Monday, May 23, 2011

International History of Fraud Ponzi Schemes

On top of the pyramid scam

Every so often, we come across Ponzi schemes that fool even the most financially savvy investors. But what do you know about Ponzi or pyramid schemes? Mirror gives you a crash course on the most brazen Ponzi schemes in history

People’s banker
Maria Branca dos Santos, or more commonly called “Dona” Branca, was a poor Portuguese woman when she decided that she would open her own “bank” in 1970. To make it attractive, she promised an interest rate of 10% per month, and got thousands of clients (including the working poor of Portugal) to give her their money. The scheme lasted more than 14 years, and during this time she was known as “The people’s banker.” Dona Branca was arrested and sentenced to 10 years in prison. She died poor, blind, and alone. In 1993, her crime inspired a Portuguese soap opera titled A Banqueira do Povo (“The People’s Banker”).

Nastiness Factor: Bad. Way to break the sisterhood of trust, Maria.

Scientologist snake
Earthlink co-founder and Scientology minister Reed Slatkin posed as a brilliant investment advisor for A-list Hollywood residents and corporate bosses. Working out of his garage, Slatkin cheated the rich and famous out of roughly $593 million (Rs 2,671 crore approx), creating fake statements referring back to fake brokerage firms to prove his mettle. He fed the Church of Scientology with millions of his winnings. In 2000, the SEC caught wind that Slatkin wasn’t licensed, and busted the scheme.

Nastiness Factor: Mild. Cheating rich and famous usually results in fewer bankruptcies than duping seniors out of their retirement funds.

Costa Rica crooks
Three Costa Rican brothers — Enrique, Osvaldo and Freddy Villalobos — defrauded clients, mostly American and Canadian retirees, out of $400 million (Rs 1,799 cr approx) in a 20-odd-year unregulated loan scheme that started in the late 1980s. They promised interest rates of 3% per month on a minimum investment of $10,000. Villalobos moved money through shell companies before paying investors. Its staying power had to do with the fact that margins were low, the brothers were disciplined, and the outfit just barely skirted past laws.

Nastiness Factor: Mild. The size of the operation gives it a place on this list, but the brothers also had real assets to back them up. It’s Ponzi Lite, but that doesn’t ease the burden on people who lost everything.

The double ‘Shah’
In 2005, a Pakistani high school science teacher Syed Sibtul Hassan Shah went to Dubai. When he came back to his hometown of Wazirabad, Pakistan, he convinced his neighbours to give him their savings, which he doubled in just 7 days, based on a “stock program” that he had learned in Dubai. Word soon spread of the “Double Shah” and people began investing with him. In 18 months, he took in over $880 million (Rs 3,957 crore approx) from 3,000 people and was even considered to be the next political leader from the area. When police arrested Shah on charges of robbery in 2007, thousands of people descended to the streets to protest against his arrest. He is now in custody and his case is pending.

Nastiness Factor: Bad. It is just not nice to con your friends and neighbours.

Boy Band Bandit
Beginning in the late 1980s, Lou Pearlman, Art Garfunkel’s cousin and former manager of ‘N Sync and the Backstreet Boys, offered attractive returns through his FDIC-insured Trans Continental Savings Program. The scheme was neither a savings and loan nor FDIC-approved, but that didn’t stop Pearlman from bilking investors out of nearly $500 million (Rs 2,248 cr approx), with which he planned on funding three MTV shows and an entertainment complex.

Nastiness Factor: Deplorable. Pearlman was already a multimillionaire. The fact that he became a compulsive criminal after that means he should sit in a cell for a very long time.

Madman Madoff
Unless you’ve been living under a rock, you all should know by now that financier Bernard “Bernie” Madoff was arrested for running a Ponzi scheme. There are four notable facts about his operation:
1. It was the largest (dollar-wise)
2. It was the longest-running (known) Ponzi scheme in history. Investigators sifting through the record found evidence of hanky panky since the 1970s
3. It was perpetrated by one of the pillars of Wall Street. Madoff was a former chairman of NASDAQ
4. His victims are some of the most financially savvy and rich people in the world (you need at least $20 million — Rs 90 crore approx — to “invest” with him)

Nastiness Factor: Deplorable. The man single-handedly destroyed charities, life savings, and other organizations. The amount of money involved earns him a spot just below Charles Ponzi himself.

The Namesake

The King of Get Rich Quick, Charles Ponzi became a millionaire in six months by promising investors 50% return in 45 days on international postal coupon investments. He earned $15 million (Rs 67.44 crore), which in 1920s terms was serious money. After Ponzi was caught, investors only received $5 million (Rs 22.48 crore) back.

Nastiness Factor: Mythical. This ancestor of fraudulent men passed his name on to the many schemes that would follow his own. His legacy, and his scheme, are forever memorialised, earning them a unique Nastiness Factor label.


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