Today, the New York Times’ Dealbook featured an article on the federal government’s "crackdown" on Ponzi schemes. The piece uses increasing numbers of FBI Ponzi investigations and CFTC enforcement actions as evidence of the tougher stance. While the government’s strategy appears successful, it targets the wrong folks. Below is my comment on the piece, also posted at Dealbook’s website.
Ho hum. Nothing new, regulators will go after "low hanging fruit." The easy targets. Think about the drug dealer on the corner instead of the kingpin who travels around in a limousine, never soiling his leather-gloved hands in the day-to-day affairs of the criminal enterprise. The cops can pick up the drug dealer and charge him with possession with intent to distribute the drug du jour, but by the time he appears for arraignment his "replacement" will be on the street — making sure the "king pin" doesn’t lose market share (and a valuable corner).
And so it goes with Ponzi schemes. The CFTC and the SEC will make a few arrests of the most outrageous of "con men" // "flim flam artists" // "grifters" — call them what you like. But it’s just a holding action, a finger in the dike.
The efforts of prosecutors instead must be on the "legitimate" financial institutions that assist these schemers. Madoff didn’t deal in cash. He banked at the eminent JPMorgan Chase. Sanford had a score of banks at his disposal as he syphoned billions offshore. Nick Cosmo on Long Island was a Bank of America favorite. These banks profited by their association with these hoodlums at the expense of the victims. "Oh Mr. Madoff I see your balance in your account is $35 billion, can we offer you a free toaster?"
These banks knew and if they were held accountable by prosecutors… now that would be a real story.