The Greatest Financial Scandals: R. Allen Stanford
This scandal happened in 2009, with the loss of about $8 billion. R. Allen Stanford was the founder of Stanford Financial Group and the Antigua-based Stanford International Bank. The Securities and Exchange Commision, SEC, charged him and two of his associates with organizing a massive fraud, similar to the one composed by Bernard Madoff in 2008. The company had promised high returns on certificates of deposits.
Financial historians believe that frauds, such as the ones orchestrated by Stanford and Madoff, happen when the asset bubbles pop. As the market goes up, people invest their money to make money, like they believe everyone else is doing. However, when the country goes into a recession, like the one that has happened in the last couple of years, the bubble pops. This is when all of the financial scandals start to unfold because the companies cannot afford to pay back money from investors when they want to withdrawal.
It is hard for me to understand how people can do this to other innocent people. So let me pose this question to you to start a small discussion. Do you think that these investment bubbles pop because of the fraud scandals themselves? Or is the only correlation that the fraud scandals are revealed because the financial bubbles pop due to the economy?
Danielle Huff
I believe that these fraud scandals become evident when the economy is bad because people want their money back when there is no money. Also, no one else is investing money into these investment companies, therefore these investment companies can't show the current investors any more gain in capital for their company. When the economy was doing well people were investing their money into all of these companies and they were seeing some returns because the investment companies had money to show them. With new capital always flowing into these investment companies, it allowed the scandal to keep going because the companies can give some money back to the investors. When I say some money I mean some people would invest $500,000 and would get $250 back a month. When they see that they are getting back money on a monthly basis they believe in the investment and put more of their money into it. When the economy goes bad the investment companies don't have new capital to give the current investors so then the scandal becomes evident. The investors never get their original money back that they invested but because they were getting little amount of money back they thought their investment was doing a great job. I believe these types of scams are called proxy scams and can be found in all types of business. People who orchestrate these types of scandals are very intelligent people who know the right words to say to people.
ReplyDelete-Daniel Itami
This financial fraud is unethical for many reasons. This is a clear case of ethical egotism because they are only focused on themselves and making more money, no matter how illegal and unethical. Unfortunately, I think that a scandal like this has ruined the reputation of the company, even though only three of the employees are involved. So not only has Stanford gotten caught and owe a lot of money, but all of his employees are most likely suffering from the aftermath of his scandal.
ReplyDeleteIt is really unfortunate that such intelligent people do things like this to innocent people. We rely on intelligent people to handle our money. After scandals like these, even other companies can be effected because more people are going to question what they are told.
-Danielle Huff
Financial fraud is a huge result of greed. Once an executive sees the potential "jackpot" in an account they sometimes take advantage of it. When the economy is doing exceptionally well it becomes easier to "take advantage" of contributors funds, but when the economy takes a turn for the worst and people want to cash out and it is not really an option because these executives have no money to give because the companies are in financial turmoil! It all comes down to ethics. Our nations has had some very unethical leaders in corporate America over the years. It really goes to show America who are true leaders are versus our fake ones.
ReplyDelete-Zach Spoor
Team Dark Side