Biggest Ponzi Schemes of All Time
As of late 2013, the epic scam pulled off by Bernard Madoff was still unraveling even as the disgraced Wall Street financier, fund manager and master con man was growing older at the Butner federal prison in North Carolina. At a federal courtroom in Manhattan, two of Madoff’s alleged conspirators facing trial were responding to accusations that they had demanded payment in diamonds instead of currency for their reported participation in the nefarious Ponzi scheme.
The Madoff affair is certainly one of the most spectacular financial scams in history, but it is far from being the only one. It deserves to be mentioned among the biggest five Ponzi schemes of all time, but only after reviewing the original scheme that inspired a legion of financial evildoers.
1. Charles Ponzi and the Post Office Stamps
After a short stint as a gambler and smuggler in his native Italy, Charles Ponzi turned to arbitrage, a financial strategy that involves profiting from the spread created by exchanging two financial instruments. This is not an illegal activity in and of itself, but what followed next certainly was. In 1920, Ponzi offered a cut of his profits to investors at the lucrative rate of 100 percent in just three months. He then recruited agents to get even more investors and paying off the early participants as new funds were brought in. In the end, he relieved investors and even financial institutions of about $225 million.
2. Beating the Market with Bernard Madoff
It took Bernard Madoff nearly 50 years to swindle about $18 million and create losses greater than $60 billion, and he did it by preaching the benefits of long-term investing. His children eventually tipped off the authorities; one was sentenced to serve 10 years in prison and the other committed suicide on the second anniversary of his father’s arrest. Madoff’s investors never seemed to question how this man would consistently beat the market, particularly those early investors who would receive fake profits every now and then.
3. A Cooperative Ponzi Scheme in Haiti
In the early 21st century, Haitian nationals were deceived by scam artists who represented sham cooperatives that promised returns on investment up to 15 percent. Although this was technically a Ponzi scheme, it was more akin to highway robbery in the amount of $240 million.
4. The Russian Bernie
Sergei Mavrodi took advantage of the chaotic state of finance in the post-Soviet Russia to create an investment firm that promised fantastic returns to naïve investors. Mavrodi’s first scam ran from 1994 until his conviction in 2003. He was released four years later and would start another scam that ran until 2012.