(Just before I start – over 6,000 hits on this blog! Woo-hoo!)
Anyway, back to the serious matter in hand. There has been such a lot in the news recently about Ponzi schemes, what with Allen Stanford, Kautilya Pruthi and the continuing fallout from our friend Bernie Madoff. It seems that in times of financial hardship, people are even more willing to believe promises of astonishing returns – Pruthi offered 13% per month. Odd, when my own bank is paying about 0.00000000000032% on my savings. Per annum.
Fraud is as old as civilisation, of course – there was probably a caveman who convinced his neighbour to share his stash of berries on the promise of a share of a yummy mammoth later in the season, knowing full well that mammoth never venture this far south. But the man who gave his name to this particular type of fraud – whereby early investors do indeed get tempting returns but funded only by later investors, until the whole structure collapses – was Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, born in Italy but working the US and Canada. Charles Ponzi promised his clients a 50% profit within 45 days, or 100% profit within 90 days, by buying discounted postal reply coupons in other countries and redeeming them at face value in the US. By May 1920, he had made US$420,000 [nearly $5 million in today’s money]. His victims mortgaged their homes and invested their life savings with him, most taking no returns in order to reinvest. Ponzi deposited $3 million in the Hanover Trust Bank of Boston and so gained a controlling interest in it – a ruse still extremely popular with money launderers today. But on 26 July 1920, a financial analyst called Clarence Barron published a story noting that for Ponzi’s scheme to work, 160 million postal reply coupons would have to be in circulation – but only about 27,000 were. He also noted that Ponzi had not invested in his own scheme… Ponzi’s own PR man then found several highly incriminating documents and went public with them. It was the beginning of the end: Ponzi ended up in prison for five years, and then was deported. In common with many fraudsters, he was rather low on remorse; in his last interview, he told an American reporter: “Even if they never got anything for it, it was cheap at that price. Without malice aforethought I had given them [the Americans] the best show that was ever staged in their territory since the landing of the Pilgrims! It was easily worth fifteen million bucks to watch me put the thing over.”
I hate money laundering 