For First Half of 2019, Ponzi Scheme Discoveries Remained Steady But Are Red Flags Waving?

Earlier this year, Ponzitracker published a compilation of data and statistics for Ponzi scheme discoveries and sentences from 2008 - 2018.  Believed to be the first time that this data was aggregated in a single setting, it allowed a sobering look into how Ponzi schemes in the United States have flourished since Bernard Madoff’s $65 billion Ponzi scheme shocked the world in 2008.  In cataloguing the over-800 schemes discovered and over-700 sentences handed down since 2008, some of the conclusions were unsurprising including that the populous states of Florida, New York, and California were responsible for the largest number of Ponzi scheme perpetrators.  Yet the data also yielded other eye-raising takeaways including that men were responsible for approximately 90% of those schemes and that Utah had the 6th highest number of Ponzi schemes despite being in the bottom third of U.S. population.

Ponzitracker’s data also showed that the number of Ponzi schemes uncovered in 2018 was the lowest since 2008 - the year that massive schemes operated by Madoff and Tom Petters caused billions of dollars in losses and vaulted the term “Ponzi scheme” into the global lexicon.  The data showed that the average and median Ponzi scheme size during 2018 was largely unchanged from previous years, and taken together these data points offered at least preliminary support for the theory that these positive changes were at least partially attributable to increased regulatory efforts and heightened consumer awareness.  The continually declining number of Ponzi scheme discoveries in the midst of a lengthy positive run in financial markets also supported the hypothesis that Ponzi scheme discoveries were inversely correlated with financial market performance; in other words, the schemes were able to thrive in strong economic times where similar returns were at least theoretically possible with the current market performance and it was only after a market downturn that schemes generally began to be exposed. 

One of the largest questions after compiling the 2018 data was whether the steady decline in Ponzi scheme discoveries - the smallest number in Ponzitracker’s reporting since 2008 - would continue or revert back to the higher numbers previously observed in recent years.  In preliminary data compiled by Ponzitracker for the first half of 2019, the results appear to be mixed.  In a positive takeaway, 23 Ponzi schemes were uncovered during the first six months of 2019, which appears to be similar in frequency to the 42 schemes uncovered during all of 2018.  That data certainly suggests that, absent a large uptick in discoveries during the last six months of 2019, that the possibility of second year of less than 50 Ponzi scheme discoveries is likely.

Yet in a more ominous sign, both metrics concerning scheme size significantly increased for the first six months of 2019 compared to previous years.  While the average scheme size in 2018 was $34.5 million, the average size for the first half of 2019 was roughly double that at $68.5 million.  Similarly, the median scheme size in 2018 was $5.4 million while the median size in the first half of 2019 was nearly triple that figure at $15 million.  Assuming these trends hold, each of these metrics would be the highest number since 2009.  On their face, these figures suggest generally larger schemes are being discovered which is demonstrated by 5 Ponzi schemes of at least $50 million in size during the first half of 2019 - including two over $300 million.  

One likely explanation for the larger scheme sizes is that Ponzi schemes have been able to exist under the radar and attract more investors - and investments - as a result of continuously healthy financial markets.  As markets have generally moved upward over the past several years, there is less of a need for investors to tap their “safe" or “guaranteed” investment which seemingly (and in some cases inexplicably) continues to increase in value.  In turn, the continuing viability and purported prospering of the scheme may lead to an increase in investments through word-of-mouth or additional investments from existing investors.  

Other notable takeaways from the 2019 data include the revelation that more than half of the 33 individuals accused of being involved in a Ponzi scheme hailed from just two states - Florida and California.   The data also marks the highest proportion of females (approximately 15%) accused of operating Ponzi schemes.  

A chart of Ponzi scheme discoveries from the first half of 2019 is below: