Ponzi Schemes Could Not Exist Without the Help of Banks
It is time to return the term 'Ponzi scheme' to the microfiche headlines of the 1920s where it belongs. To do so, regulators must start regulating and courts must start finding banks liable.
Over the past year or so, the term “Ponzi scheme” has sadly become as common as “Let’s have lunch” or “Text me.” Yes, these schemes are emblematic of good old greed and the over-exuberance and blind optimism seen in all markets, but they also illustrate a serious failure in our banking system. With leading reputable banks at their side, Ponzi schemes have the means to grow, metastasize, and take hard-earned (often retirement) monies from hundreds of thousands of victims. Change needs to come in the form of enhanced regulation and the courts’ willingness to hold banks accountable.
One notable example is the case of an online Ponzi scheme called ADSURF. Participants in this scheme were told in compelling YouTube videos, religious-type rallies, and internet ads that they could earn money by simply surfing the web. When it sounds too good to be true, it is too good to be true. All ADSURF was doing was recruiting new participants to pay into the scheme; this allowed the organizers to profit wildly while the unlucky newcomers got left holding the bag—just like all good Ponzi schemes.
Contrary to core compliance requirements recently expanded and tightened in response to funding made available to the 9/11 terrorists, Bank of America placed itself at the heart of the ADSURF Ponzi scheme. With the help of Bank of America, the ADSURF scheme went on to victimize over 100,000 participants who lost hundreds of millions of dollars. Bank of America was privy to a slew of information that inexorably led to the conclusion that ADSURF was one big scam:
* ADSURF was the brainchild of Thomas Bowdoin, a convicted felon with a history of securities fraud violations and failed business ventures.
* ADSURF sold no products or services, held no intellectual property rights, and had no successful business professionals in management or on its Board.
* ADSURF had no colorable, legitimate means to produce the massive profits (365% per year) Bowdoin and his co-conspirators promised investors.
* ADSURF also lacked the means to legally generate the tens of millions of dollars a month flooding its tiny office—a former floral shop—in the small town of Quincy, Florida.
While unthinkable just a few years ago that one of the nation’s largest and most respected financial institutions could act so irresponsibly, their conduct is sadly consistent with a range of lax business practices. A corporate culture that placed increased profits, seven-figure bonuses, and a higher stock price above sound banking judgment—this is the same culture that caused the Bank’s near-failure last fall (requiring a $45 billion dollar federal bailout because they were deemed “too big to fail”).
It is time to return the term “Ponzi scheme” to the microfiche headlines of the 1920s where it belongs. To do so, regulators must start regulating and courts must start finding banks liable for knowingly assisting Ponzi schemes and other obvious fraudulent schemes.
