The words Ponzi Scheme mean that a fraudulent investment operation was created and implemented; where returns were paid to its investors from “existing capital or new capital was paid by new investors” instead of profit that was earned by an individual or organization running an operation. In most cases people who operate Ponzi schemes entice new investors by offering higher returns than other forms of investments; such as “short term returns that are unusually high or unusually consistent.”
The Ponzi scheme was named after Charles Ponzi who became famous and notorious for first using this scheme way back in 1920. It is important to note that Ponzi did not invent the scheme but his scheme took in so much money and hurt so many people that he was the first to be known for this kind of scheme in the United States. His scheme was based on the “arbitrage of international reply coupons for postage stamps;” however, early on he diverted the money that was invested in them so that he could make payments to earlier investors and of course, himself.
Basically, a Ponzi scheme is an investment scam that is created by a person in order to take money from investors and later on, disappear with the money. Ponzi schemes can go into the millions and billions of dollars. The success of this kind of scheme depends on the personality of the person conducting the scheme. He or she is usually quite dynamic, successful, trustful and communicates smoothly and effortlessly with others.
Keep in mind that there are five basic elements of a Ponzi scheme:
1. A promise that an investment will give an above rate of return and an explanation of how the investment will achieve above normal rates of return,
2. Credibility from the person running the scheme, convincing more investors to invest in the scheme
3. Returning the investment money to some investors with interest
4. Later, the pattern of investment returns are broken
5. Instead of returning the investment money and paying the promised return, the person or persons escape with the money and start a new life.
Another famous Ponzi scheme is one that Sarah Howe conducted in 1880. She was a feminist who lived in Boston. She promised women 8% interest on a “Ladies Deposit.” She touted that it was only for women; giving many women a feeling of safety. Later, she took the money and ran.
Then there was a Ponzi scheme in Haiti that happened in the early 2,000s. These were government-backed schemes touted as “cooperatives.” Many people invested in this scheme because they sounded authentic and safe. As a result, 240 million was invested in this Ponzi scheme; which turned into a historic swindle where many were robbed of their savings, in an area of the world that is so poor.
Still another example of a Ponzi scheme came from a Scientology minister by the name of Reed Slatkin. He presented himself as a smart investment advisor for A-list Hollywood residents and corporate bosses. From his garage, he cheated the rich out of almost 600 million. He then gave the Church of Scientology millions of what he swindled from others. All of this occurred in the late 1990s. In 2,000 he was caught and put in jail.
Then there was Gerald Payne, minister of Greater Ministries International, based in Florida, who cheated his congregation out of 500 million. This occurred in the early 1990s where he offered his worshippers investments in gold coins. Later, he created an investment plan that would double a person’s blessings from what he or she would invest in his plan and then later funneled the money toward the “church’s fake precious metals investments.” Later, he was caught, but most of those who invested in his scheme, never got their money back.
To conclude, Ponzi schemes have been around for years and in some areas of the world continue to bilk millions and billions of dollars from unsuspecting people. Always remember the old saying, “If it sounds too good to be true; it is!