By Alec Hogg
Although the practice of parting the fearful or greedy with their money has been around for centuries, the fraud took on new proportions in 1920 when Italian immigrant Charles Ponzi duped thousands in his adopted USA.
Ponzi offered naïve investors 50% profit in 45 days or 100% in three months by claiming to arbitrage then popular postal reply coupons. In reality, the Boston-based fraudster built his house of cards by paying today’s investors with the money entrusted by others yesterday.
The Fraud Institute, which describes Ponzi as one of the greatest swindlers in US history, says by the time of his conviction he had received the equivalent of almost a billion dollars in today’s money from “eager investors, many of whom mortgaged their homes or gave him their life’s savings – then reinvested the returns.”
By the time he was stopped, Ponzi’s demise brought down six banks and cost his investors 70c in each dollar they entrusted to him. The publicity his crime received ensured that his name is given to similar schemes where promotors pay over-the-top yields from the capital of other investors.
Charles Ponzi – the 1920 fraudster whose modus operandi has been applied worldwide in schemes bearing his name.
Ponzi is reputed to have gotten the idea from one William “520%” Miller, a New York bookkeeper who used the same method in 1899 to take in $1m. He may well have picked it up from the schemes that appeared in two Charles Dickens novels published in 1844 (Martin Chuzzlewit) and 1857 (Little Dorrit).
Today Ponzi schemes are known as financial scams where fresh funds are attracted by paying high returns – but funding these with capital from new investors. The fraud is sometimes perpetuated for lengthy periods through the lie that these higher yields are being generated by super profits from businesses which either don’t exist or are a far cry from what’s being painted.
The best known recent South African Ponzi scheme was the R10bn scam executed by Barry Tannenbaum, who skipped to Australia where he now works as an Uber taxi driver. Globally, the former stockbroker and investment advisor Bernie Madoff kept his scam going for over two decades before the massive R200bn Ponzi scheme finally unwound in 2008. The OffshoreAlert report says the Belvedere scheme of Capetonian Cobus Kellermann is of the same scale as Madoff’s.