court in Pretoria granted the preservation order to the National Prosecuting Authority's asset forfeiture unit in terms of the Prevention of Organised Crime Act, NPA spokesperson Mthunzi Mhaga said in a statement.
"The order freezes an estimated amount of just less than R44-million held in two bank accounts in the name of Darryl Leigh and the Darryl Leigh Trust," he said
Source: Mail & Guardian
On Friday, the High Court in Pretoria granted the preservation order to the National Prosecuting Authority's asset forfeiture unit in terms of the Prevention of Organised Crime Act, NPA spokesperson Mthunzi Mhaga said in a statement.
"The order freezes an estimated amount of just less than R44-million held in two bank accounts in the name of Darryl Leigh and the Darryl Leigh Trust," he said
Source: Mail & Guardian
Investigators begin to unravel Ponzi scheme
A High Court order has frozen R43-million linked to the Ponzi scheme allegedly headed by Barry Tannenbaum. On Friday, the High Court in Pretoria granted the preservation order to the National Prosecuting Authority's asset forfeiture unit in terms of the Prevention of Organised Crime Act, NPA spokesperson Mthunzi Mhaga said in a statement. "The order freezes an estimated amount of just less than R44-million held in two bank accounts in the name of Darryl Leigh and the Darryl Leigh Trust," he said
Tannenbaum, whose estate was provisionally sequestrated in June, was a trustee of the Darryl Leigh Trust. Legal adviser Darryl Leigh and attorney Dean Rees are accused of recruiting investors for the scheme. Mhaga said evidence in court appeared to indicate that the money in the now frozen accounts was the proceeds of the Ponzi scheme. Rather than distributing actual profits, a Ponzi scheme uses funds from investors to pay generous "returns" to other investors.
Mhaga said it appeared that the frozen accounts were used to launder some of the scheme's funds. "It is alleged that as a result of this Ponzi scheme nearly R97-million was transferred from Tannenbaum private accounts to those of Leigh," he said. Mhaga said money invested was allegedly transferred to Tannenbaum's personal accounts. Some was then moved to Leigh's personal account and channelled from there to his trust account. He alleged that at least R96 263 022 was transferred from Tannenbaum's personal bank accounts in South Africa to Leigh's personal account between October 2006 and November 2008. "Also, between October 2006 and June 2009, 23 deposits were made into the Darryl Leigh Trust bank account, amounting to R51 601 799." Of the 23 deposits, 17 deposits (totalling R39 298 365) was money transferred from Tannenbaum's two personal accounts to Leigh's personal account, then moved to the Darryl Leigh trust account.
Mhaga said the NPA, the police, the Financial Intelligence Centre, the South African Revenue Service and the South African Reserve Bank were engaged in a "massive" joint effort to investigate the alleged Ponzi scheme. Earlier this month, Leigh's assets, including two Lamborghinis and three properties, were seized. This asset seizure application was reportedly brought by Johannesburg businessman Christopher Leppan, who also brought an application in June which resulted in the provisional sequestration of Tannenbaum's estate in South Africa. Leppan claimed he was owed R2,88-million.
Mhaga said Ponzi schemes usually had four characteristics: the bait, the hook, the line and the sinker. The bait was promises of high returns and was used to lure investors; the hook was a complicated, but fictitious business model used to justify the promised returns; the line was the standing in society of the fraudster; and the sinker, which usually ended the scheme, was absence or paucity of commercial activity.
Source: Mail & Guardian
Tannenbaum, whose estate was provisionally sequestrated in June, was a trustee of the Darryl Leigh Trust. Legal adviser Darryl Leigh and attorney Dean Rees are accused of recruiting investors for the scheme. Mhaga said evidence in court appeared to indicate that the money in the now frozen accounts was the proceeds of the Ponzi scheme. Rather than distributing actual profits, a Ponzi scheme uses funds from investors to pay generous "returns" to other investors.
Mhaga said it appeared that the frozen accounts were used to launder some of the scheme's funds. "It is alleged that as a result of this Ponzi scheme nearly R97-million was transferred from Tannenbaum private accounts to those of Leigh," he said. Mhaga said money invested was allegedly transferred to Tannenbaum's personal accounts. Some was then moved to Leigh's personal account and channelled from there to his trust account. He alleged that at least R96 263 022 was transferred from Tannenbaum's personal bank accounts in South Africa to Leigh's personal account between October 2006 and November 2008. "Also, between October 2006 and June 2009, 23 deposits were made into the Darryl Leigh Trust bank account, amounting to R51 601 799." Of the 23 deposits, 17 deposits (totalling R39 298 365) was money transferred from Tannenbaum's two personal accounts to Leigh's personal account, then moved to the Darryl Leigh trust account.
Mhaga said the NPA, the police, the Financial Intelligence Centre, the South African Revenue Service and the South African Reserve Bank were engaged in a "massive" joint effort to investigate the alleged Ponzi scheme. Earlier this month, Leigh's assets, including two Lamborghinis and three properties, were seized. This asset seizure application was reportedly brought by Johannesburg businessman Christopher Leppan, who also brought an application in June which resulted in the provisional sequestration of Tannenbaum's estate in South Africa. Leppan claimed he was owed R2,88-million.
Mhaga said Ponzi schemes usually had four characteristics: the bait, the hook, the line and the sinker. The bait was promises of high returns and was used to lure investors; the hook was a complicated, but fictitious business model used to justify the promised returns; the line was the standing in society of the fraudster; and the sinker, which usually ended the scheme, was absence or paucity of commercial activity.
Source: Mail & Guardian
Thursday, June 25, 2009
Alleged Ponzi-scheme recruiter's assets frozen
The assets of lawyer Dean Rees -- an alleged recruiter for a Ponzi scheme reportedly headed by Barry Tannenbaum -- have been frozen, the Financial Mail said on Thursday. According to a recent investigation, Rees sought investors for Tannenbaum's scheme that supposedly imported pharmaceutical drugs into South Africa and then sold them on to generic drug manufacturers. Although Rees said he was an unwitting pawn of Tannenbaum, his assets were frozen this week by the Queen's Bench division of the United Kingdom High Court in London, the FM added. When contacted, Rees said he would fight this "most vigorously".
According to the FM, the UK court order specifically froze nine bank accounts belonging to Rees and his companies, including four at Investec and others in Hong Kong, New York and Switzerland. The order also demanded that Rees hand his passport to Barwa's lawyers and that he provide a list of all his assets.
Source: Mail & Guardian
According to the FM, the UK court order specifically froze nine bank accounts belonging to Rees and his companies, including four at Investec and others in Hong Kong, New York and Switzerland. The order also demanded that Rees hand his passport to Barwa's lawyers and that he provide a list of all his assets.
Source: Mail & Guardian
Thursday, June 11, 2009
SA rocked by R10bn Ponzi scheme
One of South Africa's largest Ponzi schemes, estimated to be worth up to R10-billion, has been uncovered, reports said on Thursday. The weekly Financial Mail, the Star and website moneyweb.co.za reported that this scheme could outstrip Fidentia and other scams by billions of rands. It said some of South Africa's wealthiest families seemed to have been targeted. A website set up to provide details said the scheme was allegedly run by Barry Tannenbaum (43), grandson of Adcock Ingram founder Harold Tannenbaum.
According to the Financial Mail, Tannenbaum may have defrauded investors through his Frankel International and Frankel Chemical Corp companies. Tannenbaum allegedly asked investors to put money in his companies, Frankel International and Frankel Chemicals, by offering returns of more than 200% a year, the magazine said.
The Star reported that estimates showed up to R10-billion could be at stake. One local investor placed as much as R100-million in the scheme. The newspaper named those involved as Tannenbaum and Johannesburg attorneys Dean Rees and Darryl Leigh. It said Rees and Tannenbaum were both blaming each other for the scheme.
The website describes the Frankel investment scheme as operating as an importer and exporter of active pharmaceutical ingredients (API) to and from foreign countries. "These ingredients are used by manufacturers of generic medicines and a large part of the APIs are used in the manufacturing of the antiretroviral drug prescribed to people who are exposed to or contracted HIV/Aids."
The site added that Tannenbaum promoted his concept to investors "claiming massive returns on investments". It alleges that he supported his proposition "by showing prospects purchase orders from major pharmaceutical companies such as Adcock Ingram, Aspen and Novartis for the respective APIs valued in the many millions." Tannenbaum currently lives in Sydney, while Rees is in Switzerland. Leigh told the Star that he could not comment "at this stage".
According to the Financial Mail, victims of the scheme included former Pick n Pay CEO Sean Summers. "Summers is fortunate in that, while he is believed to have put more than R20-million into the scheme, he hasn't lost everything," the publication said. Other victims included Allan Rock, a professional tennis coach, accountant Howard Lowenthal and broker Wayne Gadden, the Financial Mail said. Uraj Tewary, a call centre administrator, was also a victim. He took his wife's pension money and any money that his family could get, and put it into the scheme. "The problem is that my wife is due to have a baby any day now and I don't even have money to pay the doctor," Tewary told the Financial Mail.
The website describes a Ponzi scheme as a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned. It usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent.
The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going. The system is destined to collapse because the earnings, if any, are less than the payments. The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903.
Source: Mail & Guardian
According to the Financial Mail, Tannenbaum may have defrauded investors through his Frankel International and Frankel Chemical Corp companies. Tannenbaum allegedly asked investors to put money in his companies, Frankel International and Frankel Chemicals, by offering returns of more than 200% a year, the magazine said.
The Star reported that estimates showed up to R10-billion could be at stake. One local investor placed as much as R100-million in the scheme. The newspaper named those involved as Tannenbaum and Johannesburg attorneys Dean Rees and Darryl Leigh. It said Rees and Tannenbaum were both blaming each other for the scheme.
The website describes the Frankel investment scheme as operating as an importer and exporter of active pharmaceutical ingredients (API) to and from foreign countries. "These ingredients are used by manufacturers of generic medicines and a large part of the APIs are used in the manufacturing of the antiretroviral drug prescribed to people who are exposed to or contracted HIV/Aids."
The site added that Tannenbaum promoted his concept to investors "claiming massive returns on investments". It alleges that he supported his proposition "by showing prospects purchase orders from major pharmaceutical companies such as Adcock Ingram, Aspen and Novartis for the respective APIs valued in the many millions." Tannenbaum currently lives in Sydney, while Rees is in Switzerland. Leigh told the Star that he could not comment "at this stage".
According to the Financial Mail, victims of the scheme included former Pick n Pay CEO Sean Summers. "Summers is fortunate in that, while he is believed to have put more than R20-million into the scheme, he hasn't lost everything," the publication said. Other victims included Allan Rock, a professional tennis coach, accountant Howard Lowenthal and broker Wayne Gadden, the Financial Mail said. Uraj Tewary, a call centre administrator, was also a victim. He took his wife's pension money and any money that his family could get, and put it into the scheme. "The problem is that my wife is due to have a baby any day now and I don't even have money to pay the doctor," Tewary told the Financial Mail.
The website describes a Ponzi scheme as a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any actual profit earned. It usually offers returns that other investments cannot guarantee in order to entice new investors, in the form of short-term returns that are either abnormally high or unusually consistent.
The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going. The system is destined to collapse because the earnings, if any, are less than the payments. The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903.
Source: Mail & Guardian
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