22 Mar 2009

US regulator probing Ponzi schemes

9:03 am on 22 March 2009

Hundreds of people in the United States are under investigation for financial scams, many involving Ponzi schemes.

While none are as mammoth as disgraced financier Bernard Madoff's $US65 billion fraud, multimillion-dollar schemes are proliferating from New York to Hawaii, the head of the Commodity Futures Trading Commission says.

So far this year, the agency has uncovered 19 Ponzi schemes, which depend on an influx of new capital instead of investment profits to pay existing investors. That compares with just 13 for all of 2008.

"Because of the economy, people are seeking redemptions more than they ever have and that's making a lot of these scams go belly up," Bart Chilton, commissioner of the Washington-based Commodity Futures Trading Commission, told Reuters.

In the last month alone, his agency has pursued investment fraud in Pennsylvania, New York, North Carolina, Iowa, Idaho, Texas and Hawaii.

Many of the financial scams are small but grew fast to support lavish lifestyles, like the suspected $US40 million, five-year Ponzi scheme that came to light last month when a North Carolina man, Bruce Kramer, committed suicide.

Claiming he was an expert mathematician, Mr Kramer is accused of persuading 79 people to invest in what he said was a foreign currency trading operation. Instead, he funneled money into a Maserati sports car, a $US1 million horse farm and artwork while holding "extravagant" parties, according to a CFTC complaint released on Wednesday.

As the economy soured, Mr Kramer struggled to find new clients to keep the scheme going. In the days before his suicide, his investors demanded their money back and grew suspicious when they couldn't access their own funds, said Mr Chilton.

The Commodity Futures Trading Commission shares oversight of financial markets with the Securities and Exchange Commission, which also faces a swelling casebook of Ponzi schemes, including charges against Texas billionaire Allen Stanford, who is accused of bilking investors of $US8.8 billion.

The SEC has taken emergency action in 24 cases this year "to halt ongoing fraud," said SEC spokesman John Heine.

The FBI is also ramping up probes of financial wrongdoing. The agency has 43 corporate fraud cases under way directly related to the financial crisis.