Scam of the day – March 3, 2017 – Happy birthday Charles Ponzi

Had he not died in 1949, today would have been Charles Ponzi’s 135th birthday.  Scam artists around the world should probably honor the man who perfected the scheme that bears his name that has been used by many scam artists, the only criminals we refer to as artists to steal billions of dollars from unwitting victims who made the mistake of investing their money with him.  Although, Ponzi was not the first to use the technique of paying off early investors with the investments of later investors in an effort to make a total sham look as if it is a profitable business, that dishonor should go to William Miller who first used this scheme in 1899, it was Ponzi in 1920 who perfected the scam to steal millions of dollars from unwary investors in his scheme by which he told them that he was able to take advantage of fluctuating currency values to purchase international postal reply coupons at a discount and then sell them at face value in the United States.  Ponzi promised, and delivered to early investors, a 50% profit on investments within 45 days and a 100% profit within 90 days.  Of course, the entire scheme was a total sham, but eager investors blinded by their greed flocked to him to invest.  Eventually, as ultimately always happens in a Ponzi scheme, the scam was exposed and Ponzi went to prison.  However, the list of criminals still using this prototype of a scam continues to this day including such famous Ponzi scheme criminals as Allen Stanford, Tom Petters, Norman Hsu, Lou Pearlman and, of course, the biggest of them all, Bernie Madoff who swindled people out of more than 50 billion dollars using this time honored scheme.


So how do you protect yourself from falling prey to a Ponzi schemer?  There are a number of things you can do including always investigate the credentials of any investment adviser you are considering using.  You can check on individual investment advisers with the SEC, your own state’s securities regulators and the Financial Industry Regulatory Authority (FINRA).  However, that would not have protected you from being swindled by the likes of Allen Stanford or Bernie Madoff.

Another important thing is to never use an investment adviser who is also the custodian of your funds. This is a recipe for disaster.  The role of an investment adviser or manager should be solely that of advising and making trades.  The custodian of the actual investments should be a separate broker-dealer regulated by the Financial Industry Regulatory Authority (FINRA) and backed by the Securities Investor Protection Corp. (SIPC).  Never invest in anything that you don’t totally understand and be particularly wary of investments that promise huge returns or no risk of ever losing money even when market conditions are poor.

Scam of the day – March 3, 2014 – Happy birthday Charles Ponzi

Happy birthday to Charles Ponzi, the man credited with being the first to exploit the simple scam that has come to be known as a Ponzi scheme.  Ponzi was born in 1882 which means had he not died in 1949, he would have been 132 years old today.  To put this in perspective, if Ponzi schemer, Bernie Madoff started serving his prison sentence 132 years ago, he would still have 18 years left on his sentence of 150 years.  Ponzi was a good example to generations of scammers including, in recent years, Bernie Madoff, R. Allen Stanford, Tom Petters, Scott Rothstein and Marc Drier, to name just a few.  Unfortunately although scam artists, the only criminals we refer to as artists have learned from Charles Ponzi, many of us in the public have not paid enough attention to the lessons of Charles Ponzi and we continue to be cheated and scammed by people following Ponzi’s plan.  At its core, Ponzi’s plan involves a  seemingly complex investment that returns steady and lucrative returns.  Generally the investments are touted as being both safe and high paying.  Unfortunately, the only one who is getting highly paid is the criminal masterminds behind these scams.  Generally there are no investments, as was the situation with Madoff.  The records provided to investors are phony and the money paid back to investors is derived from the funds constantly being added to the scheme by new investors.


Bernie Madoff had the temerity to blame his own victims for their losses when he recently said that investors should have investigated his investment strategy before investing with him and that had they done so, they would have been able to see that it was a scam.  The truth is, however, that no one should ever invest in any type of investment that they do not fully understand.  Madoff’s professed theory at the time he was raking in funds appeared so complex that many intelligent investors ignored the fact that they did not understand what was going on and instead merely looked at his consistent rates of return and just blindly trusted him.  This was a big mistake.  Investors with R. Allen Stanford may have been blinded by their greed when they invested in his off-shore CDs that somehow were able to return interest rates 4% higher than CDs from American banks.  Neglecting to do proper research into these investments cost Stanford’s victims dearly.  You can learn more details about how to recognize Ponzi schemes and what steps you can take to protect yourself from investment scams in my book “The Truth About Avoiding Scams” which can be obtained through Amazon by clicking on the link on the right hand side of this page, however two essential rules are that you should never invest in any investment that you do not truly understand and you should always be skeptical when an investment appears too good to be true.