10 BEST PONZI SCAMS
10 BEST PONZI SCAMS
RANDOMLY COMPILED BY BRIAN CLAREY
Last week the US Securities and Exchange Commission shut down Lexington-based ZeekRewards and its affiliate companies after accusing the owner, Paul Burks, of running a Ponzi, or pyramid scheme. Burks gave up his company and paid $4 million in fines, but the dust has not yet settled on this one — criminal and civil charges are in the works.
Charles Ponzi didn’t invent the Ponzi scheme, he just gave it a name. Just after World War I, Ponzi began using international reply coupons — basically postage-stamp gift cards — to make money. But because postage was so much cheaper in, say, Italy, than in the US, Ponzi figured he could buy IRCs there and exchange them for stamps here, netting the profit. He started the “Securities Exchange Company,” which by 1920 was taking in hundreds of thousands of dollars. But Ponzi was not actually buying IRCs and was paying old investors with new money. When the scam went bust, Ponzi pled guilty to a single federal charge of mail fraud, served three years and was then indicted on 22 counts of larceny — a case which made it to the Supreme Court in 1922.
Everyone knows that Bernie Madoff is a stockbroker currently serving a sentence for fraud, but not everyone knows what made his scam a Ponzi. Madoff took money from new investors for a nonexistent hedge fund, then used that investment money to pay off older investors in the scheme. That is the key element of the classic Ponzi.
Fifth-generation Texan, former mayor of Anna Nicole Smith’s hometown of Mexia and citizen of the US and Antigua, where he was knighted, Allan Stanford became one of the biggest white-collar criminals in US history with his $8 billion Ponzi run through his Stanford Financial Group and the Stanford International Bank in Antigua. Although it was small change compared to the Madoff empire, it involved falsified bank documents, bogus income statements and, eventually, a 100-year prison sentence in June. He also falsely claimed to be related to Leland Stanford, founder of Stanford University.
THE ALBANIAN REBELLION
In the 1990s, Albania was transitioning to a free-market economy, causing a credit crunch for the citizens. In the chaos, dozens of Ponzi schemes began to operate, some of which were endorsed by the government, ensnaring two-thirds of the population. When the thing collapsed, $1.2 billion had disappeared from the country’s economy and inflation rose 40 percent. A 10-day civil war broke out in March 1997 after a people’s rebellion, and an election in June of that year installed a new socialist government.
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GMI was a Ponzi run through a church in Tampa, Fla. that liberated $500 million from its flock in the 1990s. Rev. Gerald Payne took donations like other churches, but promised returns on investment, “blessings” up to 100 percent. Payne got 27 years in 2001.
Norman Hsu found the spotlight after making sizable donations to the presidential campaign of Hillary Clinton — more than $1 million. But Hsu was a con man, with multiple bankruptcy filings and a string of Ponzis dating back to the 1980s.
You may remember Pearlman as the man behind boy bands like the Backstreet Boys, ’NSYNC and O Town. But he was also a first class hustler, making his first million off a blimp scam(!) and, through his showbiz connections — he is Art Garfunkel’s first cousin — later perpetrated a photo-mill scam, forcing artists to get shots from his photography studio. There’s also some weird sex stuff in his bio. But his Ponzi spanned some 20 years: a fictitious airline for which he had recruited investors until 2006, when it was revealed that Trans Continental Airlines existed solely on paper — no planes, no pilots, no nothing. He got 25 years in 2008. Somewhere Justin Timberlake is laughing.
FULL TILT POKER
In 2012, Raymond Bitar of Full Tilt Poker, an internet gambling site, was arrested after the Justice Department discovered that, though the site had $350 million worth of player accounts, it had just $60 million or so on hand. Charges are pending.
Technically, Social Security is a Ponzi in that it uses money from new investors to pay off old investors — though there is no outright fraud in the arrangement and, one hopes, the balance on the statements we receive annually are real.