Ponzi fraudster jailed for 110 years

Posted in 'Personal Finance' by Ian Carpenter

18 June 2012

Disgraced financier Allen Stanford, has been found guilty by a Texan court of defrauding thousands of investors in a $7 billion Ponzi scheme.

Stanford, who also organised money-spinning cricket tournaments in the Caribbean, has been sentenced to 110 years in jail after running the fraud, which affected nearly 30,000 investors across more than 100 countries. In what has been a rapid fall from grace, he now faces the prospect of spending the rest of his life behind bars.

But what is a Ponzi scheme, and how did the fraudster get away with it for so long?

Ponzi-type frauds are based around offering investors high returns over short periods of time. Some of the funds invested by new customers are then used to pay fake returns to certain investors, which gives the initial impression that the operation is genuine and is worth investing in. In this case, depositors were assured that their money was safely invested in stocks and securities. However, the reality is that most of the monies invested were used to fund Stanford’s swanky lifestyle in Antigua, over a 20 year period.

How he got away with his business activities for so long is not so easy to answer. This is a fraud that should have been uncovered years ago, but it’s clear that Stanford kept government officials on side, and his operations were allowed to continue unchecked.

Despite US legislation designed to empower whistle-blowers, regulators ignored a former employee, Leyla Wydler, who sent numerous warnings to various organisations back in 2003 about Stanford’s business. What is clear is that he soon became the focus of attention after a larger Ponzi scheme of some $65 billion, run by American businessman Bernard Madoff, was exposed in 2009.

Frauds on this scale aren’t uncovered that often, but it can take many forms and continues to affect millions of people across the World every year. We’d like to think that the sentence handed out to Allen Stanford will act as a deterrent to the fraudsters who continue to con innocent people, but somehow, we doubt it.

Ian Carpenter is the Operations Manager of checkmyfile, has a degree in Business Studies and is a Graduate Member of the Institute of Credit Management