Blogs & Comment

Ponzi schemes

The Wall Street Journalreports that the U.S. Department of Justices crackdown on Ponzi fraudsters (Operation Broken Trust) has netted 532 criminal and civil defendants since Aug 16. The schemes defrauded 120,000 victims of over $10 billion (U.S.).
I find those numbers pretty scary. Ponzi schemes seem to be a lot more pervasive than I would have guessed. All the more reason for Canadians, who dont enjoy the same level of protection against white-collar crime, to be vigilant . And no doubt there are a few thousand people in Canada who are right now in the process of being taken on a ride to nowhere.
One of the fraudsters caught by the U.S. Department of Justice was Sean Mueller, who fleeced wealthy Denver citizens, including quarterback John Elway, out of more than $70 million (U.S.). His victims thought he had an amazing, risk-free stock-trading strategy. Mr. Mueller ended up with a 40-year prison term, reports the Wall Street Journal . In Canada, our maximum term is 25 years and that for first-degree murder.
The victims of Ponzi schemes are often friends and relatives of the fraudster. They also often belong to same church or social organization. Early joiners tell their friends and relatives of their amazing gains and the circle widens. It continues to broaden until the money coming in falls short of the money required to maintain high returns.
In Canada, Ponzi schemes often dont end up in court until a citizen with courage and persistence like Graham McMillantakes up the cause — or if the Ponzi scheme has operations in the U.S. and comes to the attention of U.S. enforcement officials. And then once in a Canadian court, there are long delays, low conviction rates and taps on the wrist.
I was an investigator with the Toronto Police Service, and I was involved in the investigation of a 40 Million dollar Ponzi scam, a person wrote recently in the comment section of a post I did a while back on financial scams. By the time police are involved: a) most of the money is already gone, b) most police detectives have no formal training in investigating financial crimes, c) there are huge numbers of documents that have to be read, assessed, and then disclosed to prosecutors and defence lawyers, d) the investors will get none of their money back unless some is frozen by a civil Mareva injunction, e) the jail sentence on a successful prosecution is ridiculously short and will probably not include any restitution of any importance . The investment community needs better watchdogs, with better teeth
His comments echo those recently made by lawyer and blogger Thicken My Walletin favour of setting up a white-collar court. White-collar crime requires an expertise and skill-set (forensic accountants, Crown attorneys who understand how financial crimes work etc.) which many police forces, crown prosecutor and judges do not have.
How much longer do Canadians have to put up with this wild west environment in the financial realm?
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