OPINION – Ponzi schemes: One of the oldest frauds in the book
by Alex Brummer, City Editor, Daily Mail
Ponzi schemes of the kind deployed by Mark Saunders and two others convicted at Southwark Crown Court are among the oldest and most tried and tested types of fraud. The name derives from the notorious Boston swindler Charles Ponzi who based his fraud on the sale of ‘reply coupons’ for postage stamps accumulating millions of dollars before the scam was exposed.
Most often the perpetrators of such swindles drift into a Ponzi after a more conventional investment scheme goes horribly wrong.
In most Ponzi schemes the crooks behind the plan offer investors super charged returns. The crime occurs when the people behind it use cash extracted from new investors to meet he promises made to earlier investors. To keep the scheme alive the fraudsters make ever more extravagant pledges to attract the new money which keeps existing investors satisfied.
The greatest Ponzi scheme of all time was that operated by the legendary American financier Bernard Madoff. He was able to keep his scheme alive for decades by promising better than average, rather than super charged returns, and wrapping himself in a cloak of respectability.
He managed to fool some of the world’s largest financial institutions such as HSBC as well as New York and Palm Beach’s most heeled investors.
Tragically for the Jewish community he was the favoured home for charity funds which lost out badly when in 2009 he was convicted of creating a black hole of an astonishing $64.6 billion in his investors’ accounts.
Among his victims was Nobel Peace Prize winner and Holocaust survivor and campaigner Elie Wiesel. He suggested that Madoff should be required to watch a continuous video of the distraught victims of his fraud from his prison cell as he serves his 150-year sentence.
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