Ponzi Schemes

Posted On February 28, 2019 By mhauk

Ponzi SchemesA top of the range Bentley at a substantial discount to list price? A deal too good to be true? Unfortunately, it was. We often hear about Ponzi schemes and ever since Charles Ponzi pioneered the idea in 1919 through to Bernie Madoff perfecting the concept to fool the financial markets out of $50 billion, they reappear, reinvented but always “robbing Peter to pay Paul”.

In 2012, we were instructed by the Police to help unravel a series of financial transactions associated with the purchase and sale of luxury motor cars.

Wealthy potential purchasers were lured in with the prospect of a substantial discount if they paid up front. Before the car was delivered, the opportunity arose to sell it on unseen and make a quick profit. Word spread and before long, over 90 individuals had contributed over £9 million which resulted in only a handful of actual cars being delivered.

Unsurprisingly, suspicions were aroused, questions asked and the whole scheme collapsed with only a fraction of the cash being returned to its rightful owner.

This was an interesting case for a variety of reasons. The number of victims was considerable, nearly one hundred witness statements had to be checked and reconciled back to the accounting records. The primary conclusion of which, was that people’s recollection of events, even when significant sums of money are involved, is not perhaps as good as they believe.

Fortunately, and unusually in this case, the accounting records maintained by the perpetrator of the fraud were more accurate than the victims!

Confronted with the volume of transactions and complexity of the banking arrangements, the Police considered it essential to engage the analytical minds of a Forensic Accountant.

Our brief was to take the financial information and to unravel the story. This meant not only being able to identify the victims who lost money and how much they lost, but also some of the early participators that gained from it. Also, we were asked to prove that the scheme originator has received financial benefit from the scheme. This was not easy as there were so many transactions and none of them seemed to be with the perpetrator. However, ultimately, we were able to reconcile all of the transactions, by vehicle (to the bank and the witness statements) and this was able to prove beyond reasonable doubt that the perpetrator had benefited and the amount in our report was ultimately quoted in the final criminal charges, which despite the huge sums involved, was relatively small.

Remember the old adage that, if it looks too good to be true it probably is. If you suspect fraud, MHA Forensic Accountants have a wide, diverse range of knowledge and expertise to help you.

If you have any questions or if you would like to discuss Ponzi schemes or other fraud with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Forensic team