In the early 20th century, a little-known Italian immigrant gained international notoriety after his investment venture promising astronomical returns through the resale of postal reply coupons was proved to be mathematically impossible.
Charles Ponzi would eventually serve nearly two decades in federal and state prison for that and related scams, but little did he know that his surname would one day epitomize one of the most potent weapons of financial destruction ever encountered.
The “Ponzi scheme” was born.
The functioning of a Ponzi scheme is inherently simple. Investors are promised above-average returns that generally carry little risk. However, the payment of these returns is made not from legitimate business activities, but rather from incoming funds from new investors. Little if any legitimate investing actually takes place, and the Ponzi scheme depends on the continuous flow of funds from new investors to meet obligations to existing investors.
When the so-called “lifeblood” of a Ponzi scheme dries up and investor obligations cannot be met, the scheme unravels — often in destructive fashion, leaving a path of devastation in its wake and irreversibly affecting the lives of those ensnared in its web.
While tracing its origin back at least 80 years, the past decade has been unprecedented in terms of the number and severity of Ponzi schemes. Since 2008, at least 500 Ponzi schemes were uncovered worldwide, including Bernard “Bernie” Madoff’s legendary $17 billion scheme. All told, the financial impact of Ponzi schemes is pegged at more than $50 billion over the past six years.
No matter the type, a Ponzi scheme has a predictable and inevitable dire outcome, but some are certainly more notable than others. Ponzi schemes have seemingly endless variations, which has led to this list of newsworthy Ponzi schemes, ranging from a emu-raising Ponzi scheme to astrology to latex gloves.
We’ll take a look at these, but first, a look at the staggering stats behind Ponzi schemes.