Ponzi Schemes Hit A 13-Year Low In 2021, But Certain Takeaways Are Troubling

(As a disclaimer, these statistics are presented for educational purposes only, have not been independently verified, and were primarily compiled through articles on Ponzitracker and reporting on the internet by various sources including Kathy Phelps' monthly Ponzi roundups at ThePonziSchemeBlog.com. Individuals accused of Ponzi schemes are presumed innocent until proven guilty. These statistics generally only included Ponzi schemes of $1 million or more based in the United States. Please direct any comments or inquiries to inquiries@ponzitracker.com.)

According to data maintained by Ponzitracker, authorities uncovered 34 Ponzi schemes last year. This figure represents the lowest number of Ponzi schemes uncovered in a single year since at least 2008 - a time when Bernard Madoff was still a respected Wall Street icon. Although the data again represents a year-over-year drop from the 46 schemes uncovered in 2020 (and nearly half of the 60 schemes busted in 2019), some ominous takeaways from the data suggest that the news is not all positive. Moreover, as the world continued to grapple with multiple COVID-19 outbreaks during 2021, a return to normalcy in 2022 may very well threaten to upend this two-year decline.

2021 Ponzi Scheme Discoveries and Sentences

2019 had been a banner enforcement year for regulators, as at least 60 Ponzi schemes were uncovered that collectively involved more than $3 billion in investor funds. This momentum was shattered in 2020 with the onset and devastation of COVID-19, with the wheels of justice joining all other facets of life on the sideline. Yet, the second half of 2020 moved at a pace similar to 2019, and the question remained whether the trend would continue into 2021.

In total, 34 schemes were uncovered in 2021, meaning that a new scheme was uncovered about once every ten days. Collectively, the 34 schemes represented roughly $3.8 billion in investor funds - a massive increase from the $1 billion of alleged losses in 2020. This was due to six schemes involving at least $100 million in alleged losses - including three schemes with alleged losses of $500 million or more. Echoing the trend from 2020, the average scheme size in 2021 of $112 million was six times as large as the average scheme size of $21 million in 2020. Similarly, the median scheme size in 2021 was $12 million - nearly double the $7 million median scheme size in 2020. Of note, both the average and median scheme size figures in 2021 were the highest since 2010 (and eclipsed the $54.1 million average and $10.2 million median seen in 2019). More than half of the accused Ponzi schemers called Florida or California home, but 2020 also saw smaller states like Idaho, Rhode Island, and Wyoming serve as home to an individual accused of a Ponzi scheme. One statistic that has remained remarkably consistent even in 2021? Men continued to make up nearly 90% of the accused Ponzi schemers.

One expected development was that the number of sentences handed down to convicted Ponzi schemers saw a significant increase compared to 2020. Whereas only 22 sentences were handed down in 2020 as a result of widespread disruptions in the judicial system from COVID-19, 45 sentences were handed down in 2021 as a likely backlog of sentencings made its way through the system. The longest sentence was handed down to Jeff Carpoff, who received a 30-year term after his conviction for running a $1 billion solar Ponzi scheme. Two 25-year sentences were handed down, although the offenders received those sentences for operating a $2.8 million scheme and a $6 million scheme.

Will the trend reverse?

As I wrote at this time last year, it seemed that the year-over-year decline seen in 2020 was due to reverse given both the anticipated return to normal as well as the SEC’s issuance of a rare investor alert in December 2020 warning of “Investment Scam Complaints on the Rise.” However, COVID-19 again reared its ugly head in 2021 as different variants continued to disrupt all facets of life, and these constraints undoubtedly complicated efforts to detect and root out the schemes.

As the second half of 2022 approaches, the financial markets have been mired in their worst slump in years. Will the number of schemes continue to decline? Time will tell.

The database of alleged Ponzi scheme discoveries is below:


SEC Says Georgia Man Ran "Massive" $110 Million Ponzi Scheme

The Securities and Exchange Commission filed an emergency enforcement action in an Atlanta federal court alleging that a Georgia man ran a “massive” Ponzi scheme through his ownership of a financial firm and which currently owes at least $110 million to hundreds of investors. John Woods, of Marietta, Georgia, along with Livingston Group Asset Management Company d/b/a Southport Capital (“Southport”) and Horizon Private Equity, III, LLC (“Horizon”), were named as defendants in the Commission’s action, which also sought the imposition of an asset freeze and the appointment of a receiver. The Court granted the appointment of a receiver over Horizon but denied the request to appoint a receiver over Southport.

The Scheme

According to the Commission, the story begins in 2008 when Woods was registered as both an investment advisor and registered representative of a financial services firm. In those capacities, Woods was required to disclose any outside business activities to his employer. The Complaint alleged that Woods began soliciting investors for Horizon, which was “nominally controlled” by Woods’ accountant at that time in order to shield Woods’ actual ownership. That same year, Woods also purchased Southport, which was an SEC-registered investment adviser. The Commission alleges that Woods’ brother then became “nominally” in charge of Southport when in fact Woods continued to exert control over Southport. Shortly thereafter, Woods’ cousin also left his job at the same financial services firm as Woods to join Southport. After Woods’ financial services firm apparently raised questions over Woods’ involvement in outside business activities, Woods ultimately resigned in 2016 and then joined Southport full-time. According to the Complaint, Woods apparently asked a business partner not to speak to his firm’s compliance personnel at the time they were investigating his affiliation with Southport because “he had only months to live because he was suffering from cancer.”

Woods, his brother, and his cousin all allegedly solicited clients to invest in Horizon, touting the safety and security of the investment and also promising that Horizon would pay guaranteed and fixed returns. Investors were rarely provided with any written materials relating to a prospective investment, instead relying on oral conversations and representations made by Woods, Woods’ relatives, or other Southport advisers. Investors were allegedly told that there was no possibility of losing their investment, that Horizon was not affiliated with Southport, that a Horizon investment was an annuity, and that investor funds would be used to purchase government bonds or collateralized mortgage obligations. Investors were also told that Southport employees would not receive compensation for recommending the Horizon investments.

The Commission alleged that these representations were false, and that in reality, Woods was operating Horizon as a “massive and ongoing Ponzi scheme” that owed investors more than $110 million as of the end of July 2021 but only had liquid assets worth less than $16 million. Woods allegedly used new investor fund to make payments to existing investors - a classic hallmark of a Ponzi scheme. The complaint indicates that Horizon has invested approximately $20 million of investor funds in other Horizon assets that will be “complicated” and “time consuming” to liquidate.

The Complaint details that the Commission’s Division of Examinations conducted an examination of Southport in 2018, alleging that Woods misrepresented his role with and control over Horizon. For example, Woods provided written responses indicating that he has “never” controlled Horizon’s operations, that he was not a signatory on Horizon’s checking accounts, and that Woods was "an investor in this fund, but not a manager.” It appears another examination was conducted in 2021, to which Woods allegedly provided similarly misleading responses.

In a hearing last week, U.S. District Judge Steven Grimburg agreed that appointment of a receiver was warranted over Horizon but declined to do the same for Southport, reasoning that “I don’t find this burden has been satisfied at this juncture…” An attorney for Southport, while agreeing that a receiver was necessary for Woods and Horizon, cited the recent change in management and leadership at the firm and indicated that the company “will not be around for much longer” if a receiver was appointed over Southport.

A copy of the Complaint is below: