Another U.S. ponzi scheme washes up in Panama

I have hesitated putting this story up until confirmation of the local Panama branch of Stanford International Bank had been closed. The story broke over a week ago, but there were questions on what entanglement this branch might have and I did not want to add to the concerns of depositors. Unfortunately the Bank commission has seized the banks assets and the $9 plus billion supposedly scammed by Stanford will be looking to Panama for help in retrieving lost funds. This is especially troubling because it ads fuel to the fire burning to extinguish all offshore banking. The operation in Antigua has nearly caused the country to default as Stamford is the number one benefactor and employer in the country.

From the Latin Business Chronicle we get this report on the likelyhood of other scams that will break in Latin America and why Latins are more suseptible to this kind of fraud.

Latin Americans have lost billions in Ponzi schemes organized by Allen Stanford and Bernard Madoff. The bad news is that there are likely more Ponzi schemes affecting Latin American investors thanks to a combination of factors such as the stronger dollar, worsening local conditions for capital, exchange controls and the need for confidentiality, experts say.

Latin Business Chronicle asked three leading experts to share their insights to the Ponzi schemes and the impact they have had on Latin American investor confidence in

U.S.

institutions.

Our panel includes:

• Francisco Gonzalez, head of the International Services Group at the U.S.-based law firm Adorno & Yoss, has already started representing Latin American clients in their claims to recover their deposits with Stanford Bank. Meanwhile, the firm's securities attorneys also have expertise representing clients in similar conditions such as the Madoff case.
• Michael A. Tessitore, director of U.S.-based law firm McClane Tessitore, is an expert in fraud and asset recovery and currently represents one of the alleged victims affected by a recent nationwide Ponzi scheme targeting Haitian-Americans.
• Lewis B. Freeman, CPA and Attorney, is the Founding Principal with U.S.-based Lewis B. Freeman & Partners, Inc., a national forensic accounting and consulting firm with offices in Miami, Los Angeles and New York.

Latin Business Chronicle: Do you expect more Ponzi schemes will hit Latin American investors?

FREEMAN: Yes.  Several converging factors have increased the susceptibility of Latin American investors to Ponzi schemes.  First, the recent strength of the U.S. dollar has made dollar-denominated investments attractive.  Second, much of the capital was fleeing countries where the political environment is unstable or where leftist governments have imposed confiscatory tax rates.  Third, effective Ponzi schemes created the appearance of legitimacy and government oversight.  Madoff had been chairman of NASDAQ.  Stanford falsely claimed his banks were overseen by Antiguan banking regulators. Fraud promoters were aware of these factors and became masterful at preying on these fears.  The con artists promised safe regulatory oversight, protection against currency devaluation, secrecy (since much of the capital is hiding from tax authorities), and high returns.  This induced high volumes of Latin investment funds to be sent to the

U.S.

and the

Caribbean

, seeking the promised safe havens – and high returns.  Madoff and Stanford were not the only ones creating these illusions.  There are other Ponzi schemes out there; the investors just don’t know yet that they are victims.  Unfortunately, many investors cannot complain because their investment funds were not supposed to exist.

TESSITORE: Yes, I expect more Ponzi schemes will hit Latin American and

Caribbean

investors.  For several years, we have experienced a pattern of large U.S.-based Ponzi schemes that have preyed in substantial part on Caribbean and Latin American based investors.  These schemes are fueled with money from new investors.  Given current economic conditions, new investor money is likely drying up, and this will accelerate the collapse of these schemes. 

GONZALEZ: It is difficult to predict. However, Latin American investors operate under the confluence of three very dangerous elements. These are: i) Perceived need for confidentiality, ii) Just enough business and financial knowledge to be extremely dangerous to themselves and unable to understand the relationship between risk and reward, and iii) in the case of countries like Venezuela, exchange controls.  These three elements cause a perfect storm for those representing unknown financial institutions or those who offer unreasonably high returns. Using a variation of Gordon Gekko's famous expression...."Greed is Good", but it can also be very expensive.

How have the Stanford and Madoff schemes affected Latin American investor confidence in

U.S.

financial institutions?

GONZALEZ: Not at all. If anything, Madoff and Stanford make a better case for traditional banks than they have been able to make for themselves over the last 20 years. If Madoff and Stanford had been a traditional

US

financial institution, those losses would have been covered by FDIC insurance.

TESSITORE: I believe investor confidence in

U.S.

financial institutions will suffer as a result of the Stanford and Madoff schemes.  Many schemes such as these appear to be legitimate and substantial financial institutions from the outside.  It is often very difficult for the average investor, without meaningful investigation, to distinguish between the schemes and legitimate institutions.  Moreover, many of the Ponzi schemes have been promoted by licensed brokers and financial advisors who have gained the trust of their investor clients.  Under these circumstances, many investors do not know what to believe or whom to trust.  In the end, investors must do their own due diligence, understand the risks involved and remember that if the promised rate of return seems to good to be true, it likely is. 

FREEMAN: In the short term, Latin American investors will have reduced confidence in financial institutions and markets in the

United States

.  But, we expect this distrust will be short-lived for several reasons:

·        Investors will recognize the dollar is expected to remain stable or grow in value as a haven currency. 

·        While U.S. institutions have problems, most of the financial institutions in other countries are in worse shape.  On a comparative basis,

U.S.

institutions will be attractive.

·        The current low prices for

U.S.

stocks create tremendous profit potential when the markets do recover. 

·        History has shown that the best-regulated, most transparent markets will rebound most quickly and to the highest levels. 

As a result, in the long term, investors from

Latin America

and elsewhere will realize that American institutions represent the safest destination for investment capital.  Investors will find that confidence growing as soon as investment returns start rising.

What should Latin American victims of the Stanford and Madoff do?

GONZALEZ: They should explore all avenues and remedies afforded to them by the

U.S.

laws.

Antigua

is merely one of the jurisdictions where Stanford operated. The bulk of the action will be in the

United States

.

TESSITORE: Victims should check the web site for the US Securities and Exchange Commission which regularly issues news releases regarding Ponzi schemes and government enforcement action against them.  They should also consult promptly with a lawyer experienced in creditors rights and insolvency law.  It often makes sense for a group of victims to join together to engage this type of lawyer.