What’s a Ponzi scheme got to do to get lasting respect?
In October, Thomas J. Petters, a Minnesota businessman, was the talk of the business world for allegedly defrauding investors of $3 billion or more.
Now, Petters is old news, given the arrest this month of Bernard L. Madoff on New York City on fraud charges.
By his own estimate, Madoff may have played fast and loose with up to $50 billion of other people’s money.
That kind of cash trumps Petters, but writing in businessweek.com, Matthew Goldstein argues that the national media has been fickle, leaving the Petters story too soon.
The money involved in the case isn’t “chump change,” Goldstein writes, and there are plenty of victims, individuals and hedge funds alike.
“Surely, there are as many lessons to be learned from the Petters affair as (from) the one now unfolding with Madoff,” Goldstein writes.
The first lesson he extracts from both episodes is that “the rich can be just as easily swindled as less sophisticated investors.”
While that may be true, it would seem that Petters and Madoff used different pitches to separate the rich from their money.
Petters functioned as a venture capitalist. He attracted investments from hedge funds and individuals and then acquired companies.
Several of these companies, including Sun Country Airlines and Polaroid Corp., have declared bankruptcy in the wake of the scandal.
Petters and his associates also told investors that they were in a business of selling real goods (electronics, etc.) to real businesses.
Later, it turned out that these transactions may have been faked and the investors’ money used for Petters’ personal gain.
Unlike Petters, Madoff functioned as a financial adviser, taking money from individuals and allegedly investing it in financial instruments.
In reality, authorities alleged, he used new money from new investors to pay “earnings” to old investors, a classic Ponzi scheme.
Petters had help in his alleged fraud. While he has pleaded “not guilty” to all charges, five of his associates have so far entered guilty pleas.
They include Deanna Coleman, a Petters vice president and the whistleblower who alerted authorities to the alleged fraud.
No one other than Madoff, who was turned into authorities by his sons, has been charged in connection to his alleged scam.
However, The Wall Street Journal reported Tuesday that authorities are investigating a Madoff aide and an accountant.
The shock value of the Petters and Madoff cases comes in part from the fact that each man was thought to be generous and trustworthy.
Petters gave millions to colleges and university, in one case to underwrite the study of business ethics.
In most cases, the arrangements did not seem to be reciprocal - the institutions did not invest with Petters. However, at least six Minnesota charities that did invest with him may be out a total of $27 million, according to reports.
Madoff contributed to a variety of causes and institutions, including Yeshiva University, where he served on the board of trustees. He also managed some of Yeshiva’s money, losing, it would seem, $110 million in the process.
Other not-for-profits are also reporting huge Madoff-related losses.
Ruled a flight risk, Petters has stayed in jail since his arrest. Madoff is free on a $10 million bond and remains on home detention and under electronic monitoring.
Click here to sign up for the Muckety Newsletter
0 Comments
There are no comments yet, be the first by filling in the form below.
Leave a Comment