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You've Been 'Hoffed

We see them everyday when we flip on the television, pyramid schemes promising to make you rich in only thirty days! These commercials are easy to disregard due to the salesman’s blinding smile, overly gelled hair, exaggerated hand motions, and improbable business proposals. Rarely will anyone pick up their phone and dial the 1-800 number of these “to good to be true” investments because they had been taught their whole life to be sensible with their money and only put it into “sure things”. But what happens when that sure thing dissolves into one of the biggest financial scams our country has ever experienced? Just ask Bernard L. Madhoff, the man behind the $50 billion Ponzi scheme that has resulted in many dropped jaws… and bank accounts.

Minnesotan’s can collectively say that when they turn the channel to CNN or Dateline they rarely see a story having to do with our home state and when there is, it’s usually the scandal du jour of a Viking player. Citizens here tend to grow comfortable with that fact and feel as if there state is a safe haven of sorts. Bernard Madhoff took our trusting nature as a golden opportunity and twisted it into an evil business scheme. The members of Oak Ridge Country Club (Hopkins) were some of the first to be affected by these manipulations.

Madhoff was a motivated businessman who was always looking for a new way to hit it big and the Oak Ridge Country Club members consisting of many close-knit families of the Jewish religion, were a perfect target. His plan was to develop a network of trustworthy partners from around that area that would be able to steer business his way. Mike Engler, a respected stockbroker from the area, was unknowingly roped into this network. The families and tight knit communities from Minnesota alone were scammed out of a total of over $600 million. These losses have affected many families but also philanthropy groups and charity programs.

The U.S. Securities and Exchange Commission warns investors about faulty programs on their website by stating, “In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants into the program. The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program.” But how is an everyday Joe Shmo expected to recognize the difference between a good investment and a scam if the government isn’t even capable?
Just last week I was at McDonalds renting a movie from the Redbox. There was a couple in front of me trying to figure out which movie to pick and were visibly struggling. I began to chat with the couple, talking about movie and anything else that popped into my head. The woman finally decided on a film and turned to her husband to show she was ready to roll. Before they left, the man reached into his pocket and pulled out a business card telling me he loved my attitude and would like to talk with me about a business opportunity. He called me the next day and we met at a coffee shop near my house. He talked and talked, explaining how much money I was going to make and how perfect I was for the position. At the end of the conversation as I walked to my car I realized something, I had no idea what the business even was. His salesmanship and charm hooked me in and I trusted him instantly. I thought to myself, how much money is this man going to make if I joined the business? He told me that all I had to do was give him $200 and I would be able to start my own business. He then pointed out the few that hit it big by doing just this and told me that I could be right up there with them. He then told me that only 3% of Americans had decided to invest in it and that if I did I would be ahead of the game. Any sensible person’s immediate reaction would be to think it was a complete scam. But then I started thinking, what if he was right? Maybe this company truly was legitimate but my skepticism was thwarting me from achieving success.
Madhoff, a former Nasdaq Stock Market Chairman, was a different story. He had the credibility and the mystique. He used these two things to his advantage by targeting the Jewish community much like Tom Petters had done two months before him, targeting those of Christian faith and taking close to $3.5 billion. Many think that the victims of this scam should be reimbursed because it was the government regulators fault because they did not research and investigate thoroughly. If all of these people were to be given their money back it would send our already faltering state into financial ruin. When something like this happens many people want to point fingers and place the blame on anyone but himself or herself. This incident was a catastrophic one that left many families grasping for any type of financial stability they could hold on to.
Jewish Synagogues are also feelings the affects of this scandal, leaving the congregation in utter ruin. Words of great wisdom were spoke by the Rabbi of a local synagogue, "It's definitely an opportunity, whether we wanted it or not, to rethink our values," says Davis. "We need to examine the cultural norms that allowed us to get into this situation. There's an opportunity to reorganize our thinking so that it better reflects our priorities." No one possesses a crystal ball to tell them which investment is worth it and which will fall through. But like the rabbi said, we need to take this as an opportunity and learn so we don’t make a similar mistake in the future.


http://www.sec.gov/answers/pyramid.htm
http://www.heraldnet.com/article/20081224/BIZ/712249863
http://money.cnn.com/2009/01/16/news/newsmakers/kansas_madoff.fortune/index.htm