Part 4: Red flags

According to the Securities and Exchange Commission ⁴, John Irwin ignored several red flags associated with the falsified financial information provided by Forte, including:

1. Receipt of 1099 forms that visibly appeared altered, supposedly sent to Forte from the partnerships brokerage firm, then forwarded to Irwin by Forte from 1995-2002. No receipt of the 1099s from Forte beginning in 2003.
2. Exclusive control by Forte of the partnerships banking and brokerage accounts.
3. Consistently high rates of return reported by Forte.
4. Compensation received by Forte in the form of a management fee and an incentive fee that were tied to the partnerships performance.

Required

1. How should Irwin have responded to each of the aforementioned red flags? Respond to each item separately (1 thru 4) as mentioned above.

Part 5: Lessons Learned

Charles Ponzi perpetrated his scam in the early 1900s. Although Ponzi scams are named after Charles, he was not the first to perpetrate this type of fraud. Unfortunately, he also was not the last.

Required

1. How do we deter the perpetrating of Ponzi scams?