Ponzi scheme in the Southern District

To my readers - took a few days off because of work and travel.  But, now back to the fun world of fraud and white-collar crime!

http://www.justice.gov/usao/txs/1News/Releases/2013%20February/130207%20-%20Bjork.html

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

Victims of Alan Stanford

Unfortunately, there is not very much compensation for the victims of Alan Stanford's massive pyramid/Ponzi scheme:

http://www.reuters.com/article/2013/01/12/us-stanford-ponzi-claims-idUSBRE90B01Q20130112

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

Have a great and fraud-free day.

 

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

Notable Ponzi Schemes

Back to posting after a few days off.

Courtesy of CNBC and their excellent show, "American Greed," here are some examples of notorious Ponzi schemes.  Note the similarities as to how the schemes are conducted.

http://www.cnbc.com/id/41722418?__source=msn|mostwanted|&par=msn

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

                                             

Have a great and fraud-free day.

 

http://www.tauskvega.com

 

----------à>>>>>>>>>>>>>>>gene tausk

 

Alan Standford CEO Sentenced

The former CEO of Alan Standford's financial "empire" is sentenced today in the Southern District of Texas, Houston Division. 

http://www.chicagotribune.com/news/sns-rt-us-stanford-pleabre85k1m8-20120621,0,2310960.story

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

Have a great and fraud-free day.

http://www.tauskvega.com

----------à>>>>>>>>>>>>>>>gene tausk

Interludes - Alan Stanford sentenced

Alan Stanford, purveyor of a giant Pyramid scheme, was sentenced today to 110 years in prison.

http://finance.yahoo.com/news/stanford-gets-110-years-role-171331968.html

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

Have a great and fraud-free day.

http://www.tauskvega.com

----------à>>>>>>>>>>>>>>>gene tausk

Interludes 10 - Fraud in Religion

We have covered this topic before, but once again, fraud takes all forms.  Someone using relgion as a cover to carry on a Ponzi scheme is not new.

http://news.yahoo.com/ephren-taylor-accused-11-million-christian-ponzi-scheme-155327895--abc-news-topstories.html

NOTE: THE INFORMATION IN THIS BLOG IS NOT LEGAL ADVICE NOR IS IT INTENDED TO BE LEGAL ADVICE.  IF THE READER HAS ANY LEGAL QUESTIONS, PLEASE REFER TO AN ATTORNEY.

Have a great and fraud-free day.

http://www.tauskvega.com

----------à>>>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme XV

OK - one last note before we leave this topic.

Some observant readers have asked me - isn't this a PONZI scheme rather than a PYRAMID scheme?

    The answer, of course, is yes.  The great Albanian Pyramid Scheme is actually the Great Albanian Ponzi scheme.

     So - why call it by the wrong name?

    Blame the International Monetary Fund.  The IMF initially called them Pyramid schemes and the name stuck.  But - I am glad that my readers know the difference!

   We will begin a new topic tommorrow.

http://www.tauskvega.com

-------------->>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme XIV

OK - what can the Albanian experience teach us?

      It's easy to point at this entire mess and say "well, that's that" or "the history of Albania meant that this was an accident waiting to happen" (which is one of the reasons I posted on Albanian history) or "that's what happens when you expect something from nothing."

     Remember the key to all fraud, however - it is the acquisition of money or goods by deceit.  No violence is needed or expected, no weapons are used and no threats of force are required.  A good fraud scheme just really needs two elements: (1) the gullibility of the victim or "mark" and (2) the projected confidence of the perpetrator of the scheme.   BTW - when I use the term "gullible" here, I don't mean that the victims are stupid - far from it.  They are at a point in their lives when, for a number of reasons, they are letting their defenses down and are ready for the scam to be introduced to them.

    As we have seen from the Albanian experience, there was indeed a "perfect storm" that enabled the entire nation to become gullible to the projected confidence of the scam artists that pulled off this incredible, nationwide pyramid scheme that had its end result of plunging an entire nation into civil war.  An inexperienced and uneducated (as to Western economic functions and terms) populace and a massive criminal element (including, unfortunately, some elements of the Albanian government) pulled off a massive pyramid scheme not just on one victim or two, but millions of people.

     This, then, in my opinion, is the "lesson" (or one of them anyway) of the Albanian experience: fraud can not only rip apart an individual's life, it can have far reaching consequences.  It is not unreasonable to expect that people who find that their meager savings were destroyed by scam artists will become upset and, sometimes, violent.  When economic losses due to fraud are not contained, entire governments may find themselves on the receiving end.

     It is a lesson worth remembering in any economic situation, but especially economic "downturns."

We will wrap this up tommorrow.

Have a great and fraud-free day.

http://www.tauskvega.com

--------------->>>>>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme XIII

So - we have seen some of the unique factors that went into enabling Albania to become a "poster child" for pyramid schemes.  Chief among them was the country's unique history which made it ripe for such schemes to be perpetuated on a mass of people; namely the country's history as an isolated backwater of the Ottoman Empire for 500 years and it's isolation and totalitiarian rule under Enver Hoxha fromn 1944 until 1985.

     There is another factor that needs to be explored as well, however.  Keep in mind that the pyramid schemes were so massive, so perpetuating and so prevalent in Albanian society during this time because, in part, of government backing.

     One of the problems of a country like Albania which was "in transition" from despotic Communist rule to a free market economy was that no one knew exactly what was going on.  The Albanian government of the early 1990's was caught up in economic problems of its own, not to mention the fact that at this time the government had, at best, loose control over the country.

     There is also the fact that the Yugoslav wars were occurring during this time as well, and the Kosovo crisis was beginning.  This led to frequent cross-border incursions from Albanians living in (the former) Yugoslavia and arms shipments and gangs of both criminals and paramilitary groups that were using the Albanian economic system (such as it existed) for their own purposes.

    In short, a "perfect storm" was brewing during the 1990's which allowed pyramid schemes to get out of control in Albania.

   Next, we will ask what we have learned since the crisis of the 1990's in Albania.

Have a great and fraud-free day.

http://www.tauskvega.com

------------->>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme XII

Let's talk about why the country disintegrated into civil war for a moment.

     People lose billions (yes, that is billions with a 'B') every year on pyramid schemes.  There are lawsuits and counter-lawsuits that fly back and forth as a result of such actions and, of course, criminal prosecutions that result.  We have seen that pyramid schemes are illegal in many countries, including the U.S.

     Albania, however, was a unique case.  We discussed the fact that Albania emerged from 50 years of the worst kind of communism.  The isolated country was not prepared for the modern world.  The Albanian population, with no recent history of contact with the outside world or free market economic systems, was easy prey for schemes that enticed massive rates of return for little investment.  And, remember, pyramid schemes pay off the earlier investors, so there was a great deal of "evidence" for people to invest in these schemes.  Why stop investing while people around you are getting rich (sound familiar)?

     There is another issue involved as well.  Albanian history is long and tortured and previous to the "experiment" with Communism, Albania was a backwards province of the Ottoman Empire.  So, long before Communism was imposed on the country in the hands of a mad dictator, it was isolated from the rest of the outside workd because of its position in the Ottoman Empire.

    So, for 500 years, Albania was cut off from the outside world.  Its people, except for a small minority, were not exposed to the rest of Europe and the development of free market capitalism through the Renaissance.  This history, combined with the recent Communist history, made Albania a prime target for "get rich quick" schemes.

    We will discuss this economic illiteracy more tomorrow.

Have a great and fraud-free day.

http://www.tauskvega.com

------------->>>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme XI

OK - let's talk about the actual breakdown of authority and open revolt that occurred because of the financial schemes.

     In January, 1997, the government began to close some of the fraudulent investment firms that were pepetuating the pyramid schemes.  It is important to note that prior to this, these firms often had the backing of the government.

    Protests began in earnest on January 16.  By January 19, the capital of Tirana was engulfed in protests.  Within a few days, the protests descended into violence and buildings were torched and open revolt actually broke out against the government.    

      The government tried to deflect the protests by paying out some of the losses beginning in February.  However, there was no way the bankrupt Albanian government could cover all of these losses.  The investment firms declared bankruptcy and the government ran out of money.  By this time, the country was in open revolt and even the intervention of the Albanian special forces could not put down the revolt.

    Keep in mind, this civil war began once the financial firms that engaged in the pyramid schemes became unable to meet their obligations.  As we know from our studies, it is only a matter of time before pyramid schemes run out of money because the ability to pay investors comes from bringing in other investors.  Once this pool of investors dries up, which always happens, the money evaporates as well.

   We will begin wrapping up our discussions of this event tommorrow.

Have a great and fraud-free day.

http://www.tauskvega.com

-------->>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme X

The pyramid schemes and financial collapse eventually led to the intervention of the United Nations.

http://en.wikipedia.org/wiki/United_Nations_Security_Council_Resolution_1101

We will begin to summarize this tommorrow.

As always, have a great and fraud-free day.

http://www.tauskvega.com

------------->>>>>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme IX

We have seen the effect of the massive pyramid schemes on Albanian society.  The entire country dissolved into civil war.  

     Remember what we are talking about - in 1997 and 98, directly as a result of the massive financial losses, an entire country turned in on itself. 

     The entire population of Albania was caught up in promises of massive financial returns on investments.  It's easy to say that history was not on the Albanians' side.  They were trapped in a Communist dictatorship for 50 years that cut them off from society and free market economics was not only discouraged, it was actually against the law during this time.  Further, the harsh dictatorship of Hoxha would almost guarantee that any kind of self employment or investing (other than the corruption that was rife in Albanian society under Communism) would result in criminal penalties (usually concentration camps or harsh prisons).

     However, it is also clear that the scammers took advantage of basic human nature as well.  The scammers and con artists took advantage of peoples' desire to get something for nothing, or in this case, to try and get a large rate of return for little money.  This is the basic "pitch" of all con artists and fraudsters, but it found easy marks in a country like Albania.

As always, have a great and fraud free day.

http://www.tauskvega.com

-------------->>>>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme VIII

These pyramid schemes, about which we have been discussing began to unravel in 1997.  Remember - of a total population of 3 million, about 2 million were involved with the pyramid schemes ("involved" = investors).  And remember as well, the losses were $1.2 billion dollars.  Dividing that number among the number of investors gives an indication of the monumental losses per capita to the population.

      On March 1, 1997, in the face of massive demonstrations from angry Albanians who lost their life savings in these schemes, Prime Minister Aleksander Meksi resigned and on March 2, President Sali Berisha declared a state of emergency.  Protests continued to spread throughout the country, however, and the Albanian military was unable to stop the revolts.

     By the end of the month, the security situation had completely deteriorated.  The southern part of the small country was in open revolt and in the hands of criminal organizations and gangs.  The northern part was engulfed in violence but still under government control.

     This out-of-hand situation was started because of massive pyramid schemes.  This was not the first time in history that fraud brought down a government.  But, it was one of the few times that it led to a civil war.  Food for thought because as I write this, the "Occupy Wall Street" protesters are still going strong, presumably in response to the American economic situation.

Have a great and fraud free day.

http://www.tauskvega.com

-------------->>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme VII

We have seen the enormous toll the pyramid schemes took on the Albanian populace.  From a population of approximately 3 million, billions of dollars were lost.

     One important feature of these pyramid schemes was that they were quasi sanctioned by the Albanian government.  This was due to corruption in the newly-democratic Albania.  Many of the leaders used these schemes not only to enrich themselves, but also to find ways to take money out of the country quickly.

     Remember, at the heart of pyramid and ponzi schemes are criminal acts.   The people who perpetuate these schemes are perpetuating a fraud, pure and simple.

    In the case of a national pyramid scheme such as the Albanian schemes, these schemes were also fronts for drug running and gun running.  Criminal organizations, as stated often with the tacit or unwilling support of the Albanian government, were able to raise enormous amounts of money which were used to fund other illegal operations.

    As always, have a great and fraud free day.

http://www.tauskvega.com

---------->>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme VI

Between the fall of Communism and the rebellions that began as a result of the pyramid schemes that were rampant in Albania (1991-1997), Albanians invested a rough total of about $1.5 billion dollars in these schemes.  Yes, that's "billion" with a "B."  And, since these investments were a total loss, this means that the population of Albania lost this $1.5 billion.

     Compounding this problem was that Albania is a country with a small population - at the time of these schemes, it was approximately 3 million people.  By comparison, more people live in my city of Houston, Texas.

    So - there is a loss of $1.5 billion dollars spread out over a small population.  When you consider the people that invested in these schemes were limited to adults (since children generally do not have the money to invest in any type of schemes), it becomes even worse.  Now we are talking about a population of roughly 2 million people that lost $1.5 billion.

     The amount of money lost to these schemes, therefore, from the population as a whole is staggering.  It is no wonder that this triggered a civil war.

As always, have a great and fraud free day.

http://www.tauskvega.com

--------------->>>>>>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme V

OK - let's move forward with our discussion.

     We've seen that Albania was basically a closed state until the early 1990's (think North Korea in the present situation).  People had no idea about how to invest money or how to look for fraudulent investments because free-market capitalism of any sort had been outlawed for approximately 50 years.

     Pyramid schemes started in as early as 1991 when the new democratic parties emerged.  These schemes were simple schemes in which people would invest money and the entire network of operations was made up of people investing money.  There were no investments.  The entire scheme was just designed to bring in investors to deposit money.   Albanians would invest in these schemes and as they moved up the "pyramid," they were able to get astonishing rates of returns.  But, of course, like any pyramid scheme, with no further investors, the scheme eventually collapsed.

    The first known pyramid scheme was organized by Hajdin Sejdise who, after getting rich from his "investors," fled to Switzerland with millions of dollars of his "investors'" money.  Another scheme was started by a man named "Sudja."

   These schemes ran rampant from 1991 to about 1997.  We will examine the sheer numbers of investors in these schemes in the next post.

   NOTE - I am not a speaker of the Albanian language and in no way will I attempt to replicate the Albanian alphabet or phonetics.  So, for any Albanian readers who happen across this blog, I apologize for any misspellings.

As always, have a great and fraud-free day.

http://www.tauskvega.com

------------->>>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme IV

Let's review the history somewhat as we set the stage for the pyramid scheme that engulfed Albania in the 1990's.

     As stated previously, Albania was a Communist state until the entire system collapsed along with the governments of other nations of Eastern Europe and the Former Soviet Union.  Albania was somewhat unique, however, among these states in that Albania was not aligned with the Soviet Union or Warsaw Pact nations for most of its existence.  The Albanian dictator, Enver Hoxha, first aligned himself with the Soviet Union in the 1950's but following the death of Joseph Stalin and the subsequent de-Stalinization of the USSR (which involved denouncing Stalin), Hoxha broke with the Soviet Union.

     He then aligned the country with the People's Republic of China in the early 1960's and kept this alignment until mid 1970's.  The PRC provided aid to the country as well as material support.  However, Hoxha's own paranoia led to a break with the Chinese as well.

     From the mid 1970's until the death of Hoxha in 1985, and until the eventual fall of Communism across Eastern Europe in the 1990's, Albania continued this policy of isolation.

     What this meant was that for two generations, Albanians were completely cut off from the outside world.  Visitors to Albania were few and far between (and only allowed in with sanctioned Albanian government visas) and Albanians were not allowed to travel.  Albania had few foreign embassies.

      When Communism fell, therefore, the people were not prepared for the world of free-market capitalism.

We will discuss more tommorrow.

Have a great and fraud-free day.

http://www.tauskvega.com

--------------------->>>>>>>>>>>>>>gene tausk

The Great Albanian Pyramid Scheme III

Sorry - issues with posting the last one:

Ponzi Scheme:  A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.

A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud.

The Great Albanian Pyramid Scheme III

Before we move forward with our discussions on the Albanian Pyramid scheme that caused a civil war, it is useful to refresh our memories concerning the differences between a pyramid scheme and a ponzi scheme.  Remember, although they are related, the two are different.

Definition of a pyramid scheme from Wikipedia:

A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are a form of fraud.


Definition of a Ponzi scheme from Wikipedia:


A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.


Differences between a pyramid scheme and a Ponzi scheme:


A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:

• In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means no investment return.)
• A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that new moneywill be the source of payout for the initial investments.
• A pyramid scheme typically collapses much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to reinvest their money, with a relatively small number of new participants.

Have a great and fraud free day.

http://www.tauskvega.com

---------->>>>>>>>>>>>>>>>>>>gene tausk