A Look At Ponzi Schemes In Canada

With the current condition of the economy, there have been a couple ponzi schemes that have unraveled, leaving investors wondering what happened to their money. Two high profile investment frauds in Canada had been orchestrated by Earl Jones and recently Gary Sorenson.

Before Bernie Madoff was busted in the United States, no one had heard of Ponzi schemes to their recent recollection. Now I see it’s even the subject of a recent episode of CSI: Miami and tonight’s episode of The Border.

So what exactly is a Ponzi scheme? It’s a scam where current investors are paid a return from the money paid by new investors. For example, say someone promised a 25% return and they gave the advisor $100,000. When the time comes to pay, the early investors would get that $25,000, but it wasn’t from some great investment decisions, it was simply from the newer investors since then. If one new investor also put in $100,000, that could possibly pay two earlier investors their return and the advisor could pocket the remaining $50,000.

This can go one for some time, especially if the investors want to reinvest their money. Going back to the original investor that gave $100,000. What if he wanted to reinvest the $25,000? This is even easier for the advisor, he can simply print a statement showing a balance of $125,000 for the investor and in reality there may be none of that money left.

Another way to prolong this fraud is to “guarantee” a higher rate of return when locking in for a longer period of time. Instead of 25%, maybe the advisor would offer a 35% annual return if the money is left in for 10 years.

So why are we hearing about all these investment schemes falling apart now? Two things happened because of the current economy with the majority of investors, not just those caught up in a ponzi scheme. First, there where no new investors and secondly, current investors wanted their money out due to the fear of the market. When this happened the bottom fell out on these scams, there was no more money to pass up to the previous investor. This lead to most of these scam artists grabbing whatever money was left and going into hiding.

Hopefully all the media attention will serve as a reminder to check out your financial advisor, know what it is that your advisor is investing in, and question returns that seem too good to be true. The best way to know your advisor will put your interests first is to choose a fee-only financial planner. Better yet, drop the advisors completely and invest in index funds by yourself.

Written by Tom Drake

Tom Drake is the owner and head writer of Canadian Finance Blog. While you’re here, consider signing up for the RSS feed or email subscription. Both deliver the latest articles directly to you! You can also follow me on Twitter for all the latest posts or to send me any comments or questions!

6 Responses to A Look At Ponzi Schemes In Canada

  1. Jordan Bionda is nothing but a cheat and a liar and a pyramid scheme promoter and will try to make you beleive that he is in the financial services industry
    stay away from him he has ripped off several thousand people and is a scammer and a ripoff artist

    • Hi, my family and myself are in contact with Jordan Bionda and we need to confirm the things we read about him on the internet. Thanks for getting back to me. Cheers, Tom

    • Jordan Bionda is responsible for the IFPA fiasco and other pyramid schemes that he has been promoting over the last 7 or 9 years and has for the most part been an insulant individula refusing to give back hard earned money on the basis that you dont beleive him any more andd that you have not given him enough he will trun on you and tell y ou that it is all your fault that you didnt give him enough time he is a greedy disrepectful, siociopath and truley a fraud promoter and scam artist dont give him thetime of day dont trust him dont do business with him he rios people off and the law has yet to catch up with him and charge him as the fruad promoter he is he has a criminal reconrd in the USA andd in Canada and has no respect for money or you STAY CLEAR OF THIS MANIAC

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