Asset misappropriation involves the theft or embezzlement or abuse of an asset of a company for personal use at the company’s expense and is often accompanied by false or misleading records or documents to conceal the abuse. One interesting kind of asset misappropriation that peaked my interest are Ponzi schemes, a kind of pyramid scheme involving fraudulent investment ventures. The recession in 2008 serves as an illustration for the omnipresent nature of the scheme: a lengthy list of Ponzi schemes bears examples of the fraudulent manipulation of unknowing investors both before and after the global economic downturn. In this chapter we will deal specifically with Ponzi schemes, an archetype of asset misappropriation, linking it with the
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Ergo, do corporate governance frameworks of organisations need to take action to cover the fraud risk of Ponzi schemes? On initial consideration one would think it unlikely, as organisations can be expected to have reasonable investment insight, business know-how and resources for active investigation. Nonetheless, even though one would assume that institutional investors would have greater business acumen than individuals, a Ponzi scheme often isn’t detected until it collapses and maximum damage has occurred. It is indeed possible that the shrewdest and most vigilant of organisations can be persuaded by the enticing notion of being involved in an innovative finance proposition, especially when proposed by reputable individual. Hence, an institutional investor could easily be pulled into a Ponzi scheme if the perpetrator plays his cards right. This is accurately highlighted in what is commonly known as one of the largest Ponzi schemes in history - the Madoff Ponzi scheme perpetrated in the United States. In 2009 Bernard L. Madoff, principal of Bernard L. Madoff Investment Securities LLC, pled guilty to defrauding investors of an estimated $64.8 billion. Madoff, who was charged with conducting a multinational, multibillion-dollar Ponzi scheme, pled guilty to charges of securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of international or domestic money laundering, false statements, perjury, false filings with the Commission, and theft from an employee benefit plan against
Ergo, do corporate governance frameworks of organisations need to take action to cover the fraud risk of Ponzi schemes? On initial consideration one would think it unlikely, as organisations can be expected to have reasonable investment insight, business know-how and resources for active investigation. Nonetheless, even though one would assume that institutional investors would have greater business acumen than individuals, a Ponzi scheme often isn’t detected until it collapses and maximum damage has occurred. It is indeed possible that the shrewdest and most vigilant of organisations can be persuaded by the enticing notion of being involved in an innovative finance proposition, especially when proposed by reputable individual. Hence, an institutional investor could easily be pulled into a Ponzi scheme if the perpetrator plays his cards right. This is accurately highlighted in what is commonly known as one of the largest Ponzi schemes in history - the Madoff Ponzi scheme perpetrated in the United States. In 2009 Bernard L. Madoff, principal of Bernard L. Madoff Investment Securities LLC, pled guilty to defrauding investors of an estimated $64.8 billion. Madoff, who was charged with conducting a multinational, multibillion-dollar Ponzi scheme, pled guilty to charges of securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of international or domestic money laundering, false statements, perjury, false filings with the Commission, and theft from an employee benefit plan against