Monthly Archives: November 2009

$20 Million Ponzi Scheme

Pennsylvania federal authorities said that Sean Healy pleaded guilty to two counts of wire fraud and one count of unlawful monetary transaction.

Prosecutor said the 39 uear old man said he promised to buy securities for investors but instead spent the money on waterfront mansion in Florida, jewelry and exotic sports cart.

He is now facing up to 50 years in prison.

His lawyer says that the man may only be responsible for $10 million to $15 million in losses. It seems like everyday these scheme are getting revealed.

Start Date of Ponzi Scheme Is Critical to Claims

I found this really interest article from the New Times the other day. The article states that there is a motion pending in Federal Bankruptcy Court in Manhattan that contends that Bernard Madoff long term investors cannot accurately calculate their loses unthil they know whether any of their orginal profits were legitimate. And to determine that, the motion continues, they must know when the Ponzi scheme began.

The Madoff bankruptcy trustee is calculating investor losses as the difference between the cash paid into an account and the cash taken out.

But if some of an investor

Victims Get $534 Million In Payments

Victims of the Bernard Madoff ponzi scheme have been approved for $524.25 million of payments according to the trustee who is trying to recover Madoff’s assets.

The sum is about one-eighth of the $4.44 billion of the allowed claims that the court appointed trustee has identified. Holders of about 2,335 accounts at Madoff’s firm suffered about $21.2 billion of losses.

The Securities Investor Protection Corp, a federally chartered agency that supervises the liquidation of brokerages, has made the $534.25 million of distributions on about 1,558 claims, relating to the 1,368 customer accounts.

Federal law limits SIPC protection to $500,000.

Businessman pleads guilty in Ponzi Scheme

Benny Lee Jodah, a Texas businessman pleaded guilty Thursday to two charges related to his bilking of $50 million from investors in a Ponzi scheme. He pleased guilty to one count each of money laundering and sales and delivery afer sales of unregistered securities, in federal court.

Jodan faces up to 20 years in prison on the money laundering count and five years on the securities cout. Each count carries a $250,000.00 fine. He must also pay $48.4 million in restitution.

Its alleged that he devised a scheme to swindled investors by promising them 10% returnon investments in Excel Lease Fund Inc. between 2005 to April 2009. In April, the US Securities and Exchange Commission filed a civil fraud complaint against Judah, which lead to the court freezing his assets and placing his business operations in receivership.

Ponzi Scheme Victims Get a Tax Break

The IRS announced unprecedented tax relief for victims of Ponzi schemes, syaing many of those affected could deduct up to 95% of their losses, immediately. The move represents a significant relaxation of longstanding limits on tax relief for victims of investment scams.

In broad terms, the IRS said Ponzi scheme victim who aren’t suing to recover their losses can generally deduct up to 95% of their qualified losses – minus any potential recoveries from insurance or the Securities Investor Production Corporation (or SIPC) – in the year the fraud is discovered. Those pursuing third party recoveries can deduct 70% of relevant investments, after potential recoveries.

The SIPC, is an organization designed to help investors at failed brokerage firms.

The IRS said victims wouldn’t be subject to limits that apply to personal casualty or theft losses and could carry back net operating losses five years to offset taxes paid, or forward 20 years. Under prior rules, many investors had to subtract $100 and 10% of their adjusted gross income from their loss deductions, and could carry back losses only three years, or forward 20 years.

In another change, the IRS said investors can include their principal, as well as any so-called phantom income they have received over the years, in their theft-loss deductions. Previously, the IRS allowed some Ponzi scheme victims to deduct only their principal as a theft loss, not phantom income.

However these changes still leave open some questions like what happens if you participated in a Ponzi scheme through a IRA account or indirectly through feeder funds.

At the end of the day with all these changes and Congress trying to find ways to help victims who were swindled by Bernard Madhoff, its best to consult any attorney to figure out where you stand and how all the changes in the law can affect you.

Ponzi Scheme & Pyramid Scheme – Difference

Today the terms Ponzi scheme and pyramid scheme are often used to mean the same thing. However, there is a slight difference.

A true Ponzi scheme usually promotes what appears to be a real investment opportunity which investors may contribute to without actually being an affiliate, distributor, and etc. A pyramid scheme, on the other hand, usually requires that participants make a payment for the right to recruit other people into the scheme, at which point they will receive money. They have no real product, the only real money being is the entry fee.

That’s why, when you are considering any investment, online or offline, a good product is one of the key criteria you should look for.


At the end of the day, this is splitting hairs a little. All you need to know is that people lose money in either of these schemes. Avoid them like the plague. Evaluate your business opportunities in a logical manner – and pay particular attention to the product or range of products being offered – and you will easily avoid being caught up in one of these illegal schemes.

Ponzi Scheme Orgins

The scheme is named after Charles Ponzi, who became notorious for using the technique in early 1920. He had emigrated from Italy to the United States in 1903. Ponzi did not invent the scheme. Charles Dickens’ 1857 novel Little Dorrit described such a scheme decades before Ponzi was born, but Charles Ponzi’s operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted investors’ money to support payments to earlier investors and Ponzi’s personal wealth.

What is a Ponzi Scheme

A Ponzi scheme is a fraudulent investment scheme that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering return other investments cannot guarantee, in the form of short-term returns that are abnormally high. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the recent example of Bernard Madoff powerfully illustrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for long periods.