With a downturn in the economy, there will appear cracks in the exuberance of businesses. Forensic accountants with fraud investigative backgrounds will be in demand. They will be beneficial to investors and companies throughout the country to determine what happened to the missing money. Ponzi schemes like that of Bernie L. Madoff Investment Securities LLC (BLMIS) and Russell Erxleben of Austin Forex International Inc. (AFI) will be disclosed. Businesses of all kinds will reveal financial fraudulent activity and internal theft. 

The common characteristics of a Ponzi Scheme:

A successful Ponzi scheme as those perpetrated by Madoff and Erxleben required the use of a fraudulent means to entice investors. The client account statement was the key that made them successful. The use of fictitious trades on bogus transactions that reflected fraudulent client account statements made their investors feel secure in their investments. Madoff had a legitimate investment business run by his sons on the 19th floor of the Lipstick Building in Manhattan and had an office on the 17th floor in which the fraudulent client statements were generated. Erxleben's operation was on the 19th Floor of the building at 100 Congress Avenue in Austin, Texas, overlooking the Texas State Capitol, and he set up a broker-dealer operation. Fraudulent client statements from transactions determined by Erxleben were created by trusted employees.

The creation of false client statements by insiders: 

Trusted insiders on the 17th floor of BLMIS knew that false client statements were being created to conceal the truth from investors. Trusted AFI insiders on the 19th floor knew false statements were being created. Erxleben would state, “What goes on behind the glass door stays behind them,” meaning that the fraudulent nature of the client statements was not to be disclosed to investors.

Major events created the opportunity for the schemes. Madoff admitted his fraud began in the early 1990s at the time the country was in a recession. He also employed his “split-strike conversion strategy,” which he conceived along with hedging investments by buying and selling options. Russell Erxleben, on the other hand, began his fraud in the mid-1990’s after learning about Forex trading in smaller Ponzi schemes in Texas. He also had the “Texas advantage” when two events converged including; IRAs controlled by banking and brokerage rules were allowed to be self-directed through trust companies with administrative flexibility to hold alternative assets; and when Texas voters passed a constitutional amendment enabling closed-end home loans which unlocked home equity for investment.

The investor greed fueled both frauds: 

Money flowed in based upon the alleged earnings shown on their fraudulent client account statements. Madoff received investor funds and placed them in his account at the Bank of New York in Manhattan. Erxleben received investor funds and put them in four Austin banks that allowed him instant access to the money, which allowed him to kite hundreds of thousands of funds between the bank accounts.
All involved in the frauds though ... Read More