In the early 1920s Charles Ponzi suckered Boston Brahmins far and wide with a scheme that now bears his name. At a time when interest rates stood at 5 percent, Ponzi offered investors a 50 percent gain in just 45 days. The pitch: buy postal coupons (used for buying foreign stamps) in, say, Spain, then capitalize on exchange rate differences by redeeming them at a profit in the US.
Ponzi only bought a handful of stamps. But he kept up the scam going by robbing from Peter to pay Paul. Interest for initial investors was paid out of funds sent in by later investors. Before his house of cards collapsed, Ponzi fleeced investors of $10 million.
More than 80 years later, this same kind of this con remains a problem. Ponzi schemes are ``the biggest single fraud threat confronting the average American investor,'' according to a report last year by the North American Securities Administrators Association (NASAA).
While enforcement efforts are being beefed up in some states, the Ponzi remains a viable threat. ``I haven't seen any evidence of decreasing numbers despite increased prosecution,'' says Douglas Campbell of the National Futures Association.
Gary Kemp, staff attorney at the Massachusetts Securities Division, says: ``Ponzi scams are really coming back. It's the classic investment fraud. It's so lucrative, and so easy to do in different forms. It's like a phoenix.''
Lately, hucksters are selling mortgage-backed securities, precious metals (gold, silver, platinum) as well as oil and gas leases. Just last week, NASAA president Royce O. Griffin says, a California firm actually mailed him an offer for what appeared to be a fraudulent oil land lease. Other examples of recent Ponzi schemes reported by NASAA:
A 23-year-old busboy in Ohio allegedly raised $7.3 million from 2,800 investors by promising to double their money in two or three months. The funds were to buy rock concert tickets in bulk and resell them at high prices. Unable to deliver as promised, the promoter began paying initial investors with the funds deposited by later investors.
Similarly, an Alabama man fleeced investors of $3.5 million in a blue jeans resale scheme.
In Texas, a woman took in $17 million to finance a chain of phony silver recycling plants.
A Utah funeral home organist bilked widows of $16.5 million by promising to invest their money in high-interest paying bonds of a nonexistent finance company.