It has been two years since Bernie Madoff's $60 billion scheme to defraud investors was unmasked. It it was pretty clear almost immediately that his kind of fraud -- a Ponzi scheme -- was likely perpetrated by many others. Indeed, in the years since there have been dozens of so-called mini-Madoffs uncovered, each with their own brand of Ponzi scheme.
Just this past week, it was reported that Hall of Fame Denver Broncos quarterback John Elway lost millions in an alleged Ponzi Scheme.
Michael Goldberg, an attorney with Akerman Senterfitt in Fort Lauderdale, Fla., is a court-appointed receiver for several Ponzi schemes. He is responsible for liquidating remaining assets and overseeing a claims process to distribute any remaining or recovered funds to investors.
Unwinding a Ponzi scheme and returning funds to investors is a long and difficult process, says Goldberg. "Some people get no money back, some get it all, but it can take upwards of 10 years."
As Goldberg defines it, a Ponzi scheme is an investment vehicle where new money is used to pay returns to old investors. As long as there is new money coming in, a Ponzi scheme can last for years. But when there is a liquidity crunch, like there was in 2008, new money freezes up, investors start asking questions and demanding their money back and the scam is quickly unmasked. "A ponzi scheme needs cash to continue," says Goldberg. "That's the fuel."
How does one avoid getting caught in a Ponzi scheme? "Ask yourself, is it too good to be true," says Goldberg. "Someone can not continuously beat the market return year after year for 20 years in a row." If you suspect you are in one, call the Securities and Exchange Commission, he says. "They can tell pretty quickly."