Sat. Apr 13th, 2024

Almost everyone wants to earn lots of money. Most people accept that it takes many years of hard work to do this. However, others are less patient and want to get rich in a short time. The latter often set up Ponzi schemes or other types of financial fraud.

They promise investors high profits in a short time. Their system is straightforward. It uses new investors’ money to pay early joiners.

For more information and investing tips, read: Investing Safe – Stratford Management

The Ponzi Scheme

The Ponzi scheme’s author is an Italian con artist – Charles Ponzi. He tempted investors with a profit of 50% in 45 days. His investment opportunity involved IRC coupons. He planned to buy them in Italy. Then, sold them for more money in the US.

However, Ponzi only paid a few of the initial investors. He gave them money from the contributions of recent investors. His fraudulent business generated millions of dollars. It all took place in the 1920s.

Learn more about other unethical Ponzi schemes in modern history.

Madoff’s Ponzi Scheme

Madoff guaranteed investors huge profits. He carried out a Ponzi scheme under a hedge fund – Bernard L. Madoff Investment Securities. ​

Madoff rented a three-story office in New York. His traders used one of them to give credibility to the business.

Madoff had an excellent reputation on Wall Street. Not everyone could get close to him, which increased his appeal. Moreover, it created a halo of elitism around him.

In 1999, analyst Harry Markopolos warned the US Securities Commission (SEC) about Madoff’s system.  He believed it impossible for Madoff to provide the promised returns.

In 2008 the global crisis broke. Therefore, investors began demanding their money. That’s when Madoff’s Ponzi scheme began to crumble. He then admitted to his sons that it was all a fraud. And they reported it to the FBI.

The MMM Ponzi Scheme

In 1989, Sergei Mavrodi and his brother Vyacheslav founded the MMM company. First, the company imported office equipment.

Later, in January 1992, the Russian tax police accused MMM of tax evasion. Consequently, MMM collapsed. The resulting difficulties determined the owners to change their profile.

In 1993, the MMM began selling vouchers stylized as Soviet banknotes. These depicted Sergei Mavrodi instead of Lenin. Their prices changed from time to time according to the owners’ whims. Hence, in 18 months, the vouchers’ value increased 127 times.

MMM grew overnight into a huge enterprise turning millions of dollars. Consequently, investors withdrew their profits. However, the company paid them from other contributors’ accounts.

Many of the deceived investors committed suicide. Nonetheless, Sergei Mavrodi was not imprisoned for a long time.

The Caritas Ponzi Scheme

Caritas offered investors an eightfold return over 6 months between 1991 and 1994. The organization was based in Romania and its leader was Ioan Stoica.

The offer attracted approximately 400,000 people across the country. They invested around $1 billion. The Caritas system also offered substantial interest rates. These were enabled by the high inflation in the 1990s.

Finally, the company went bankrupt on August 14, 1994. Moreover, its debt amounted to $450 billion. In 1995, the court sentenced Ioan Stoica to seven years in prison for fraud. However, he later appealed. Consequently, the court reduced the sentence to one year and a half.

The Stanford Financial Group Ponzi Scheme

The Stanford Financial Group was a private financial services group. Allen Stanford controlled it.

In 1986, Allen Stanford founded a bank called Guardian International Bank in Montserrat. Stanford then relocated its operations to Antigua.

Stanford’s bank in the Antigua Islands (tax haven) was a massive Ponzi scheme. With its help, Stanford managed to extort $7 billion from its clients.

By selling investment certificates, he allocated part of the profits to his own needs. Then, he invested the rest through unreliable developers. Finally, Allen was sentenced to 20 years in prison.

Serving Time for Fraud

Pulling off a Ponzi scam usually ends with getting caught. Many of the most successful Ponzi scheme authors served time in jail.

On June 29, 2009, Bernard Madoff was sentenced to 150 years in prison. These happened despite pleading guilty and expressing remorse. Moreover, Madoff’s lawyers tried to release him from prison in 2020 due to poor health. The court, however, refused to do so. Finally, on April 14, 2021, Madoff passed away.

However, sometimes, scammers get away with committing fraud. The Caritas scheme is an excellent example. This scam filled the pockets of many post-communist MPs, police officers, prosecutors.

Caritas money was the founding capital of many shady companies. Although Caritas defrauded more than four million citizens, it didn’t trigger severe penalties. Furthermore, nobody paid the victims compensations either.

Have you fallen victim to a Ponzi scheme? Then, report it to the appropriate authorities. In the United States, you can report such cases to the Securities and Exchange Commission.

Stay safe. Article by, Stratford Management.