Here in the modern world, most of us have developed a healthy cynicism that helps us look past "get rich quick" schemes with a smirk and an eye roll. So you'd think we would be able to avoid the total financial ruin that comes from joining in on a scam. And yet, when it comes to these infamous Ponzi schemes, we apparently are not as smart as we think we are.
In the face of real human cost, it's hard to maintain a sense of humor while poring through the true costs of greed. Hard, but not impossible. Oh, sure, it's got its moments (if you're into irony), but at the end of the day, even the most hardened cynic would struggle to find the punchline in the utter devastation some of these scams have wrought upon the poor, naive, and undeserving.
What is a Ponzi scheme? The basic definition involves a fraudulent company that promises big returns to early investors. Those returns are usually furnished by the money from later investors, instead of from a legitimate enterprise.
Indeed, these days, we tend to look at cases like Bernie Madoff and shrug it off with "Well, that's what you get for trusting Wall Street." But looking over this list of scams, it's hard to apply the same logic to the refugees of the Kosovo conflict, women and children fleeing anarchy in Albania, and the utter decimation of the poor in Haiti.
The last 30 years have been something of a new Golden Age for investment scams. Everyone's got a plan to get rich doing as little as possible; it's almost come to define the new American dream. But risking it all on a business that seems too good to be true can have disastrous consequences, as these examples of the biggest Ponzi schemes in history prove.
The Most Infamous Ponzi Schemes in History,
Charles Ponzi
Of course, some homage must be paid to the guy for whom the scheme is named, Charles Ponzi. From his home base in 1920s Boston, Ponzi bilked about 30,000 investors for a combined total of $8 million. His promise to double their investment within 90 days using a bizarre postal coupon re-mailing scheme seemed to pay off at first. Initial investors did indeed see their money doubled...using money from other investors. After those initial investors spread the good word of Mr. Ponzi's brilliance, the money from new investors came pouring in. Ponzi served five years in prison for using the mail to defraud.
Dona Branca
A villain to some and a hero to others, Branca's rags to riches story started a chain reaction of Wall Street scams that continues to this day. Born poor and raised in the slums of Portugal, Branca opened a "bank" using Ponzi scheme investment strategies. Her goal was to provide low-interest loans to the poor, and that she did -- while also maintaining her original Ponzi scheme and making about $120 million on it herself.
Branca began her scheme in 1970 and got caught in 1984. During her very public trial, Wall Street rediscovered the incredibly profitable art of investor scams. That year, the number of Ponzi and pyramid schemes exploded. Indeed, Dona Branca's bizarrely inspiring rags to riches tale effectively made her Patient Zero for today's plague of investment scams.
Ivar Kreuger
Swedish businessman Kreuger is a classic example of a businessman who straddles the line between legitimate financier and swindler, crook and genius. Taking advantage of the chaos following World War I, Kreuger negotiated monopolies on the worldwide supply of matches with European, South and Central American governments. A bit shady in itself, the Match Empire was only one of Kreuger's businesses.
He started other companies using what we today would call Ponzi Scheme strategies, insofar as he used some investors' money to pay off others. But Kreuger was, in his own way, relatively legitimate. Kreuger committed suicide when his financial empire collapsed during the Great Depression. The world wouldn't see schemes on Kreuger's scale again until Enron, and his was the last major Ponzi scheme recorded until the 1970s and '80s.
Bernard Madoff
Madoff's name is one you can't have avoided if you've seen a TV in the last ten years. Madoff was seemingly born in the sewer; former chairman of the NASDAQ stock exchange, Madoff knew all the ins and outs needed to scam an incredible $65 BILLION from investors. Worse, Madoff's victims weren't his fellow Wall Street scumbags. They were generally retirees and non-millionaires who'd sunk their life savings into his scam. After a failed suicide attempt, Madoff was sentenced to 150 years in Club Fed. There, Bernie received news that his son and accomplice, Mark Madoff, had also attempted (and had been successful at) suicide.
"Agent" Ron Rewald
From 1978 to 1983, Ron Rewald quietly ran a Ponzi scheme from an investment firm in Hawaii. He took more than 400 investors for over $22 million, before declaring bankruptcy and trying to run with the money. However, his scheme was revealed when he declared bankruptcy. During his trial, Rewald told prosecutors he had been operating the firm as a money laundering front for the C.I.A. The Agency (unsurprisingly) disavowed any knowledge of his existence. He was sentenced to 80 years, but was quietly paroled in 1995. Seems Agent Rewald may have actually had some friends in high places.
The Dark Tower
Tower Investment is a poster child of the Early Golden Age of Investment Scams that was the 1990s. Tower was a bill collection agency that collapsed in 1993 after scamming investors for an unprecedented $475 million. Steven Hoffenberg, who ran the scheme, used part of the money to purchase the New York Times, which he owned briefly before getting sentenced to 20 years in prison. A fact which The Times didn't waste much print reporting.
Mutual Benefits -- or "How I Learned to Stop Worrying and Profiteer from AIDS"
Florida-based Mutual Benefits, run by Peter Lombardi, made a killing by profiteering on AIDS. They claimed to provide what are known as "viatical settlements" on life insurance to HIV patients. A viatical settlement is a kind of early lump sum payout on a life insurance policy, and it is a legitimate (even merciful) concept for people who are suffering from terminal illnesses.
Viaticals can help to make the last years of a dying person's life worth living. Except that Lombardi wasn't doing it. Instead, he kept the $1 billion raised from over 28,000 investors, and wound up with a 20-year trip to prison in return. Yes, prison...the one place where someone like Lombardi may become far better acquianted with HIV than he expected.
The Hatian Co-Op
Just after the Albanian Affair, the impoverished people of Haiti fell victim to exactly the same scam. This Ponzi scheme launched in 2001 promised investors a 15-percent return via massive investor "co-ops." The Hatian government backed the scam, and (like MMM in Russia) advertised very broadly on television and radio using pop stars and celebrities.
After the truth came to light, it was estimated that the population lost more than $240 million. That might not sound like much to us, but $240 million was equivalent to about 60% of Haiti's entire government budget. For perspective, imagine what would happen here if someone suddenly removed about $8,000 from the bank accounts of every single man, woman and child alive today. "Depression" doesn't quite cover it. Almost 15 years later, and Haiti still hasn't begun to recover.
William "520 Percent" Miller
The scheme might have been named for Charles Ponzi, but William "520 Percent" Miller was actually the first to do it in 1899. Under the cover of his Brooklyn-based, not-at-all-suspiciously-named "Franklin Syndicate," Miller promised his investors a 10-percent return within a week of investment. And according to him, they got it. Most of them wound up "re-investing" those profits to make even MORE easy money. But the only person making money was Miller. He was sentenced to jail for 10 years, then pardoned. Because, reasons.
The "Kubus" Scheme
The 1984 Kubus Scheme was one of the first to follow Branca, and revolved around the sale of a "miracle beauty cream" from South America. The "beauty product" was an "activator" used to grow cultures in milk. After a couple of weeks, the cultures were harvested, dried, and sold back to investors to make more activator. None of the cultures were ever used for miracle beauty creams; they just recirculated from investors back to investors, with scam operator Adriaan Nieuwoudt skimming a little off the top of his investors' milk with every pass.