MIAMI -- It was a rough year for Ponzi schemes. In 2009, the recession unraveled nearly four times as many of the investment scams as fell apart in 2008, with Ponzi becoming a buzzword again thanks to the collapse of Bernard Madoff's $50 billion plot.
Tens of thousands of investors, some of them losing their life's savings, watched more than $16.5 billion disappear like smoke in 2009, according to an Associated Press analysis of scams in all 50 states.
The dollar figure was lower than in 2008, but that's only because Madoff - who pleaded guilty this year and is serving a 150-year prison sentence in Butner - was arrested in December 2008 and didn't count toward this year's total.
In all, more than 150 Ponzi schemes collapsed in 2009, compared to about 40 in 2008, according to the AP's examination of criminal cases at all U.S. Attorneys' Offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state levels.
The 2009 scams ranged in size from a few hundred thousand dollars to the $7 billion bogus international banking empire authorities say jailed financier Allen Stanford orchestrated, as well as the $1.2billion scheme they say was operated by disbarred Florida lawyer Scott Rothstein. Both have pleaded not guilty.
Though enforcement efforts have ramped up - in large part because of the discovery of Madoff's fraud, estimated at $21 billion to $50 billion - the main reason so many Ponzi schemes have come to light is clear.
"The financial meltdown has resulted in the exposure of numerous fraudulent schemes that otherwise might have gone undetected for a longer period of time," said Lanny Breuer, assistant attorney general for the U.S. Justice Department's criminal division.
A Ponzi scheme depends on a constant infusion of new investors to pay older ones and furnish the cash for the scammers' lavish lifestyles. This year, when the pool of people willing to become new investors shrank and existing investors clamored to withdraw money, scams collapsed across the country.
"Some portion of the investors in the Ponzi scheme always get the short end of the stick and do not get paid," said Elizabeth Nowicki, a former Securities and Exchange Commission attorney who now teaches law at Boston University.
Even those who say they did their homework before investing ended up losing everything.
Ponzi schemes, named for infamous swindler Charles Ponzi, are extremely simple: Investors attracted by promises of high profits are paid with money from an ever-increasing pool of new investors, with the scammer skimming off the top. Sometimes the investments are at least partially legitimate but more often are completely fictional. There's no reserve fund for lean times, or for when droves of investors start demanding their money.
Federal statistics paint the picture of a Ponzi nation:
The FBI opened more than 2,100 securities fraud investigations in 2009, up from 1,750 in 2008. The FBI also had 651 agents working in 2009 on high-yield investment fraud cases, which include Ponzis, compared with 429 last year.
The SEC this year issued 82 percent more restraining orders against Ponzi schemes and other securities fraud cases this year than in 2008, and it opened about 6 percent more investigations. Ponzi scheme investigations now make up 21 percent of the SEC's enforcement workload, compared with 17 percent in 2008 and 9 percent in 2005.
The Commodity Futures Trading Commission filed 31civil actions in Ponzi cases this year, more than twice the 2008 amount.
