Newfound transparency in the wake of the unfolding financial crisis will expose a scale of prior fraud, corruption, and self-dealing that many will find almost impossible to comprehend. Day in and day out, reports will surface about hidden losses, false accounting, inflated appraisals, sizable off-balance-sheet obligations, valuation discrepancies, unregulated offshore entities, phantom profits, insider trading, and businesses bled dry to enrich a few individuals at the expense of employees, investors, bankers, and bondholders. Other revelations will reinforce the idea that companies, governments, and individuals are in far worse shape than people had assumed only a few years earlier.
-- Financial Armageddon
When I wrote those words three years ago, I didn't have any specific knowledge about Bernie Madoff's massive fraud or the alleged house of cards put together by Allen Standford. But it didn't matter. History and the extraordinary excesses of the go-go years meant such scams were bound to be out there, just waiting to be uncovered. In "Economic Downturn Accelerates Collapse of Ponzi Schemes," the Washington Post reveals the breathtaking extent to which one type of crime managed to worm its way into the economic landscape.
The great recession has decimated many industries; home builders, automakers and bankers are obvious casualties.
Now, add Ponzi schemers to the list.
Ravaged by the same fiscal turbulence pounding the nation's legitimate businesses, Ponzi operations have been collapsing at a record clip, exposing prolific, rampant and colossal frauds that have bilked investors of billions of dollars.
The FBI, which is handling about 20 such cases in the Washington region, has almost 500 open Ponzi investigations nationwide -- up from about 300 in 2006, bureau officials said. Law enforcement officials with other agencies have noticed similar trends, and authorities said they expect to turn up many more cases in coming months.
"We have more open Ponzi scheme cases than at any time in FBI history," said Special Agent David G. Nanz, chief of the FBI's economic crimes unit...
"It has been a flood," said veteran postal inspector James H. Tendick, who supervises the Justice Department fraud team. "We don't have to go out scouring for these things. They are all just coming in the door...
"This kind of climate is death on Ponzis," said William K. Black, a law and economics professor at the University of Missouri-Kansas City School of Law and a former executive director of the Institute for Fraud Prevention.
But Black said the same trends that pumped up the Ponzi industry and then tore it apart will eventually lead to new opportunities for scam artists who manage to escape the law and financial carnage. The crooks know that potential investors, some desperate for a quick return, will not always be so wary.
And what might those "new opportunities" be? I think you'll find at least one answer in the following MarketWatch report, "Fraudsters Eye Huge Stimulus Pie, Consultant Says":
Companies will face extra requirements to prevent problems
Swindlers, con men, and thieves could siphon off as much as $50 billion of the government's planned stimulus package as the money begins flooding the economy in coming months, according to David Williams, who runs Deloitte Financial Services Advisory and counsels clients on fraud prevention.
Williams predicted that about $500 million of the total $787 billion stimulus would be channeled into the traditional procurement network for government contracts, while the rest will be spent directly by the government or outside the corporate network.
"The rule of thumb typically is that of the about $500 billion worth of money that's going to run through the procurement process, somewhere between 5% and 10% of that usually finds it way into potential problems," Williams said. "That's sort of the benchmark that I use."
Companies will face increased pressure to try to stem the tide, and need to be prepared to safeguard data as well as the cash, according to Williams.
Williams said this week that the money flowing from the current stimulus package is particularly vulnerable to fraud because almost all movement of money is now done electronically...
Williams suggested that the fraud and theft losses from the roughly $787 billion stimulus package approved earlier this year could reach about $50 billion.
