Ponzi scheme

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A Ponzi scheme is a confidence game or financial fraud, named after Charles Ponzi, a flamboyant Boston, Massachusetts man who swindled thousands of people in 1919-20, and went to prison for it.

The schemer offers very high returns, using a winning personality that overcomes the reluctance of investors. Supposedly the schemer has a secret sure-fire technique for making money legitimately; everyone assumes he is honest. The first and second rounds of investors put in money, and the first round gets large returns as promised; word spreads. The money given to the people in the first round comes from the second round investors. Then the money from the third round investors is used to pay off the first and second round. The money from the fourth round--assuming it lasts that long, is used to pay off the first, second and third groups. The supposed genuine investments never took place. The scheme continues as long as more and more people flock to invest. Ponzi schemes typically collapse after a few rounds.

By far the largest Ponzi scheme was discovered in December 2008. Bernard L. Madoff (born April 29, 1938), a liberal Jewish American billionaire-bankster, is in dollar terms the biggest crook in history. Madoff had bilked investors worldwide out of vast sums, perhaps as much as $50 billion over a period of decades.
While holding many prestigious positions such as chairman of the NASDAQ stock exchange, he directed his company, Bernard L. Madoff Investment Securities, in a Ponzi scheme that last for decades. The scheme was exposed in December, 2008, revealing that over 13,000 investors, especially from the Jewish community, lost about $13 billion. The exact amount will take years to determine. People invested and Madoff sent them monthly reports showing in detail how their investments were rapidly growing. There actually were no investments. He was using money from new investors to pay off old clients who needed to redeem their holdings. When the Financial Crisis of 2008 broke, so many people needed cash fast -- and so few new ones came to invest -- that he could not pay anyone. He told his children and they called the authorities. Madoff was sentenced to 150 years in prison in June 2009.

Another large scheme involving $7 billion resulted in R. Allen Stanford being sentenced to 110 years in prison in June 2012.[1]

State and federal offices are supposed to be watchdog agencies, but the federal Securities and Exchange Commission ignored numerous warnings that Madoff was running a Ponzi scheme.

Investors in the Madoff scheme paid taxes on their supposed "profits" (they may be able to recover some of the taxes for the last two years), and they can deduct their losses from their income taxes, so that they will recoup some of their losses. The many charities that lost money will not get any tax refunds because they do not pay any income taxes.



"The one aim of these financiers is world control by the creation of inextinguishable debt." - Henry Ford

See Also


  1. Daniel Gilbert and Jean Eagleham. "Stanford Hit With 110 Years", Wall Street Journal, June 15, 2012, p. C1. 

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