Introduction

In December of 2008, the world learned that legendary investment guru Bernard Madoff made off with an estimated $50 billion in what was called the “Mother of all Ponzi Schemes.” Ponzi schemes, named after Charles Ponzi, are scams in which early “investors” are given supposed returns paid through funds provided by later investors. Typically, an investment is made and then some “profits” are paid out, prompting the investor to assume that his or her money has increased in value. In actuality, the perpetrators of these schemes—Ponzi, Madoff, or the others described in this book—take the money for themselves. The legal term for this kind of taking is “misappropriation.” As new investors enter the fraud, supposed returns are offered continually to initial investors, and many times are accompanied by fake account statements. This continues until new money stops flowing in and the investors want their money back. During the 2008 economic downturn, people needed their money back at the same time that there were no new investors. Many “house of cards” scams have fallen and the perpetrators of the swindles have been caught. Charles Ponzi ran these types of scams in the United States until he was deported to Italy, his birthplace, in 1934 as an “undesirable alien.”

MISAPPROPRIATION—Taking as one’s own entrusted property that is owned by someone else

UNDESIRABLE ALIEN—A non-citizen subject to deportation

Many think that one would have to be foolish to invest in such a scam, but Madoff and other such folks are good at their craft. They often put on a great false front, even fooling the master of illusion, movie director Steven Spielberg. But Spielberg wasn’t alone. Even banks, of which we assume would undertake due diligence before funds were invested, got caught in Madoff’s web. Investors included Austrian, British, Dutch, Swiss, French, Italian, Portuguese, and Spanish banks. Larry King and the owner of the New York Mets, Fred Wilpon, were duped, as was former LA Dodgers pitcher, Sandy Koufax. Actors Kevin Bacon, Kyra Sedgwick, John Malkovich, and Zsa Zsa Gabor, as well as New York University and New York Law School, a union’s health care fund, several trusts, endowments, and nonprofits such as the Elie Wiesel Foundation for Humanity made the widely publicized victims list. Even the International Olympic Committee wasn’t immune from the Madoff scam.

While this may have been the largest swindle ever, scores and scores of Ponzis of all sizes and values continue to be unearthed. There have never been more of these scams, and they are occurring all over the world. That’s why this publication is called Ponzimonium. The cases described here are just as damaging to the victims as was the Madoff scam, and many of them are every bit as complicated and seemingly authentic.

Meanwhile, Madoff traded his Manhattan penthouse for a jail cell for the next 150 years, but the damage he did to those he took advantage of cannot be repaired. Their story and others provide an instructive window into how these schemes operate and how to avoid becoming a Ponzi scheme victim.

To the victims, words cannot express our sorrow at your loss. Let this be a lesson to us all. White-collar crime is a cancer on this nation’s soul and our tolerance of it speaks volumes about where we need to go as a nation if we are to survive the current economic troubles we find ourselves facing; because these troubles were of our own making and due solely to unchecked, unregulated greed. We get the government and the regulators that we deserve, so let us be sure to hold not only our government and our regulators accountable, but also ourselves for permitting these situations to occur.

—Harry Markopolos, CFA, CFE a/k/a the Madoff Whistle-blower1