If “N” is for Nutmeg and “O” is for Onion then

 “P” is for Ponzi


Ever since the “swindler” was created, there have been Ponzi schemes, so named for Charles Ponzi.  Mr. Ponzi was born (1882) in Italy, moved to Boston (1903) and died (1949) in Rio de Janerio, Argentina.  His biographical occupation is listed as “White Collar Criminal”.  Mr. Ponzi’s name is used to describe a multitude of swindlers using his three-dimensional investor pyramid to bilk an enormous amount of money out of his friends, family members and investors.  Mr. Ponzi was not the originator of this scheme, but his exceeded all that preceded him.

Some of them, okay a lot of them, even happened prior to Mr. Ponzi showing up on earth.

After Ponzi, many, many, many schemers tried their luck and expertise in creating the next biggest scheme.

The most current in the news is Bernard Madoff.  He a well-known penny-stock trader, chairman of the NASDAQ and founder of his own company, Bernard L. Madoff Investment Securities LLC.  While in this position Mr. Madoff created, was arrested for and is serving a 150 year prison sentence for the 2nd largest Ponzi scheme in history.  His scheme is estimated to have reached nearly $65 billion.  Note:  He was arrested based on a tip from his own sons.

Charles Ponzi and Bernard Madoff are only two of the thousands of scheme creators out there telling friends, family and any who would believe that they and they alone have a sure-fire investment scheme in which they will serve as the investor and will make them an unbelievable return on their investment.

It will look like this:

pyramid scheme

 To build a Ponzi scheme successfully, they rely on an escalating number of investors.

And end up like this:  Where the Ponzi scheme creator “leaves town” with the investors’ money just about the time that there is a downturn in the economy and the investors need to pull their money out of the plan.  Usually the schemer pays off a few of the investors in order to buy some additional time to get away with all of the investors’ money.  However, they usually get caught but your money is long gone or deeply hidden.

pyramid result

 Unraveling of a Ponzi scheme

When a Ponzi scheme is not stopped by the authorities, it sooner or later falls apart for one of the following reasons:

  • The promoter vanishes, taking all the remaining investment money (minus payouts to investors already made).
  • Since the scheme requires a continual stream of investments to fund higher returns, once investment slows down, the scheme collapses as the promoter starts having problems paying the promised returns (the higher the returns, the greater the risk of the Ponzi scheme collapsing). Such liquidity crises often trigger panics, as more people start asking for their money, similar to a bank run.
  • External market forces, such as a sharp decline in the economy (for example, the Madoff investment scandal during the market downturn of 2008), cause many investors to withdraw part or all of their funds.

 1 A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.


1 http://en.wikipedia.org/wiki/Ponzi_scheme





About Gary

I am retired, but not tired. I still want to be valuable to others. I know that others are valuable to me. After looking back on six decades, I have asked myself this question: “What do I believe?” My mind filled up. My heart started beating faster. My spirit soared. I post blogs to share what my mind is working on, what my heart believes would help others and, what my spirit is communicating to me. What do I believe, you ask? Decisions dictate your path In love, not hate In tolerance, not prejudice In health, not sickness In wealth, not poverty In kindness, rudeness In happiness, not sadness In encouragement, not discouragement In faith, not doubt In courage, not fear I have been and will be challenged in each one of these beliefs, but the biggest belief is to stay positive and not turn negative. This belief helps me maintain all of the others.

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