Pilant's Business Ethics

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Tag: Ponzi scheme

You Have To Prosecute Individuals

 

You Have To Prosecute Individuals

There has been much anger in the financial press about JPMorgan having to pay a multi-billion dollar fine. It has been strangely charged that this is a government attack on capitalism. No, actually the bank broke the law and failed over and over again to act in an intelligent manner about its investments or its clients. But Gretchen Morgenson is absolutely right. This kind of fine isn’t really getting tough with the banks. It’s merely carrying on the long tradition of banks paying some proportion of the losses they caused while criminal prosecution as individuals is off the table. 

There is no real penalty here. The billions are just the cost of doing business. The bank has paid out fines before. The bank will pay out fines again. The fun and enormous profits of reckless speculation will remain.

There will only be an effective deterrent when wrongdoers are punished personally by fine and imprisonment.

You can’t attack prevent crime by attacking organizations with minor financial penalties. You could effectively if you were willing to pull the corporate charter from the bank and destroy it, or seize all of its assets. But I see no willingness to do that. The only effective tool present is the power to prosecute individuals.

It is bizarre to tell students to act with business ethics when they can read everyday in the news of the incredible money being made by individuals under the cover of banks deliberately, knowingly breaking the law. But even that is eclipsed by the simple and horrible fact that we do not impose penalties on individuals.

Without justice, how we expect people less favored than bank executives to believe in the law?

James Pilant

Why JPMorgan May be Getting off Easy

In a criminal investigation, JPMorgan Chase is facing action from federal authorities who suspect that the bank turned a blind eye to Madoff’s Ponzi scheme. That’s yet another headache in a week of migraines for America’s largest bank; last Friday JPMorgan Chase reached a tentative $13 billion settlement with federal prosecutors for its alleged manipulation of mortgage securities, which helped trigger the Great Recession. There may be more pain to come as the megabank faces litigation on a number of fronts.

http://occupyamerica.crooksandliars.com/diane-sweet/why-jpmorgan-may-be-getting-easy#sthash.lIimWj0v.dpbs

From around the web.

From the web site, Democracy Now!

Ponzi Scheme

Ponzi Scheme (from Wikipedia)

A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases. While the system eventually will collapse under its own weight, the example of Bernard Madoff’s investment scandal demonstrates the ability of a Ponzi scheme to delude both individual and institutional investors as well as securities authorities for long periods: Madoff’s variant of the Ponzi scheme stands as the largest financial investor fraud committed by a single person in history. Prosecutors estimate losses at Madoff’s hand totaling roughly $21 billion, as estimated by the money invested by his victims. If the promised returns are added the losses amount to $64.8 billion, but a New York court dismissed this estimation method during the Madoff trial.

Nevin Shapiro is accused of stealing around 80 million dollars from investors. Like most Ponzi scams, everyone wanted to believe. Read the article.

Tom Petters – 3.5 Billion Dollars is not Small Change

Tom Petters – 3.5 Billion Dollars is not Small Change

Generally speaking few people begin a life of crime suddenly and without warning. Usually there are many small crimes and a certain “casualness” toward the accepted standards of society.

Many of the more famous American criminals began as soldiers particularly during the Civil War. It would be interesting to find out the history of an individual who runs financial scams like this one. It might be a useful criminal justice study.

Tom Petters’ trial in Minnesota on hedge fund fraud (Ponzi scheme) begins this week.

James Pilant

Tom Petters – 3.5 Billion Dollars is not Small Change

Let me quote from the Wall Street Journal article:

In high school in Minnesota, he started a business selling stereo equipment to students at a local university, but his parents shut him down after learning he was skipping school. He later dropped out of college to work for an electronic retailer, but he was so broke in 1988 that he had to move in with his brother, Jon.

Add in a divorce, a stint in cocaine rehab, and involvement in multiple breach-of-contract lawsuits with business partners, both as a defendant and plaintiff.

There were plenty of warnings if someone was willing to look. Am I saying that people cannot turn their lives around? Certainly not. But I don’t believe in living with your eyes closed either. jp

http://industry.bnet.com/financial-services/10004501/tom-petters-goes-to-trial-in-historys-second-largest-hedge-fund-ponzi-scheme/

http://blogs.wsj.com/law/2009/04/22/tom-petters-and-the-alleged-dvd-fraud/

From around the web –

From the web site, Chuck Gallagher.

http://chuckgallagher.wordpress.com/2010/04/13/50-years-for-a-ponzi-scheme-thomas-tom-j-petters-has-a-lot-of-time-to-think-ahead-my-this-sounds-like-the-bizradio-scam/

Take the example of Tom Petters of Wayzata, Minnesota, who was sentenced to 50 years in prison for running a $3.65 billion Ponzi-type investment fraud scheme, one of the largest ever. Convicted last December on all 20 criminal counts that he faced, including wire fraud, mail fraud and money laundering, Petters now faces a long time in prison for his choices.

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