Ponzi schemes have been around for ages. Yet, people continue to lose money on them every day. They’re designed to seem like a dream come true, a way for ordinary people to strike it rich quickly and easily. It’s only when you look closer that the fraud becomes apparent and the prospect of money prevents a lot of people from looking deeper. They say those who do not learn from history are doomed to repeat it. In the interest of better understanding these Ponzi scammers and guarding against them, let’s take a look at some of the biggest Ponzi schemes throughout history.
Charles Ponzi
While not the originator of this particular type of scam, Charles Ponzi is the man who made it famous. In the early 20th century, the Italian immigrant told investors that their money would go towards the purchase of postal reply coupons vouchers for postage that could be included with a letter, so the recipient could reply without having to pay for a stamp. According to Ponzi, buying these coupons overseas where they cost less and redeeming them in the U.S. would result in a profit, and investors could double their money in 90 days.
In fact, Ponzi paid back his early investors with the money from his later investors. Unfortunately, this practice is ultimately unsustainable, and cost his investors millions. The scheme collapsed, and Ponzi went to prison. Then, upon his release, he immediately started up again, selling worthless swampland in Florida, again with the promise of a huge, rapid return on the investment. This scheme eventually crumbled as well, and Ponzi spent another seven years in prison, after which he was deported back to Italy.
Lou Pearlman
Lou Pearlman was a music producer for such bands as the Backstreet Boys and NSYNC, and CEO of Trans Continental Airlines Inc. However, while the bands had real members and produced real music, the company (along with its sister company, Trans Continental Airlines Travel Services Inc.) only existed on paper.
This didn’t stop Pearlman from taking over $300 million from investors over 20 years, as well as securing several bank loans using false business papers. When the scheme was finally discovered in 2006, Pearlman was charged with bank fraud, mail fraud, and wire fraud, and sentenced to 25 years in prison.
Bernie Madoff
One of the biggest Ponzi schemes in recent years, as well as the largest in U.S. history, Bernard Madoff defrauded investors out of an estimated $64.8 billion. Most Ponzi scammers, such as the ones discussed above, set up a fake business to secure investors. Madoff, however, used a real brokerage and real investments to mask the phony ones. He also offered smaller, slower, and more stable returns to his investors than typical scammers, making the opportunities seem more legitimate and allowing him to avoid detection for much longer.
The scheme was finally exposed in late 2008, and Madoff was sentenced to 150 years in prison and ordered to pay $17 billion in restitution to his defrauded investors.
These are just a few of the people who have tried to make their fortunes by preying on the naïveté of others. There are countless people perpetrating similar schemes all over the world. Be careful with investment deals that promise large payouts and short turnaround times. Just remember, if it seems too good to be true, it probably is.
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