After Madoff: 5 More Alleged Ponzi Schemers

Hundreds of spectators gathered around the Manhattan federal court where Bernard Madoff -- the perpetrator of what is believed to be the biggest Ponzi scheme in history, responsible for bilking thousands of investors of billions of dollars -- was sentenced to 150 years in prison on Monday. While Madoff may be claiming most of the headlines, there are plenty of other Ponzi schemers who have been more or less flying under the radar.

In fact, the Securities and Exchange Commission has filed 32 complaints alleging Ponzi or Ponzi-like schemes so far this year, a "significant increase" from last year, according to Scott Friestad, the associate director of the SEC’s Division of Enforcement.  

In most Ponzi schemes, investors are offered too-good-to-be true returns when, in fact, the perpetrator is just using the new investors' money to pay off the old investors, giving the impression that the business is legitimate. But these days even crooks are suffering from the recession.

“Ponzi schemes, to succeed, are dependent on having positive cash flows, and the current economic crisis has dried up their funding sources, so many of them have collapsed,” says Friestad, who says the SEC has recently stepped up efforts to pursue such cases.

The SEC has its work cut out for it. The Internet has enabled Ponzi schemers to easily reach out to hundreds or even thousands of potential victims, says Friestad. William Wise and Kristi Hoegel, for example, allegedly stole $68 million from investors, many of whom they solicited online, according to a complaint filed by the SEC.

Some schemes are more home-grown, using an element of what’s called “affinity fraud,” or fraud that targets victims with a similar religious, ethnic or cultural background, says Jacob Zamansky, a New York lawyer who specializes in securities law and represented some of the investors in the Madoff case. Recently-accused schemer, Clelia Flores, targeted her Hispanic-American community in California, using word-of-mouth recommendations and other tactics to find new investors, according to the SEC.

“Just because somebody is from the same religious or ethnic background as you, that’s not a reason to drop your guard,” says Zamansky. Ponzi schemers and other fraudsters often use that kind of connection to establish credibility, he says.

Of course, the most common thread these schemes share is the promise of returns far beyond anything legitimate investment opportunities could ever offer. “We regret every day that we didn’t catch it sooner,” Friestad says of the Madoff scam. “But investors themselves are the first line of defense.” One of the positive things to come out of the Madoff indictment he says, is that investors may be more suspicious of returns that sound too good to be true.

Madoff investors aren't the only ones learning a hard lesson. Here are five alleged Ponzi schemes that are currently under investigation, in order from smallest to largest amount of money stolen.