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In the Decade Since Madoff, Ponzi Schemers Try New Tactics

ABI Bankruptcy Brief

September 26, 2019

 
ABI Bankruptcy Brief
 
 
NEWS AND ANALYSIS

In the Decade Since Madoff, Ponzi Schemers Try New Tactics

It has been more than 10 years since Bernard L. Madoff was caught running the biggest Ponzi scheme in history, a case that became a cautionary tale for investors and a call to action for regulators. The Securities and Exchange Commission made changes in its enforcement division to better detect fraud, established specialized teams and even revamped its system for handling tips from the public. But the prosecution of Madoff — who took investors for more than $50 billion — was not the Ponzi case to end all Ponzi cases. The SEC brought 50 percent more Ponzi prosecutions in the decade after Madoff’s arrest than in the 10 years before, according to a New York Times analysis of the agency’s enforcement announcements. Whether the increase is the result of enhanced enforcement or a proliferation of scammers, records show that Ponzi victims lost $31 billion in the decade beginning 2009, more than three times the amount lost in non-Madoff schemes in the previous decade. (The figures are not adjusted for inflation.) Half the 291 cases brought in the past decade involved schemes promoting nontraditional products. In the decade before the Madoff case, about 38 percent did. “Fraudsters are trying to wrap themselves in new products to garner the attention of investors,” said Jeff Boujoukos, director of the SEC’s Philadelphia regional office. It’s not the only way that scammers have sought to distinguish themselves. Some victims said they had been fooled by pitches offering modest returns, which made them seem more believable than promises of astronomical profits.

Marijuana Banking Bill Expected to Gain Traction in Senate

The Senate is poised to take up legislation to boost the nation’s booming cannabis industry, with its backers feeling bullish and selling it as a bill that is more about banking than marijuana, Politico reported. Their confidence follows action in the House yesterday, where Democrats and Republicans joined forces to pass a historic bill that would give legalized marijuana businesses access to banking services. Senate Republicans are expected to act as lawmakers face the inescapable reality of the 33 states and counting that have legalized marijuana in some form. The strongest indicator has come from Senate Banking Committee Chairman Mike Crapo (R-Idaho), who, after months of weighing the issue, said that he wants to advance the legislation. “It’s a problem that keeps coming up,” Sen. Marco Rubio (R-Fla.) said. “I think you can be against marijuana and still understand that if it’s going to be a legalized product, we need to be able to control it through our banking system.” It’s with that dichotomy in mind that advocates are approaching the Senate. Champions of the legislation proved in the House that it was possible to build a broad, bipartisan coalition to retool marijuana laws, even as many Republicans resist legalization and the drug remains illegal at the federal level. The House legislation wouldn’t change the legal status of cannabis but would shield banks and insurers from penalties if they choose to serve the industry in states where it has become lawful.



Analysis: Big Banks Loom over Fed Repo Efforts

The dominance of big firms trading in the overnight market for cash loans is hampering Federal Reserve efforts to calm short-term funding markets, the Wall Street Journal reported. Activity in the market for repurchase agreements, or repos, where banks and investors seek more than a trillion dollars in cash loans every day, has increasingly concentrated at large banks. When those banks hoard reserves, it can drive borrowing costs higher for smaller firms, according to a study by Fed economists published last year. The five largest banks hold more than 90 percent of the supply of total reserves, and a more even distribution would help cushion against such shocks, the study found. That is one challenge confronting Fed officials as they try to get funds flowing through the financial system following last week’s surge in overnight interest rates, which climbed as high as 10 percent. As the Fed has increased lending in the repo market, it is reliant on a small group of bond dealers to recirculate that money through the financial system, increasing opportunities for channels to get clogged.

Commentary: How the Impeachment Process Could Impact the Stock Market

With House Speaker Nancy Pelosi's announcement of a formal Trump impeachment inquiry, stock markets don't seem fazed, according to a Fortune commentary. After Richard Nixon's near impeachment, only put off by his resignation, the S&P 500 saw a 33 percent drop in value according to data compiled and sent to Fortune by LPL Financial. But the index shot up more than 39 percent after the House impeached Bill Clinton and the Senate failed to remove him. The difference, according to a note from LPL Financial senior market strategist Ryan Detrick, is where the economy already was: "The economy was headed into a vicious recession in the mid-'70s, while the economy was humming along in the late 1990s." Things are more mixed these days, with growth still happening but various worrying signs visible. A number of financial professionals who sent notes to Fortune largely thought things would be stable in the long run.

Bankruptcy Judge Vacancy for the District of Kansas

The U.S. Court of Appeals for the Tenth Circuit is seeking applications for a bankruptcy judgeship in the District of Kansas. Bankruptcy judges are appointed to 14-year terms pursuant to 28 U.S.C. §152. The position is located in Wichita, Kan., and will be available July 1, 2020, pending successful completion of a background investigation. For more information on how to apply, please click here.

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BLOG EXCHANGE

New on ABI’s Bankruptcy Blog Exchange: Plan-Confirmation Standards Under Small Business Reorganization Act of 2019

The Small Business Reorganization Act of 2019 is said to provide a “Chapter 12-type” reorganization opportunity for small businesses within chapter 11, even though standards for confirmation of a plan under the SBRA follow chapter 11, not chapter 12, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

 
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