Ponzi scheme legisaltion passes finance committee

A bill that would allow victims of Ponzi schemes to recoup taxes they paid on fictitious income was unanimously passed in the House Finance Committee Tuesday.

“Right now, there are no provisions in place to help victims of these Ponzi schemes relative to taxes paid on fraudulent returns,” said state Rep. Bill Adolph, R-165, of Springfield, who drafted House Bill 2153 with the help of the Pennsylvania Institute of Certified Public Accountants. “My plan would correct this problem.”

Ponzi schemes are essentially fraudulent investment operations in which the schemer pays high-yield “returns” to old investors using new investors’ money, usually while pocketing funds instead of actually investing them.

The schemes are nearly always doomed to fail as new investors taper off and old investors, thinking they have made money, ask for returns that never existed.

Infamous investment banker Bernie Madoff was convicted of just such activities last year, as was Joseph Forte of Broomall. Forte swindled dozens of local investors out of at least $20 million between 1996 and 2008.

“Unfortunately, in some cases, the victims of these schemes find themselves at a total loss, having watched significant life savings wiped out,” said Adolph. “These people should not be exposed to additional losses by having to pay taxes on income that truly never existed.”