Mini-Madoff: $8 Billion Scheme from Stanford Financial

Robert Allen Stanford, the chief of the Stanford Financial Group, has been accused of fraud in the selling of approximately $8 billion of high-yield certificates of deposit that were held in the firm’s offshore bank in Antigua. The Securities and Exchange Commission called the suspected activities a “massive ongoing fraud.” Continue reading “Mini-Madoff: $8 Billion Scheme from Stanford Financial”

Another Day, Another Massive Fraud

If you thought Bernie Madoff’s scam was the only deca-billion-dollar fraud going on, think again.

Satyam Computer Services Ltd. Chairman B Ramalinga Raju admitted to falsifying company accounts and inflating revenues and profits in company books. Following the announcement of the accounting scandal today, the company’s shares bottomed out, and are currently trading at 1 cent.

Satyam Chairman B. Ramalinga Raju
Satyam Chairman B. Ramalinga Raju

Raju had inflated the company’s operating profit for three months ending in September 30 from 610 million rupees to 6.48 billion rupees ($136 million), while revenue was inflated from 21.12 billion rupees to 27 billion.

The company reported an operating margin of 24%, but it was actually 3%.

Raju also said Satyam’s balance sheet as of Sept. 30 had a non-existent cash balance of 50.4 billion rupees; nonexistent accrued interest of 3.76 billion rupees; an understated liability of 12.3 billion rupees; and an overstated debtor position of 4.9 billion rupees compared with 26.51 billion rupees reflected in its books.

“This has resulted in artificial cash and bank balances going up by 5.88 billion rupees in the second quarter alone,” said the executive.

To recap: The company claimed its operating profit was 10 times bigger than it was and claimed it had 50.4 billion rupees when it actually didn’t, among a list of other bookkeeping transgressions. Stockholders were left holding the empty company coffers. There is no word yet on any protections of the stockholders, though if the Madoff investors won’t be protected by the SEC, it is unlikely that Satyam investors will be covered by the SEC’s Indian equivalent.

Any of the regular non-mega-rich people out there are left wondering when these kinds of fraud will end.

Satyam Chairman Fraud Confession

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Stunning Swindle Costs Investors $50 Billion

The biggest swindle ever blamed on a single individual unraveled last night when Bernard Madoff was arrested by police. His $50 billion scam will cost rich investors all over the world and may financially ruin many of those that invested in the Madoff’s scheme.

Stunning Wall Street Swindle Run By Bernard Madoff
Stunning Wall Street Swindle Run By Bernard Madoff

For several years, Madoff has been running a Ponzi scheme, where returns abnormally high returns are paid to older investors from the money from new investors.

The Times Online reports:

The FBI claims that three senior employees of Mr Madoff’s investment firm turned up at his apartment on Wednesday to ask questions about the company’s solvency. Two of them are believed to be his sons, Andrew and Mark, who have worked for their father for two decades.

Mr Madoff told them that he was “finished”, that he had “absolutely nothing”, and that “it’s all just one big lie”. He said the investment arm of his firm was “basically a giant Ponzi scheme”, and that it had been insolvent for years.

A Ponzi scheme, named after the swindler Charles Ponzi, is a fraudulent investment operation that pays abnormally high returns to investors out of money put into the scheme by subsequent investors, rather than from real profits generated by share trading.

The FBI complaint states that Mr Madoff told his sons that he believed the losses from his scheme could exceed $50 billion. If that is the case, his fraud would be far greater than past Ponzi schemes and easily the greatest swindle blamed on a single individual.

The swindle was discovered as many of the people involved tried to get their money out. Because there is no money to get out, people start asking questions, and the scheme eventually unravels. In this tight economy, the U.S. may see more investors pulling out of such funds. Whether or not there are more $50-billion bombshells out there is a question only time can answer, as all of these scams eventually collapse.