The Ponzi scheme – alive & well?

Although the business of separating people from their money has always been a popular one, in the UK this has reached whole new levels since the pension reforms giving people over 55 full access to their pension pots. For the fraudsters, billions of extra pounds were unlocked and firmly in play.

Still, this is all for other people. People like you and me are way too smart to be a victim of a financial fraud carried out by a charismatic trickster, aren’t we. We would objectively see the situation for what it is and not risk your hard-earned cash, right? Right?! Sadly not it seems. A recent report from Age UK estimated that over 50% of people aged 65+ have been targeted by fraudsters and this number is rising. However, it is certainly not just older people at risk.

Although cyber fraud is where we see the largest growth – and this will only increase as more people become active online – classic old-skool methods are still working just fine.

Take a look at the case of Benjamin Wilson who orchestrated one of the oldest frauds around, the ponzi scheme. For all the fascinating detail of the case, the bottom line is that Wilson didn’t actually do anything amazing. He was just a confident, seemingly brilliant trader who carried out a classic ponzi-style investment charade, attracting family and friends who wanted a part of the success.

When potential investors learned from trusted friends/family of the amazing returns being delivered, combined with Wilson’s actions fitting the pattern of a rich, successful man, it was just a matter of how much they invested. Sadly, this type fraud is committed by people who prey on our friendship and trust. However, 60% annual returns promised in the midst of the financial crisis surely must have made some more experienced investors pause?

When we think of ponzi investment fraud we tend to think of Madoff and the ridiculous Allen Stanford in the US defrauding on a huge scale (Madoff was the giant of the ponzi scamming upwards of £165 billion). One thing these fraudsters all seem to have in common is a ruthless self-interest. Wilson didn’t give his victims a second thought and it is hard to forget the description of Stanford at his trial who was famously described as ‘a man utterly without remorse. He treated his victims like roadkill”.

But this common fraud is happening all the time on a much lower scale and it is happening near you, right now.

For Wilson, and similar criminals, why isn’t it the fraud stopped earlier as the signs are all there? When you look at the details of Wilson’s case you wonder how his staff didn’t catch on to the fraud. Wilson had 10 staff working for him, five of whom were young trainee traders who weren’t allowed to trade live but being made to use computer simulations. When one of them inquired about it, he was told he would eventually trade live. Clearly upsetting their successful boss wasn’t an option but surely they must have wondered? Ironically, maybe Wilson should have stuck to simulation as he was far from the investment maestro he liked to portray. Despite over £20 million being invested in the scheme, Wilson only actually invested £4 million and lost half of that.

How about the regulatory authorities. We must be protected by the regulatory authorities with their checks monitoring the company? Sadly not. In the case of Wilson the UK Financial Conduct Authority (FCA) made is quite clear that they can’t be aware of what everyone is doing and they rely on information from people in the business to provide intelligence, such as the IFA who eventually reported Wilson as the investment looked a little too good to be true.

How about the banks and accountancy professionals? Surely they must be auditing these companies to ensure they are fit for purpose? Again, in Wilson’s case there was no auditing. To satisfy certain investors, Wilson did forge an audit and accounts but the actual signature of the auditor belonged to the late author Terry Pratchett of all people – the first signature to appear on a google search by Wilson. His Bank Morgan Stanley missed the warning signals and was fined by the US authorities for failing to spot obvious red flags that would have alerted them to potential fraud.

The reality is that there is no real protection for us except our own common sense and research. If we do lose money it is also highly unlikely we will ever see our money again.

Ponzi investment schemes are operating in the UK right now. If you were approached tomorrow, you wouldn’t fall for it. Would you?