Allen Stanford Ponzi Scheme: What are the Lessons?

• In Event: Teaching Learning and Curriculum

Abstract

This paper describes the implementation of a “Ponzi scheme case study” in accounting systems and auditing classes. The author developed an instructional case based on the Ponzi scheme perpetrated by the Stanford International Bank President, Allen Stanford. This is the one of the largest Ponzi schemes ($8 billion) in the U.S. that came to light in 2009. This “teaching case” exposes students to several auditing-related concepts: 1) fraud red flags; 2) ethical reasoning and utilitarian, justice and rights principles; 3) internal control evaluation (AS 5); 4) Ponzi scheme shenanigans; 5) regulation and 6) professional skepticism. This case is appropriate for auditing and systems courses in an accounting curriculum. This case enables students to assume the role of an auditor and participate in some active learning. During spring 2013, a total of 70 accounting majors (34 in auditing and 36 in systems) participated in this case project. Students in the undergraduate systems class (juniors) worked in groups outside of class to answer questions. Auditing students completed the case individually since they were 5th year students. Students came up with several red flags associated with the Ponzi scheme and suggested many new internal controls. Students found the case to be very interesting and were actively engaged in the learning process. Student opinion surveys were also conducted about the learning outcomes of this project and the survey results indicate strong student engagement, active learning, and satisfaction.

Author

• Srinivasan Ragothaman, The University of South Dakota