A year after Madoff, another Ponzi schemer

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It's hard to believe, but a year has passed since Bernard Madoff admitted to his sons that his financial empire was built on an elaborate scam. In the ensuing months, Madoff has inspired an ongoing lesson in banking scandals, as the media has reported on his conviction and sentencing, the auction of his possessions and the accusations of his alleged lovers. Ironically, on the first anniversary of history's biggest Ponzi scheme, yet another massive money scam has come to light.

On December 22, 2008, as the country was caught in the first flush of Madoff mania, 32-year old Genadi Yagodayev opened his own investment company, Rockford Funding Group LLC. Located at 80 Broad Street, in New York's financial district, Rockford claimed to be a "leading private equity firm" with $800 million in investments. Offering "fixed dividend accounts" with returns of up to 21%, Yagodayev used cold calls and his website to attract customers who were receiving structured settlements from personal injury and malpractice suits.


Given the publicity surrounding Madoff, it's hard to understand how Rockford managed to draw in clients. Part of the reason probably lies in his extravagant claims. According to the SEC, Yagodayev told customers that his company had been in business for 20 years, that 20 Fortune 500 companies were on its roster of institutional clients and that its portfolio had increased 251% over the last 10 years. Perhaps most important, he claimed to be a member of the Securities Industry Protection Corp. (SIPC).

Described as the securities industry's version of the FDIC, stories about the SIPC filled the news when it helped many of Madoff's clients retrieve some of their money. While it isn't clear if Yagodayev was inspired by Madoff's scheme, there is no doubt that he used Bernie-inspired fear to motivate many of his customers.

According to the SEC, Rockford didn't actually have any investments. In classic Ponzi style, Yagodayev paid dividends out of funds from incoming clients, while funneling $10.4 million to bank accounts in Latvia and Hong Kong. On Tuesday, the SEC filed fraud charges against Yagodayev, as well as 12 companies that were either fronts or partners in his scheme. While the sordid events of this latest scam come to light, it remains to be seen if Yagodayev's victims will fare better than Madoff's.
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