08 July 2009

What is a PONZI scheme?

Bernie Madoff was sentenced to 150 years, receiving the maximum sentence for his "Ponzi" scheme. The CNNMoney.com report of the court proceedings indicates that "Thus far, federal investigators have identified 1,341 investors in Madoff's firm, who have losses exceeding $13 billion." However, the New York Times reported yesterday that investor Claims total over 15,400 in Fraud by Madoff.

So just what IS a Ponzi scheme?
Wikipedia will give you the definition, but the History Magazine June/July 2009 issue tells the story of the infamous Italian immigrant Charles Ponzi who arrived in American with less than $5 in his pocket. "Ponzi lured investors (in 1919) by promising the incredible: a 50 percent return on one's investment, in just 90 days." Ponzi devised a plan of paying the early investors with money received from new investors -- a scheme destined to fail if one cannot keep up the juggling act of luring more investors with deeper pocket books.

"The amount of money Ponzi was collecting increased almost exponentially. By March 1920, his company took in nearly $30,000. In May, Ponzi's receipts tallied over 10 times that amount, and by mid-summer, he was raking in millions."

Oddly enough in 1920, Ponzi officially opened the Security and Exchange Company. This had nothing to do with the current Security and Exchange Commission set up 13 years later by the US federal government. But according to the history magazine, at the time, the work Ponzi chose wasn't illegal at the time.

Hopefully your ancestors weren't taken in by the original get-rich-quick Ponzi scheme, that started among bank-shy Italian immigrants in Boston, but included offices in Connecticut and New Hampshire, eventually capturing the attention of investors from around the world.

Tuohy, Brian "Inventing Money: The Ponzi Scheme". History Magazine , June/July 2009, pages 38-40.
Happy family tree climbing!
Myrt :)
Your friend in genealogy.

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