The Ethical Analysis and Evaluation of: SEC Charges Operators of $1.2 Billion Ponzi Scheme Targeting Main Street Investors

Categories: Credit Crunch

1. What are ethics and their importance in global banking and business today?

Ethics are a set of guidelines in any sector that govern the conduct of the people involved. In business today, ethics are important because they provide a clear way that business people should follow in the course of their work. Particularly, in the banking sector, ethics are vital because they give guidance on the way money is handled and the kind of business that can be conducted to bring returns (Tinker et al.

1). Moreover, the principles of ethics prohibit one from conducting any business that does not have a legitimate way of making money for the company and the investors. Though commercial enterprises are profit-oriented, they should make sure that the processes they follow are not illegal and take advantage of gullible customers and investors.

In global banking, ethics govern not only the bankers’ conduct but also investors’ feelings. For instance, in any business involving a bank and the investors, who deposit their money in the institution as savings, none of the parties should feel cheated after a business deal is completed.

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Thus, ethics not only govern the way business is conducted but also the way the parties involved should feel or not feel after the business dealing.

2. What was the case about?

3. Who was (were) the individual(s) and company (ies) involved?

The case is about a Ponzi scheme that involved Robert Shapiro, Woodbridge Group of companies, third-party companies, and investors who are mostly retirees. Shapiro is the owner of Woodbridge, a company that also secretly owned the other third-party companies.

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Shapiro presented a business model to potential investors asking them to invest in his project for which they would earn interest of 5-10 percent annually (NEAL). Shapiro claimed that the money collected from investors would, in turn, be lent to commercial property owners who paid Woodbridge an interest of 11-15% annually for the short-term financing (NEAL). Shapiro asked people to invest their retirement and savings money in return for high interests in addition to the principal amount. However, the investors were not aware that the third party commercial companies were owned by Shapiro. The companies did not pay any interest, and Shapiro acquired the money for his personal use. Together with his family, Shapiro lived a luxurious lifestyle and owned private jets and expensive jewelry. The entire scheme was a sham. As the scheme continued, more people were expecting to get returns for their money. The third party companies owned by Shapiro did not return any interest as promised. It was later discovered that the third party companies had never generated any income. They were used by Shapiro to channel money from the investors to his bank accounts. Shapiro enjoyed the money with his family instead of using the money as expected. As a result, new investors’ money was used to pay the old investors’ interest and dividends. Woodbridge did not allow the investors to opt out of the scheme, as they were not ready to pay the principal amount back to the investors. There was a 90% renewal of the contract by the people who were forced to continue with the deal (‘SEC.Gov | SEC Charges Operators Of $1.2 Billion Ponzi scheme Targeting Main Street Investors’). Eventually, the business failed because the model could not sustain the much sought after interests by the investors. The investors were no longer paid their earnings, and those who asked for their principal amounts found it difficult to withdraw their money. The case is not new in the United States and the world in general where investors are promised high returns but in the end get nothing in return for their money.

4. When did it happen, where did it occur and how much money was involved?

The Shapiro Ponzi scheme in question was discovered in December 2017 (‘SEC.Gov | SEC Charges Operators Of $1.2 Billion Ponzi scheme Targeting Main Street Investors’). It is not certain when it started, but it is estimated to have started about five years before it was discovered. The scheme operated in Boca Raton, California. It involved 1.2 billion dollars that included the principal amounts and the promised interest to the investors (NEAL).

5. Why did it happen?

There are various reasons that led to the Shapiro Ponzi scheme to happen. One of the reasons that the scheme happened is the fact that Shapiro had an ill will towards the investors. He wanted to get rich quick and did not have a clear way of fulfilling his desire. He used a faulty business model to lure the investors. Another reason that served as a ground for the scheme was the fact that the investors were not vigilant. The investors did not take their time to research the background of the companies involved (Tinker et al. 1). They were attracted by the promised high-interest rates.

6. How did it come to the attention of the media?

The Shapiro Ponzi scheme came to the attention of the media in December 2017 after one of the investors reported the case to the Securities and Exchange Commission. Once the case was reported, the SEC stopped the operations of the Woodbridge offices that had about 140 employees. However, more attention was given to the case after it was discovered that Woodbridge had filed for bankruptcy earlier in the month. Filing for bankruptcy meant that they were not in a position to pay the investors. The other companies affiliated to Woodbridge and Shapiro had also filed for bankruptcy. In total 11 companies had filed for bankruptcy and they were all associated with the Ponzi scheme (Tinker et al. 1). Another thing that made the case gain more media attention is the fact that the investors were forced to remain in the contract against their will. The people approached the SEC because, despite their unwillingness to continue investing in the scheme, Woodbridge did not allow them to terminate their contracts.

7. What was the outcome of the case?

The case has not yet been decided as Shapiro is still free. However, the SEC was able to freeze Shapiro’s assets as well as the assets owned by Woodbridge. Shapiro has not yet been held liable for the losses that the investors suffered. However, the SEC is seeking ways by which the assets held by Shapiro and Woodbridge can be used to compensate the investors who lost their retirement benefits to the scheme.

8. How could this case been avoided?

The case could have been avoided if the victims were more cautious when investing their money. All investment companies are listed with the Securities and Exchange Commission, but Woodbridge was not. Moreover, the companies that Shapiro allegedly invested in were unregistered and under his name. Moreover, the third party companies had not generated any income since their inception. The investors could have avoided the trap by checking the validity of the Woodridge Group of Companies with the Securities Commission

The burden of avoiding the scheme does not only lie with the victims who invested in the company (Saeger and Probert 12). The Securities and Exchange Commission could also have used the FBI to research on any unusual dealing within the money market. The FBI should conduct impromptu investigations every six months to make sure no illegal or fraudulent entities are operating in the market. The Securities Commission should conduct frequent investigations in order to prevent fraudulent schemes from taking root.

9. What can we learn from the case?

The Shapiro Ponzi case offers many lessons not only to investors and the government but to businesses too. An investor should investigate the background of any company that he or she wants to do business with (Saeger and Probert 20). The background of the company can be investigated through the internet as well as through the regulatory bodies involved. In this case, the SEC could have provided insight about the companies involved before the investors spent their money. A background check by an investor could delay the process of investment, but it might prevent a greater loss of money.

The Shapiro case is a revelation and serves as a valuable lesson for investors looking to earn unnatural rates of interest on their money. The Ponzi scheme was promising but not sustainable. Thus, if an investor asks questions and the business owner does not have answers to them, the investor should become cautious and abstain from investing in the business. Explicit business models have answers to all the questions that an investor may ask.

An investment scheme should have a clear model that specifies how the business will make money in the short run as well as in the long-run (Dorn). The story teaches businesses and business owners to employ ethical means and the right motives to run an enterprise. Business ethics should guide the running of an enterprise to ensure that the rights of every party are safeguarded.

Finally, the government can learn from the Shapiro case. The government should protect its people by safeguarding them against any fraudulent deals. The government should be vigilant by conducting investigations on a bi-annual or annual basis against such companies. The investigations will prevent loss of money as well create awareness of any unusual dealings. Clear policies should be put in place by the government to ensure that the owners of Ponzi schemes pay the investors their dues. All loopholes within the law should be covered to ensure that fraudsters who operate as business people do not get away with their offenses.

Works Cited

  1. Dorn, Nicholas. ‘Ponzi Finance, Regulatory Capture And The Credit Crunch.’ SSRN Electronic Journal (2009): n. pag. Web.
  2. NEAL, DAVID J. ‘This Ponzi Scheme Moved $1.2 Billion As It Defrauded 8,400 Investors, The SEC Says.’ miamiherald. N.p., 2017. Web. 24 Oct. 2018.
  3. Saeger, de Ariane, and Carly Probert. Ponzi Scheme. [Place of publication not identified]: 50Minutes, 2015. Print.
  4. ‘SEC.Gov | SEC Charges Operators Of $1.2 Billion Ponzi Scheme Targeting Main Street Investors.’ N.p., 2017. Web. 24 Oct. 2018.
  5. Tinker, Tony et al. ‘Ponzi Schemes And California Pyramids Ponzi Schemes And Home- Stake.’ International Journal of Critical Accounting 10.1 (2018): 1. Web.

Cite this page

The Ethical Analysis and Evaluation of: SEC Charges Operators of $1.2 Billion Ponzi Scheme Targeting Main Street Investors. (2022, Apr 19). Retrieved from

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