http://www.forbes.com/2009/09/14/ponzi-scheme-barry-markets-equities-prosecution.html
Summary:
A pyramid scheme had run for 30 years and swindled $40 million dollars. Philip Barry was the schemer and he tricked 800 investors, who were mostly his neighbors, with a Ponzi Scheme. Barry has started a company called the Leverage Management Co. which invested for people. The leverage Management Co. stated that the clients’ money would invested in securities and stock with a guaranteed returning from 12.55%-21%. This scam could be stopped if no new investors come in. However, he gave out false financial statements to attract new investors and used some of that money to pay off the guaranteed returning to the old investor.
Connection:
The financial statements are used for owner, bankers, and investors to view the actual performances of the company. It is very important for the investors to look at the financial statements to determine whether or not they should invest in the company. However, with the behavior of Philip Barry, he would make the reliability of the financial statements decrease in general. This could lead to a serious problem to the business world because people will no longer believe in those statements and investing will become a huge gamble. People who blindly invest usually end up losing all the money. It also destroys the opportunity of those companies that has potential to growth from gathering money from the investors, because investors may see that without the financial statements.
Personal Reflection:
I think this scam succeed because of the greed in human. People who invested in the Leverage Management Co were all looking for the guaranteed profits. Unfortunately, all investments involve some risks; people should realize it is a scheme once the company guaranteed for any returning. Even though, Barry used the false statements to lead the investors thought that they made a right decision, it is always the greed that was blocking people’s eyes from seeing the truth. Furthermore, from this article we have to be aware that the financial statements we get may not always telling the truth. Investing should not be just a matter of luck; the broad outcome should be predictable from the financial statements most of the time. A lot of the big corperations could not continue without borrowing money from the bankers or gathering money from the investors. When those statements lost their credibility, bankers and investors cannot predict the outcomes anymore, so they will have less chance to give out their money into this gamble. So it is extremely important for companies to follow the GAAPs and give out the true and accurate financial status to the bankers and the investors to help them make their decisions.
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3 comments:
When I read the article, I found it amazing that such a scheme could have lasted for such a long period of time. This immediately made me think of auditors. Auditors are people who are responsible for taking and analyzing the financial statements of a company to see how well they are doing and if there are any necessary changes that need to be made. Since the Leverage Management Co. was established in 1978, I thought to myself that in a time frame of 31 years, shouldn't an auditor have figured out something was wrong with the company? Even extremely successful corporations make mistakes on their financial statements every now and then, so what made Leverage Management Co. exempt from such? On the otherhand, since they are a scheme, they would have already thought of ways of producing fake financial statements that proved to external users that they(the external users) can trust the company. In addition, since regulatory systems back in the days were much simpler, it is possible that schemes could find many loopholes. Personally, I would recommend to customers that anytime a company promises 100% safety of principal is a definite red flag.
Betty Chan
Financial Accounting 12
Day 2 Period 2
I found this article amazing how people could just change their financial statements. I believe companies that provide fake information should get a fine or warning not to do it again. Also reading from before about auditors, really did make me think of their importance. How they can check the actual output and inputs of money. Also i think the companies that are under warning should have a constant check up because people get greedy when it comes to money. There is no trust in our world today where all companies come clean and stage a fair financial statement. This is why Philip Barry in the future would be trusted on a lower scale to all bankers and financial aid.
After reading this article, it made me think how things can happen so easily under the radar. This scam as been going on for such a long time and no one knew until now. This can remind people not to trust anyone so easily. Even though they may seem friendly and reliable, all may not seem as it should be. With money, you can never trust anyone, sometimes not even your own family members. For over 30 years, this company has been in existance and over this time there were 800 victims. Over 40 million dollars was cheated due to greed; not only of Philip Barry, but also of his victims, who were attracted by no risk and high reward.
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