BULL STREET - The art of the Con

The PONZI Con

In the United States we are all familiar with Boston’s, Mr. Charles Ponzi, who under the guise of doing an extremely sophisticated arbitrage between U. S. Dollars and higher yielding convertible International Postal Union Coupons, offered to pay investors unbelievable returns in exchange for investment in his program. By remunerating early investors with handsome profits and extensive advertising, the word spread and Ponzi had attracted almost $10 million and 10,000 investors before the scheme imploded. Mr. Ponzi had previously served time in Canada for forgery and within ten days of his release from jail, was again arrested for smuggling aliens into the United States. Before his career ended in Brazil where he died in 1949 leaving an estate of $75, he became involved in a Florida Real Estate Pyramid scheme and ultimately jumped bail to avoid prison for larceny.

In the United States as well as a good part of the rest of the world, today, Mr. Ponzi would have been selling a security which would have to have been registered with the Securities and Exchange Commission with certain disclosures within his proposed offering document. Under American "Blue Sky" regulations the document would also have to conform with regulations and requirements of the State of Massachusetts. When reading the offering memorandum required by these to oversight regulators, it is more that likely that investors would have had second thoughts about the investment. That is if it got that far, Ponzi could well have determined that he didn’t want to reduce his transparent fraud to writing where it could have been picked apart or in the alternative, either the State of Massachusetts or the Securities and Exchange Commission would have determine that the claims were irresponsible and not allowed the sale. This is not say that Ponzi couldn’t have gone door to door with his scheme without filing the required forms, but that would have been to overt even for the uninhibited Mr. Ponzi.

Not only was his scheme widely publicized, especially when he was remanded to the local jail to literally serve out his remaining years, but he wasn’t the first to attempt what is now generically know as "the Ponzi Scheme."

While Ponzi attempted to do in some of the residents of Boston with his contrivance, others recently have gotten away with stealing a country. In Russia after advertising a similar fraud through newspapers and television the perpetrator, the president of MMM, ran for office and was duly elected. According to Russian Law he became sacrosanct and could not be prosecuted. Here was a theft that made Ponzi look like "Little Lord Fauntleroy" leaving tens of thousands of people penniless and yet today he serves in one of the highest elected offices in Russia and goes unpunished. Poof Go the Profits A pyramid scheme collapses, infuriating investors and triggering the country’s worst free-market crisis (152)

Elsewhere, savvy investors might have smelled a rat earlier. But this was post communist Russia, where capitalism is wild, woolly and new. The come-on, in any event, had been slick and seductive: pervasive TV commercials that wafted visions of apartments in Paris and vacations in California, and preposterous returns of 2,000% annually with no minimum investment. With those tactics, it did not take long for 5 million Russians to pour money into the offices of the MMM investment firm, the country’s biggest and best-know stock fund.

The came the painful lesson: thing too good to be true usually aren’t.

Last week investors learned the hard way about the old-fashioned Ponzi scheme. MMM suddenly collapsed. By week’s end thousands of investors swarmed around its Moscow offices trying to redeem their pieces of paper. Many of the shorn had come from the Moscow Commodity Exchange on the other side of town, where windows were broken before they were told to try their luck at the company headquarters instead. On Saturday that market evaporated when the company folded up shop, and shares that had dropped from a high of $62 to 50 cents last week were worthless. A regularly scheduled meeting of the Cabinet was devoted almost entirely to the most dramatic financial scandal since the fall of communism.”

Of lessor dimensions but of greater proportions on a national level was a variation on the exact same scene with a different location, Albania. The Albanians were probably further removed from world events than any other group people with the possible exception of Tibetan Monks who disdained communications as part of their vows. Not having been familiar with what had occurred only a short time before were offered the same opportunity. This time an entire country was wiped out and instead of getting elected based on the swindle, the government was almost boiled in oil. Albanian President, Sali Berisha naturally proclaimed his innocence and placed blame squarely upon the Mafia.

"Hey, the United States invented this Ponzi guy, maybe so suckers in Boston got taken before anybody knew better, but no one would be sucker enough to fall like that today like the Ruskys and Banians." "Bunky, did you ever here of Laurance S. Rockefeller, Pat Boone, or Treasury Secretary William E. Simon?"

Bennett, 57, is chief executive officer of the Foundation for New Era Philanthropy, a charity based in Radnor, Pennsylvania, which he began in 1989. A former drug-program administrator, who advised nonprofits on management and fund-raising techniques, Bennett became a popular and influential figure in Philadelphia’s philanthropic and cultural circles, thanks in part to the prayer breakfasts he often held. New Era soon became the answer to a lot of prayers: Bennett promised the organizations and individuals he approached a 100% return on their contributions within six months, thanks to anonymous donors who would match their gifts. New Era would only keep the interest earned during the search. It sounded too good to be true, especially since the mysterious benefactors were known only to Bennett. But when he delivered on his early promises, the news spread and investment in New Era increased exponentially; last year it rivaled the Rockefeller Foundation in its largesse (total: $100 million). Cathryn Coate, executive director of the Greater Philadelphia Cultural Alliance, says; ‘The world on the street was that Bennett was a super credible man, impeccable. You hear things like, ‘Oh, I’ve known Bennett for 15 years.’ It’s not like a bunch of quick-fix guys duped a bunch of bozos.’

Bennett was only doing what Charles Ponzi did in Boston back in 1919, paying back one wave of investors with money he received from ensuing waves. Like Ponzi, Bennett was something of a civic hero for a while, and like Ponzi, he was careful not to draw attention to himself with a flamboyant life-style.

Listed among New Era’s creditors were Rockefeller ($11.4 million), Simon ($6.5 million) and Boone, although the largest individual loser was the Rev. Glenn Blossom of Dresher, Pennsylvania ($27.4 million), who was using the funds to establish a seminary. All in all, New Era claimed $5551 million in liabilities against just $80 million in assets.

Bennett’s secret was that he was able to marry two powerful but seemingly contradictory human instincts: greed and charity. Those who threw in with New Era were so anxious to give, and to get, that they overlooked the obvious. But the greed and charity have met before. Charles Ponzi’s biggest extravagance was a $100,000 donation he made to an orphanage." (153)

 

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