July 14, 2012 - The Ponzi Scam Lives On: Hey, Charlie, wherever you are—and one thing for sure it isn’t in heaven—you can rest easy, secure in the knowledge your legacy, if not your corporeal being, lives on.
The Charlie in question is, of course, the infamous Charles Ponzi (pictured above), who perfected the scheme bearing his name in 1920 or thereabouts, fraudulently took in the equivalent today of upwards of $200 million and wound up, in part due to the efforts of Clarence Barron, founder of this blessed magazine, in the slammer.
Charlie died penniless in 1949 in Rio de Janeiro, leaving behind a trail of broken dreams, empty purses and a template for con men even to this very day some 90 years later.
Indeed, we seem to be in the midst of a full blown epidemic of Ponzi schemes that started some time around the turn of this century and has, if anything, been exacerbated in the past few years. We’re thinking obviously of Bernie Madoff, con man par excellence, and Robert Allen Stanford, who via various and sundry shady doings swindled a mere $7 billion and picked up a knighthood from Antigua for his trouble before his gilded roof fell in and he drew a sentence of 110 years.
The latest addition to this rogues gallery is Russell Wasendorf Sr., who ran a commodity-brokerage firm out of Cedar Rapids, Iowa. A native Iowan, Wasendorf moved his operation from Chicago to Cedar Rapids and built a splendid new headquarters for it. The business took a very bad turn for the worse, Wasendorf made a botched attempt at suicide, and his company, Peregrine Financial Group, known affectionately as PFGBest, staggered into bankruptcy.
The firm enjoyed a great reputation in the trade and among its clients (but don’t they all?) A preliminary finding is that about $225 million in PFGBest’s customers’ accounts has gone missing, including money held for some of the same folks who were clients of MF Global, another commodities operation that slunk into bankruptcy and somehow lost track of what happened to $1.6 billion of customers’ hard-earned bucks.
Adding to the weird and mysterious things about Mr. Wasendorf’s behavior is that he secretly got married in Las Vegas a few weeks before everything went awry. Which no doubt surprised a lot of the citizens of Cedar Rapids who had been invited to attend his wedding in their town in August.
Forgive a personal note, but we have fond memories of Cedar Rapids when as a student at the University of Iowa many years ago we’d happily hitch a ride to that welcoming little city to hear some great jazz concerts by the likes of Duke Ellington. It’s hardly the kind of place you’d expect to harbor a plot that old slick Charlie Ponzi would be proud of.
PFGBest supposedly had $225 million of so-called segregated customer funds, when in fact it had only $5 million in total bank deposits, according to the National Futures Association, a trade group that oversees the industry. In other words, the information submitted by the firm to regulators and clients alike was purely phony (if that isn’t a mixed metaphor). At this writing it’s not at all clear where, if anywhere, those missing funds are lodged.
What is clear is that, according to a complaint filed by the Commodity Futures Trading Commission, Wasendorf Sr. forged signatures and fabricated bank balances. He was generous (not unusual in such cases) and invested in other businesses in Cedar Rapids, including a successful upscale eatery (which, alas, is now closed).
Scratch our head as vigorously as we might, we haven’t been able to come up with any glib explanations for the outbreak of Ponzi schemes, apart from the lack of fiscal discipline inspired by a couple of generations of imprudent borrowing, no shortage of gullibility among innocent sheep being shorn and a deadly combo of arrogance and greed among the schemers.
And it doesn’t help that despite the fuss and furor about the banks, a JPMorgan can lose—what is it now? $5.8 billion and counting—from a silly gamble and seemingly get absolution from the market for continuing to show quarterly earnings in the billions.
All of which strongly suggests to us that the catharsis of deleveraging has a ways—possibly quite a ways—to go. (Credits: Narrative – Alan Abelson of Barrons, Picture – Getty Images).
The Master of Disaster