Asignment report business ethnics case 11 fraud of the century

BỘ GIÁO DỤC VÀ ĐÀO TẠO TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN ~~~~~~*~~~~~~ ASIGNMENT REPORT: BUSINESS ETHNICS CASE 11: FRAUD OF THE CENTURY Lecturer Student Name Student ID Class : : : : Dr Nguyen Bich Ngoc Ta Minh Duc 11211424 International Business Management 63C Ha Noi – September 2022 Table Of Contents I Introduction II Pyramid scheme What is pyramid scheme .4 What Is Multi-Level Marketing Differences between a legitimate multi-level marketing company and a pyramid scheme Pyramid scheme examples III Ponzi scheme What is Ponzi scheme The original Ponzi schemer The largest Ponzi scheme in history - Bernard L Madoff Tom Petters R Allen Stanford 10 IV Conclusion 11 The impact of Pyramid schemes and Ponzi schemes on society 11 How to avoid being defrauded 11 V Answering case’s questions .12 Question 12 Question 12 Question 12 VI References 13 This is a preview Do you want full access? Go Premium and unlock all 14 pages I Introduction Cheating is the basis Access of any scam the deception, as if harmless it to allAnd documents may be, is a hoax You can persuade people to give money And also you can make sure that theUnlimited money will flow into your pocket, so that Get Downloads the people themselves will carry them to you and even be grateful that your grades you've agreed to takeImprove them Despite the fact that during the XX century almost all developed countries have adopted laws to combat fraudulent systems such as the Ponzi scheme, Pyramid scheme, these cases are not just living, but even thriving They are happening all around us, and we often don’t even noticeUpload them Both the Pyramid scheme and Ponzi scheme are very harmful towards investors, to and are hard to watch out Share your documents unlock for unless people know exactly what they are, why they fail, the effect of the failure, common victims, how to avoid them, and how to prevent them from spreading More individuals are hurt than are helped when dealing with these scams Individuals Free Trialshould be more informed about pyramid schemes, because they can be easily disguised This case Get 30 days of free Premium analyzes what Ponzi schemes and pyramid schemes are, their differences and similarities, their detrimental impact on society as well as how to prevent or avoid them Already Premium? Log in II Pyramid scheme A pyramid scheme is an illegal financial scam masquerading as a legitimate business Pyramid schemes are similar to Ponzi schemes and multi-level marketing (MLM) companies, but there are important distinctions among these three structures What is a pyramid scheme?  On the surface, a pyramid scheme appears to be a legitimate company selling products or services, sometimes they disguise themselves as MLMs but the core goal is always to grow the number of participants in the scheme rather than grow product sales New participants are typically referred to as investors, salespeople, agents or distributors, or some variation on these titles  A pyramid scheme is a type of fraud where members make money by recruiting more people to buy in Typically, the founder invites an initial group of people to pay a fee to get in, in exchange for the ability to recruit more investors who will pay them These people are then encouraged to recruit others and receive part of the money those people invest while the founder also takes a share The pattern repeats for each group of new participants with money from new investors funneled to those who recruited them The scheme is called a "pyramid" because at each level, the number of investors increases exponentially and that’s also the reason why it's impossible for pyramid schemes to function for long terms due to the limited number of people in the community When there is no more people to recruit, that's when the pyramid scheme collapses And another reason is that as the pyramid grows, the returns get smaller and smaller until eventually there are no returns at all The only people who actually make money are just those on top of the pyramid, the others always end up losing their money What Is Multi-Level Marketing? Multi-level marketing (MLM) is a legal business program This business model involves the sale of actual goods or services by distributors or participants in the MLM Distributors get paid for those products and services of the MLM that they sell They can also receive income from sales made by distributors that they've recruited and from people those recruits then bring in Differences between a legitimate multi-level marketing company and a pyramid scheme  A legitimate multi-level marketing company emphasizes reliable products or services A pyramid scheme uses products or services to disguise its quest for collecting money from the investors on the bottom levels to pay other investors further up the pyramid  In a typical pyramid scheme, new investors must pay a fee for the right to sell the products or services as well as for the right to recruit others into the pyramid for rewards unrelated to product sales or services Very often the products or services the victim must buy are unsalable, and the pyramid's promoters refuse to repurchase them On the other hand, legitimate multilevel marketing companies will buy back unsold merchandise, although often at a discount from the original price  Success in multi-level marketing is based on two factors: product and service quality, and the hard work involved in being able to sell the products or services Recruitment of new investors is secondary Pyramid scheme examples  Koscot Interplanery The FTC began to take action against pyramid scheme in the 1970s, and one of its first action was taken against Koscot Interplanetary - a cosmetic company which recruit people for a fee, charged them for purchasing makeup supplies, and then provided them with a fees by recruiting others without encouraging them to sell any product  Vemma Nutrition Company Vemma Nutrition Company was a privately held multi-level marketing company that sold dietary supplements In 2004, Vemma Nutrition offered an opportunity to earn full time income for part time work and this offer was open to everybody regardless of their experience or education All they have to to start earning money is purchasing a $500-600 kit of their liquid nutrition products and invite more people to the same Vemma Nutrition grew quickly and became a global operation By 2013, while the company generated about $200 million dollars of annual revenue, the majority of participants earned less than they paid in This is a preview Do you want full access? Go Premium and unlock all 14 pages On August 21, 2015, the U.S Federal Trade Commission filed a lawsuit against Vemma, freezing the company's assets and seeking injunctive relief for consumer redress The FTC allegedto that was a pyramid scheme; that Access allVemma documents Vemma had misrepresented participants' earning potential; and that the Boreyko family had inappropriately incorporated dozens of companies with the same Get Unlimited Downloads staff, facilities, and commingled funding The restraining order was set to expire fourteen days later unless extended The company itself, CEO Benson Boreyko, Improve your as grades and distributor Tom Alkazin were named defendants On September 18, 2015, the judge ruled that Vemma had been operating as a pyramid scheme and that their marketing material had been "deceptive and misleading" Accordingly, the judge appointed a monitor to oversee their Upload business, and barred them from resuming normal operations Penalty Share your documents to unlock In a September 2016 judgement, Vemma reached a settlement agreement with the FTC, wherein Vemma Nutrition Company, Vemma's CEO Benson Boreyko, as well as Tom Alkazin and Alkazin's wife, Bethany, agreed to a permanent Free Trial injunction and monetary penalties days oftofree Vemma Nutrition CompanyGet was30ordered payPremium a US$238 million fine as a company, restructure its compensation plan, and forfeit certain company assets The Alkazins, on the other hand, were fined US$6.7 million as individuals As part of the settlement the defendants were banned "from involvement in any pyramid, Ponzi, or chain marketing schemes Already Premium? Log in  Arizona Internet Company Nex-Gen3000.com In 2003, the FTC issued a press release declaring NextGen and other “internet shopping malls” to be pyramid schemes In this type of program, sellers were encouraged to purchase a package of goods and services to be resold on the internet The profit margin for sellers was low According to the FTC, since 2000, Tucson, AZ-based NexGen3000 marketed Internet shopping malls it claimed would allow investors to earn income and commissions on products purchased through the Web Consumers paid a registration fee to join the NexGen program, and most also purchased a “WebSuite” including the Internet mall and related goods and services, the FTC claimed Fees ranged from $185 for a “Basic WebSuite” to $555 for a “Power Pack WebSuite.” The complaint also alleges that most consumers lost money in the operation despite claims of substantial income The papers also state that the defendants provided deceptive marketing material to affiliates, thereby giving them the means to deceive others The FTC further claimed that the defendants failed to disclose that a substantial percentage of participants would lose money, and that the scheme was actually an illegal pyramid The defendants, NexGen3000.com are barred from participating in any multilevel marketing businesses in the future The settlements include suspended judgments in the amount of $1,651,034 III Ponzi scheme What is Ponzi scheme A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors A Ponzi scheme is a fraudulent investing scam which generates returns for earlier investors with money taken from later investors This is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers The founder recruits investors by promising to pay consistently high returns that they can’t find in the market All the investors think that the return comes from a legitimate investment while the money was never invested The money that the investors receive as a return is just a portion taken from their original money or from newer investors The original Ponzi schemer The term "Ponzi Scheme" was coined after a swindler named Charles Ponzi in 1920 However, the first recorded instances of this sort of investment scam can be traced back to the mid-to-late 1800s, and were orchestrated by Adele Spitzeder in Germany and Sarah Howe in the United States Charles Ponzi's original scheme in 1919 was focused on the US Postal Service The postal service, at that time, had developed international reply coupons that allowed a sender to pre-purchase postage and include it in their correspondence The receiver would take the coupon to a local post office and exchange it for the priority airmail postage stamps needed to send a reply This type of exchange is known as an arbitrage, which is not an illegal practice But Ponzi became greedy and expanded his efforts Under the heading of his company, Securities Exchange Company, he promised returns of 50% in 45 days or 100% in 90 days Due to his success in the postage stamp scheme, investors were immediately attracted Instead of actually investing the money, Ponzi just redistributed it and told the investors they made a profit The scheme lasted until August of 1920 when The Boston Post began investigating the Securities Exchange Company As a result of the newspaper's investigation, Ponzi was arrested by federal authorities on August 12, 1920, and charged with several counts of mail fraud In November 1920, Ponzi was sentenced to five years in prison The largest Ponzi scheme in history - Bernard L Madoff Who is Bernard Madoff Bernard Lawrence "Bernie" Madoff was an American financier who executed the largest Ponzi scheme in history, defrauding thousands of investors out of tens of billions of dollars over the course of at least 17 years, possibly longer He was also a pioneer in electronic trading and chair of the Nasdaq in the early 1990s He died in prison at age 82 on April 14, 2021, while serving a 150-year sentence for money laundering, securities fraud, and several other felonies Founder of Bernard L Madoff Investment Securities (BLMIS) Former two-time chairman of the NASDAQ (National Association of Securities Dealers Automated Quotations) Considered for the post of Treasury Secretary in the 1990s Sat on the board of directors of the Securities Industry Association The scam And for his Ponzi scheme, Madoff decided that the key to his plan was to set his interest rate at around 12% return annually And more importantly these returns were consistent because Bernie was the one who set the rate so it could be as consistent as he wanted it to be Madoff's apparently ultra-high returns persuaded clients to look the other way In fact, he simply deposited This is a preview Do you want full access? Go Premium and unlock all 14 pages their funds in an account at Chase Manhattan Bank—which merged to become JPMorgan Chase & Co in 2000—and let them sit The bank, according to one estimate, may to have as much as $435 million in afterAccess allmade documents tax profit from those deposits When clients wished to redeem their investments, Madoff funded the payouts with new capital, which he Get Unlimited Downloads attracted through a reputation for unbelievable returns and grooming his victims by earning their trust Madoff also cultivated an image of Improve grades exclusivity, often initially turningyour clients away This model allowed roughly half of Madoff's investors to cash out at a profit These investors have been required to pay into a victims' fund to compensate defrauded investors who lost money Upload As the previous chairman of the Nasdaq, combined with his stable investing Share your documents to unlock track record, Madoff had no problem attracting more and more investors over time Another thing is he could run this scheme until he died as long as he was collecting more money than he was giving out which is not really a thing because of his reputation, people were standing in line to give him their money But in 2008, there was a crash in the market, so virtually every Free stock was going down and peopleTrial were pulling out their money out of the Get 30 of free market meaning that Bernie wasdays giving out Premium more money than he was taking in until eventually there wasn’t enough money to give back so his scheme finally collapsed In 2009 Madoff pleaded guilty to 11 federal crimes and was sentenced to 150 years in prison The 65 billion dollars figure isPremium? not how much the in money was actually lost, it Already Log is how much money the investors think they lost including fabricated gains In reality, the total money Bernie Madoff made by this scheme was only about 18 billions dollars of which $14.418 billion has been recovered and returned, while the search for additional funds continues Tom Petters Thomas Joseph Petters is a former American businessman and chairman and CEO of Petters Group Worldwide, a company which stole over billion dollars in a Ponzi scheme Amid mounting criminal investigations, Petters resigned as his company's CEO on September 29, 2008 He was convicted of numerous federal crimes for operating Petters Group Worldwide as a $3.65 billion Ponzi scheme and received a 50-year federal sentence According to the evidence presented at trial, Petters, assisted by others, defrauded and obtained billions of dollars in money and property by inducing investors to provide Petters Company, Inc., (PCI) funds to purchase merchandise that was to be resold to retailers at a profit However, no such purchases were made Instead, the defendants and co-conspirators diverted the funds for other purposes, such as making lulling payments to investors, paying off those who assisted in the fraud scheme, funding businesses owned or controlled by the defendants and financing Tom Petters’ extravagant lifestyle Through Petters’ scam, potential investors were provided fabricated documents that listed goods purportedly purchased by PCI from various vendors and then sold to retailers In some instances, investors also were provided false records indicating that PCI had wired its own funds to vendors, thus giving the appearance that PCI had money invested in the deals too In addition, investors frequently received false PCI financial statements showing the company was owed billions of dollars from retailers To induce investors further, Petters often signed promissory notes and provided his personal guarantee for the funds received Those who invested, however, were not paid through profits from actual transactions Rather, they were paid with money obtained from subsequent investors and, sometimes, even their own money On December 2, 2009, Tom Petters was found guilty in the U.S District Court in St Paul, Minnesota on 20 counts of conspiracy, wire and mail fraud In April 2010, he was sentenced to 50 years in prison for his part in the fraud R Allen Stanford Robert Allen Stanford is an American financial fraudster, former financier, and sponsor of professional sports Stanford was the chairman of the nowdefunct Stanford Financial Group of Companies A fifth-generation Texan who once resided in Saint Croix, U.S Virgin Islands, he holds dual citizenship, as a citizen of Antigua and Barbuda and of the United States He contributed millions of dollars to politicians in Antigua and the United States, amongst other countries Allen Stanford was convicted of selling $7 billion in fraudulent certificates of deposit (CDs) from his offshore bank, Stanford International Bank, on 10 the island of Antigua in an international Ponzi scheme, a case that drew comparisons to disgraced broker Bernie Madoff’s multibillion-dollar fraud Stanford's fraudulent scheme is the second-largest in history, only behind Madoff's Approximately 18,000 of his customers have not yet recovered their money, whereas a significant amount of Madoff's previous clients have Stanford was first charged in 2009 by the Securities and Exchange Commission (SEC) and in 2012 was eventually convicted On June 14, 2012, Robert Allen Stanford, the former Chairman of Stanford International Bank (SIB), was sentenced to 110 years in prison for orchestrating a 20-year investment fraud scheme in which he misappropriated $7 billion from SIB to finance his personal businesses and lifestyle Stanford was convicted on March 6, 2012, following a six-week trial and approximately three days of deliberation on 13 of 14 counts in the indictment As part of Stanford's sentence, the court also imposed a personal money judgment of $5.9 billion, which is an ongoing obligation for Stanford to pay back the criminal proceeds The court found that it would be impracticable to issue a restitution order at this time However, all forfeited funds recovered by the United States will be returned to the fraud victims and credited against Stanford's money judgment IV Conclusion The impact of Pyramid schemes and Ponzi schemes on society Both the Pyramid scheme and Ponzi scheme are fraudulent and unsustainable investment systems that rely on promising unrealistic returns from imaginary investments They are both highly damaging to customers and the entire financial industry Victims can lose hundreds, thousands and sometimes millions of dollars through these scams while businesses in general lose the trust of their clients How to avoid being defrauded?  Gather all information regarding the company, its officers, and its products or services Avoid promoters who fail to explain their plans clearly and in detail In particular, read the company's prospectus or other written material 11 This is a preview Do you want full access? Go Premium and unlock all 14 pages  Ask if you must buy a product to become a distributor Find out if the company will buy back your inventory you could get stuck with unsold products Legitimate companies will back inventory for at least 80 to Access to allbuy documents 90 percent of what you paid Get all promises in writing Get Unlimited Downloads  Beware if the start-up cost is substantial Some pyramid schemes pressure you to pay a large amount to become a "distributor." Improve your grades  Beware of promises of quick, easy and unreasonably high profits V Answering case’s questions Upload Share your documents to unlock How Ponzi schemes and pyramid schemes differ? How are they similar? Ponzi schemes and pyramid schemes have both similarities and differences The main difference between them is that the perpetrator of the Ponzi scheme asks individuals toinvest their money and promises an above average return Pyramid Free Trial schemes however lead individuals to believe that they are taking an active role in 30 days of free Premium the venture Another differenceGet is that pyramid schemes typically collapse quicker while Ponzi schemes survive longer A similarity is that they are both highly damaging to customers and the financial industry as a whole They are both types of criminal activity that have the same basic structure Why are white-collar Already criminals such as Madoff able Premium? Log into carry out their schemes for so long when similar types of fraud often collapse at an early stage? There are main reasons The first reason is because of his reputation as a market genius His fraud went unchecked for so long cause he seemed trustworthy to his clients so he was never questioned Especially due to the fact that his clients were like him, most of them were wealthy and had stability That’s why they did not question working with someone they had similarities with Another factor due to his credibility is that most of the investors in his fund continually reinvested their money back into the fund so in reality Madoff didn’t have to pay out 12% of return every year 12 What should be done to ensure large-scale fraud such as Ponzi schemes and pyramid schemes not happen in the future? To ensure that large-scale scams such as Ponzi schemes and pyramid schemes notoccur in the future, I think individuals need to be more aware and cautious If aninvestment seems sketchy or unrealistic, it probably is too good to be true Especially forsomeone who does not have experience with investments, make sure you understand the investment You should never invest money in something you not fully comprehend, be very cautious with investment opportunities shrouded in secrecy Also, to prevent these types of crimes, internal controls and compliance standards need tobe established to detect misconduct activities VI References  FTC CHARGES NEXGEN3000.COM IS PYRAMID SCAM (2003, July 8) Chiefmarketer.Com https://www.chiefmarketer.com/ftc-chargesnexgen3000-com-is-pyramid-scam/  FTC Cracks down on Internet Mall Pyramid Promoters (2005, May 12) Federal Trade Commission Retrieved October 3, 2022, from https://www ftc.gov/news-events/news/press-releases/2005/05/ftc-cracks-down-internetmall-pyramid-promoters  Don’t Get Caught in a Pyramid Scheme | New York State Attorney General (n.d.) Retrieved October 3, 2022, from https://ag.ny.gov/consumer-frauds /pyramid-schemes  What Is a Pyramid Scheme? How Does It Work? (2022, October 1) Investopedia Retrieved October 3, 2022, from https://www.investopedia com/insights/what-is-a-pyramid-scheme/  Napoletano, E (2022, May 10) What Is A Pyramid Scheme? Forbes Advisor Retrieved October 3, 2022, from https://www.forbes.com/ advisor/ investing/pyramid-scheme/  Ponzi Schemes: Definition, Examples, and Origins (2022, August 27) Investopedia Retrieved October 3, 2022, from https://www.investopedia com/terms/p/ponzischeme.asp 13  Wikipedia contributors (2022, September 6) Bernie Madoff Wikipedia Retrieved October 3, 2022, from https://en.wikipedia.org/wiki/Bernie_ Madoff  Bernie Madoff: Who He Was, How His Ponzi Scheme Worked (2022, September 8) Investopedia Retrieved October 3, 2022, from https://www investopedia.com/terms/b/bernard-madoff.asp  Wikipedia contributors (2022a, May 30) Tom Petters Wikipedia Retrieved October 3, 2022, from https://en.wikipedia.org/wiki/Tom_Petters  Minnesota Man Sentenced to 50 Years in Federal Prison for Orchestrating $3.7 Billion Ponzi Scheme (n.d.) FBI Retrieved October 3, 2022, from https://archives.fbi.gov/archives/minneapolis/pressreleases/2010/mp040810  Wikipedia contributors (2022b, September 2) Allen Stanford Wikipedia Retrieved October 3, 2022, from https://en.wikipedia.org/wiki/Allen_ Stanford  Allen Stanford (2022, June 10) Investopedia Retrieved October 3, 2022, from https://www.investopedia.com/terms/s/sir-allan-stanford.asp  United States v Robert Allen Stanford et al (2022, April 26) CRIMINALVNS | Department of Justice Retrieved October 3, 2022, from https://www justice.gov/criminal-vns/case/united-states-v-robert-allen-stanford-et-al 14