Stanford Financial Group is owned by Robert Allen. Stanford Financial Group turned out to be a major ponzi scheme in 2008. Meanwhile, Madoff Investment Securities ended up collapsing because of the 2008 financial crisis.
Additionally, the ponzi scheme could not keep up with payments to old depositors because the number of new depositors was dwindling.
Stanford Financial Group attracted the attention of many customers because it generated 2% more returns than the traditional US Treasury bonds.
By 2008, Stanford Financial Group ((SFG) was controlling assets to the tune of $50 billion.
This prompted the SEC to investigate the SFG in 2009 only to discover that the company was operating an illegal ponzi scheme.
The reason why Stanford Financial Group was accused of being a ponzi scheme is because Robert Allen and his team were selling investment plans to their customers while promising more than 10% in returns per year.
While the SFG claimed that they were licensed by the FDIC, the SEC discovered that the company was in fact not licensed as previously claimed.
When the value of damages incurred by customers of Stanford Financial Group were calculated, they were estimated to total $8 billion.
While Robert Allen claimed that Stanford Financial Group was engaging in legit investment activities, the mass media discovered that the scam was taking new deposits to pay existing members, which is essentially how a ponzi scheme operates.
Arrest of Robert Allen Stanford
In the middle of the hit, Mr. Standford tried to escape the US on a private jet. Unfortunately, the airline rejected his credit card payment, which led to his arrest.
Before his arrest, authorities had issued a warrant of arrest against him in June 2009.
Sooner than later, Stanford was arraigned in court and charged with an offense which could attract a maximum penalty of 250 years behind bars.
Shortly afterwards, the Federal Court of Houston reduced this sentence to half the maximum penalty. Stanford was sentenced to prison for 110 years in June 2012.
Generally, the math behind a ponzi scheme does not allow it to last long. It is usually designed to pay old members using new deposits.
But as soon as money stops flowing into the scheme, the ponzi scheme will not have a choice but to close down.
The phrase Ponzi Scheme gained popularity when another con man called Charles Ponzi made off with a huge amount of money in something that was considered the biggest financial fraud in history
Although Charles Ponzi is not the inventor of the idea, he is considered the first con artist to use the idea to make off with a large amount of money in the United States.