Ponzi Schemes

A fraudulent investment operation in which the perpetrator promises the investor a high return on their investment, not from any actual profit earned from the organization but instead from recycled money already paid by other investors, is called a Ponzi scheme. In many Ponzi schemes, the swindlers focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity. There are countless examples of ponzi schemes dating back to as early as the 1920’s and all of them are the result of greed and the desire for immeasurable success. While the American dream promotes the opportunity of success and wealth, some do not understand, or possibly ignore, the ethics and legalities of running a legitimate business and earning honest profits.

The term “ponzi” originated from the notorious con artist, Charles Ponzi. Ponzi marked what would become known as the Ponzi scheme in December 1919. When an alliance of international postal services had begun selling coupons after World War I ended, Ponzi promised investors they could collect considerable profits by purchasing international reply coupons from other countries and then redeeming them in the U.S for postage stamps. He promised investors in New England a 40 percent return on their investment in just 90 days, compared with five percent in a savings account. To make the scheme more credible, Ponzi established the "Securities Exchange Company" to diverge suspicion. Clients began to pour in and that enabled him to pay existing investors, while placing millions of dollars in his own pockets. Eventually Ponzi’s plan drew suspicion and crumbled bringing six banks down with it and it is estimated that his investors lost around $20 million. Investors were devastated and had lost everything they invested. Ponzi’s scam was thought to be an innovative and ingenious way to make quick money but was proved to be immoral when the...