Charles ponzi pyramid. Classic ponzi scheme. What is a financial pyramid

"Ponzi scheme" is the most common name for a pyramid scheme, which it received in honor of a real person. In 1920, Charles Ponzi created a scheme that allowed him to deprive thousands of people of their hard-earned savings.

Who is Charles Ponzi?

An Italian immigrant born in Lugo in 1882, Charles arrived in America almost bankrupt in 1903. For the next 15 years, he was a laborer and even went to jail for theft and falsification. In 1919, the charismatic Italian set up a business in Boston, offering investors the exchange of postal coupons and other securities. To attract investors, Ponzi issued IOUs in which his company pledged to pay 50% of profits in 90 days. Unable to cope with the financial burden, Ponzi began to pay the promised profit from the investments of new investors. After a preliminary journalistic investigation, the company's accounts were frozen and the scheme collapsed in 1920. The founder of the financial pyramid was arrested and later deported to Italy.

Despite the fact that the financial pyramid is called a "Ponzi scheme", the Italian was not the only and not even its first founder. In 1899 in New York, William Miller received money from investors in the amount of one million dollars, promising them an incredible return in excess of 500%.

What is a financial pyramid?

The "Ponzi scheme" works according to the rule "steal from Vanya to pay Petya." In each financial pyramid, the first investors receive the promised income from subsequent financial investments. As a rule, the source of income is disguised as a commercial or investment activity. One of the most infamous pyramid schemes is that of Wall Street financier Bernard Madoff, who masterminded the biggest scam in history, costing investors $65 billion.

The builders of financial pyramids have existed for more than one century. The founder of the first of them is Charles Ponzi, whose name this invention is solemnly named. It's funny, but if at least one of the pyramid builders took care of simple mathematics, he would understand that in order to pay 100% of the profit of the first 1000 investors, it is necessary to receive new investments from 2000 other investors. The next stage requires 3,000 investors to raise funds from 6,000 new investors. Next, you need to increase the number of investors to 18,000 in order to pay off the requirements of the first 9,000 investors. So, on the tenth round of the financial pyramid, 13,122,000 investors should theoretically make deposits. But the whole problem is that after the 15th orbit, the number of investors will become more than the entire population of the earth! Therefore, the Ponzi scheme is doomed to fail sooner or later. And what is written below only confirms this rule.

pyramid ponzi

The first pyramid scheme was built by the Italian Charles Ponzi in 1919 in the United States. As Charles himself told reporters, the idea of ​​​​creating his own pyramid came to him after he received an international return coupon by mail from one of the Spanish businessmen. The essence of the coupon circulation was as follows: the ratio of exchange rates is such that it was possible to profitably resell coupons in the United States that had previously been purchased in European countries.

Charles created "The Securities Exchange Company" or "SXC", where he invited several investors. They were supposed to finance the proposed scam, for which they received a promissory note. But at the same time, Charles promised them 100% of the profits that arose from transatlantic trade in a little more than 3 months. No similar payment by issuers of other securities could guarantee this.

Charles Ponzi

In fact, Ponzi, of course, did not buy coupons, because. they could only be exchanged for postage stamps. He simply gave to the old investors a part of the amounts brought by the new ones. By July 1920, Ponzi bills brought him up to 250 thousand dollars daily. The Boston Post regularly published lavishly paid commendations of Ponzi's activities.

Perhaps everything would have gone well if not for the Post Magazine journalists. These nosy noses calculated that 160 million coupons would need to be in circulation to cover the company's investment, when there were only 27,000.

The pyramid collapsed in the summer of 1920 due to a lawsuit by one of the investors named Daniels, who demanded 50% of the profits from the Ponzi company. Under the law of that time, the lawsuit allowed the freezing of Ponzi funds that were in bank accounts. On July 26, Ponzi announced a temporary suspension of deposits due to inspections. It was a mistake, the depositors ran in a crowd to take the money. On August 10, 1920, an investigation was initiated by federal agents. She established that SXC had not invested a dime at all, but only paid interest using proceeds from new investors. During the trial, some of the money was found. But depositors managed to return only 37% of the value of the bill. According to various sources, Ponzi received from 3 to 5 years in prison, his movable and immovable property was completely confiscated, and a fine of $ 250 thousand was imposed on him.

Madoff

Bernard Madoff is an ordinary American guy. In his youth, he loved to swim with friends, worked as a lifeguard on the beach and even as an irrigation equipment installer. He has never been a villain!

With about $5,000 saved up, he founded his own company: Madoff Investment Securities. After some time, his brother Peter, both sons and even nephews, were already listed in various positions in his business. The Madoff firm took part in the creation of the American stock exchange NASDAQ, which was engaged in the purchase and sale of securities in the interests of investors. She was one of the top 25 members of this exchange, a Wall Street pillar and an e-commerce pioneer. It was Bernard Madoff, by the way, who first computerized the entire process in his company.

Madoff Investment Securities was considered among the US investment funds one of the most profitable and reliable. He brought about 12-13% per annum to his investors. On the sidelines, there was, of course, gossip that Madoff's success was ensured by access to insider information: too many banks, hedge funds and charities were his clients. However, while everything was fine, no one really cared about it. And it was not true, as it turned out later.

2008 was a disaster year. Not only did the global financial crisis hit investors hard, and they wanted to withdraw part of their funds from Madoff, but both sons of the tycoon behaved like the last cowards and pawned dad with their heads: having received “repentance” from him, they took it on a silver platter his authorities.

Well, if without lyrics, then for 13 years of its activity, the company Madoff Investment Securities, as the investigation later found out, did not make a single transaction on the stock exchange. None! She paid all interest to previous investors at the expense of newcomers. When investors withdrew $7 billion in December 2018, the pyramid collapsed like a house of cards.

During the investigation, Bernard confessed to 11 counts and mercifully received 150 years in prison. One of Bernard's sons committed suicide while the investigation was ongoing. As well as at least one other of the investors who suffered losses.

During his speech, Madoff said that he himself no longer knows how it happened. At first everything seemed like a game, and then the snowball grew so much that there was no way to stop it.

Data. The Madoff Pyramid is the largest in history. As a result of its collapse, about 3 million people and several hundred financial institutions in the United States, France, Spain, the Netherlands, Italy and Switzerland suffered. Here are the biggest losses:

• Fairfield Sentry Ltd hedge fund - $7.3 billion.
• Kingate Global Fund Ltd - $2.8 billion.
• "Tremont Holdings Inc's Rye Investment Management" - about $3 billion.
• Banking group "Banco Santander" (Spain) - 3.1 billion dollars.
• HSBC Bank - $1 billion.
• Royal Bank of Scotland - $600 million.
• BNP Paribas Bank (France) - $460 million.
• Boston Charitable Foundation "Robert I. Lappin Charitable Foundation" - complete bankruptcy.
• Bank of South Korea - $63 million.

MMM

Another good guy who destroyed the world is Sergey Mavrodi (and Co.).

Coming from a family of an installer and an economist, he took all the best from his parents: he perfectly knew how to count in his favor and wonderfully “mount” high-rise financial objects - pyramids.

It must be said that from the very beginning fate led him to the idea that it was necessary to live “bolder, more fun, more inventive”, rewarding him with a double heart defect at birth. The doctors predicted his death in the cradle, but Sergei deceived their expectations.

In 1989, he organized the Joint Stock Company MMM. As stated in official sources, the name is an abbreviation of the first letters of the names of the three founders of the business: Sergei Mavrodi, Vyacheslav Mavrodi and Olga Melnikova. For five years, the company carried out only financial and trading activities: it resold computers and other office equipment imported into the country.

And only 1994 is officially considered the year of the creation of a financial pyramid, in which almost 15 million depositors participated. MMM issued 991,000 shares at a price of 1,000 rubles apiece, and since February they have gone on sale. At the same time, the firm introduced two-sided quotations with a margin for buying and selling. This led to a rapid spread, as the shares were traded on the principle: "today is always more expensive than yesterday."

A few months later, the company's management tried to register a second prospectus for the issue of securities already for a billion shares. However, the Ministry of Finance of the Russian Federation did not issue a permit. And then Mavrodi had a brilliant idea in its simplicity: he printed and issued “MMM tickets”, which were not securities, but formally equaled one hundredth of the share price. Outwardly, they resembled a Soviet chervonets with Sergei instead of Lenin in the center.

Mavrodi replaced purchase and sale transactions with donation transactions. That is, the MMM ticket was not purchased, but was issued as a souvenir for a voluntary donation. In the opposite situation, Sergey himself donated money to the depositor.

From February to August 1994, ticket prices increased 127 times, and the number of depositors reached 15 million people. According to the memoirs of former Deputy Prime Minister Alexander Shokhin, at government meetings, Chernomyrdin "swearing at the security forces, demanding at least something to be done, until everything burst."

Payments of money continued until July 27, after which Sergei Mavrodi, by his decree of July 29, announced a decrease in the value of shares by 127 times, to a thousand rubles. At the same time, it was stated that prices would now rise twice as fast, increasing four times every month. On August 4, 1994, Mavrodi was arrested for tax evasion. His office was closed, a search was made and several bags of money were found, or rather, 4 billion rubles or 690.6 thousand dollars at the August 1994 exchange rate. That's the whole story. Further - crowds of the deceived investors and statements of the head of a MMM that everything "stole" the state. 50 people committed suicide. No one could return the money - legal subtleties prevented.

Unlike America, our pyramid builder was not put behind bars. On the contrary, he became a member of the State Duma! And even made attempts to run for president. The first pyramid was followed by the second and third, as well as similar projects on the Internet. Mavrodi plans to run for president of Russia in 2018. Well, I think he has a chance.

L&G K.K.

On February 5, 2009, the world was shocked by unexpected news from Japan. The head of the Japanese investment company L & G was arrested that day on suspicion of creating a financial pyramid, whose investors, according to preliminary estimates, lost from 1.4 to 2.2 billion dollars.

Arrested was 75-year-old Kazutsugi Nami (Kazutsugi Nami), who at that time headed the board of directors of the Tokyo company L&G K.K., and declared himself bankrupt. This company, according to The Japan Times, promised to pay investors every three months a 9 percent dividend for every million yen invested, in other words, about 40% per annum! L&G K.K. also issued its own electronic money, called Enten, which depositors received in exchange for the funds deposited in its accounts.

Kazutsugi Nami

According to Jiji Press, 37,000 investors have invested in L&G K.K. about 126 billion yen (US$1.4 billion). The Japan Times, based on data from Kyodo News, estimated L&G K.K. funds of more than 200 billion yen (2.24 billion US dollars).

L&G K.K. became the 3rd largest financial pyramid in the world and the first in the history of Japan. Until that time, the case of Toyota Shoji, which operated in the 1980s, was considered the largest fraud in the Land of the Rising Sun. She raised funds from elderly Japanese by promising them investments in gold.

As a result of the investigation, in 2010, Kazutsugi Nami was sentenced to 18 years in prison.

Stanford Financial Group

On February 17, 2009, immediately after the start of the financial crisis, another (except Madoff) largest pyramid scheme in American history collapsed (not without the help of journalists and state law enforcement agencies) - the Stanford Financial Group.

58-year-old Allen Stanford, a famous financier and philanthropist, sponsor of professional sports, was the head of the broker-dealer consulting company Stanford Group Company, located in the offshore zones of Antigua and Barbuda. In addition, he controlled the Stanford International Bank, whose clients were more than 30 thousand people. Assets under management of the financial institution were valued at $50 billion. Stanford also owned the management company Stanford Capital Management. All three organizations were part of the SFG.

Allen Stanford

SFG services were used by private and institutional investors and companies from 136 countries of the world. In January 2009, financial analyst Alex Dalmady published an article in the Venezuelan economic journal VenEconomia with the catchy title El Pato, in which he attempted to "figure out" a financial institution similar to the one run by Bernard Madoff, only that exposed by the authorities.

Alex Dalmadi chose his company for three reasons: it offered high interest rates to clients, it was run by a small group of people, and it had such a good reputation that no regulator would check it. And so, by an unfortunate accident for Stanford, Dalmadi chose Stanford International Bank.

The interest rate on deposits at Stanford bank was 3 percentage points higher than the maximum rate at US banks and amounted to 7.5 percent per annum. The organization was run by the billionaire himself, his classmate James Davis, Stanford's father and neighbor, whose business experience was limited to the production and trade of meat, as well as the sale of used cars.

Alex's article did not go unnoticed. A month after the publication of the activities of SFG, several American departments became interested almost simultaneously: the US Securities and Exchange Commission (SEC), the Federal Bureau of Investigation (FBI), the Florida Financial Regulatory Commission (FOFR) and the Financial Market Regulation Commission (FIRA).

Since the beginning of the check, all bank accounts have been frozen. Panic ensued among depositors who wanted but could not get their money back. Actually, even if the government had given such permission, the financial resources in the accounts simply would not have been in the required amount.

According to the SEC, Stanford orchestrated the largest fraudulent investment scheme in which SFG clients lost about $8 billion. The SEC does not disclose most of the details of the accusation, but it is known that the commission accused Stanford and his assistants of selling certificates of deposit and other investment instruments to clients, promising high returns on them. At the same time, certificates of deposit did not have the necessary insurance from the US Federal Deposit Insurance Bureau.

Ponzi scheme - English Ponzi scheme, is an investment scheme that provides income to earlier investors with funds received from later investors. It may look legitimate at first, but a Ponzi scheme usually collapses as soon as the influx of new investors becomes insufficient to pay old ones. In some cases, the Ponzi Scheme is initially used without malicious intent, but with the aim of making a profit while fulfilling all obligations to investors. However, in most cases, the scheme is created for fraudulent purposes in order to bring profit to its organizers, who make little or no effort to make a profit for investors.

While the principle of the Ponzi scheme has been around for centuries, the modern name for this type of fraudulent investment activity is associated with a 20th century Italian immigrant named Charles Ponzi. After successfully immigrating to the US in 1903, Ponzi created an investment scheme based on arbitrage deals with reciprocal coupons. To finance this activity, he raised money from investors by offering them a high percentage. In the future, funds received from new investors were partially directed to pay income to earlier investors, and Ponzi spent part of them on its own needs.

There is a fairly common misconception that a Ponzi scheme is a variation of the classic pyramid scheme, but there are some fairly subtle differences between the two schemes. While both of these strategies are examples of illegal investment schemes that give the appearance of a serious organization promising high returns in a short period of time, there is a central figure in the Ponzi scheme who receives most of the money from fraud. In contrast, a pyramid scheme involves the creation of a network of investors who in turn actively recruit new investors and usually receive a percentage of any investment made as a result of their efforts. That is, in a classic financial pyramid, all cash flows are not tied to one person.

Moreover, the Ponzi scheme does not solely rely on new investors to keep running. As a companion strategy, the Ponzi scheme also involves returning to the scheme earlier investors who have already earned some income from their initial investment by persuading them to reinvest all of these funds. This strategy is not typical of most Ponzi schemes, which mainly rely on the continuous attraction of new or new investors to be able to continue to function.

Although most countries have laws that prohibit this practice and carry penalties such as fines and/or imprisonment, it is sometimes very difficult to identify a Ponzi scheme in its developmental stage. Over time, as the activity grows and expands, the functioning of the scheme inevitably becomes apparent and usually ends in lawsuits and bankruptcy. However, at this stage, most investors will receive significant losses, the probability of recovering which is extremely low.

A long time ago, at the turn of the 19th and 20th centuries (when Seryozha Mavrodi was not yet in the plans), a man like Charles Ponzi lived and worked (although he worked, this is perhaps loudly said). He was born in Italy, but, like many of his peers in those years, he emigrated to the United States.

It is unlikely that anyone would have thought then that this skinny, modestly dressed guy, descending from the side of the steamer to the territory of his new homeland with a couple of dollars in his pocket, in 17 years would spin such a scam here that in one year would make him one of the richest people in America.

background

It all started in Boston, in 1919, when Charles Ponzi borrowed $200 from one of his acquaintances and founded his own firm. The Securities Exchange Company. Officially, his company arbitrated the international reply coupon market.

The International Reply Coupon (IOC) is a paper issued by the Universal Postal Union and exchanged for postal payment marks (postage stamps) in countries that are members of this union.

Ponzi drew attention to the fact that the cost of these coupons varies significantly in different countries. He declared the IOC arbitration, attracting his first investors and subsequent investors, to whom he promised 500 dollars of income for every 1000 dollars invested within only three months (this is 200% of annual income without interest capitalization).

Everything seems to be logical and good, but there was one fact that Ponzi knew from the very beginning, and for obvious reasons was in no hurry to advertise. This fact is the information that the IOC can only be exchanged for postage stamps. That is, as a tool for generating income, in principle, they cannot be used.

International reply coupons that were in circulation in the 20s of the last century

His entire campaign was covered with a copper basin, when the person who borrowed him the first $ 200 to create a company (someone Daniels) demanded 50% of the income received by the company. And these incomes were already about $ 250,000 per day (this is the amount that more and more new investors brought every day).

Daniels' lawsuit allowed for the freezing of all funds in the company's accounts. In this regard, Charles Ponzi suspended the acceptance of deposits from the population (explaining this by a tax audit). This event was a turning point that led to the lightning collapse of the entire company. Depositors, concerned about the interest of the tax authorities in their borrower, began to demand their money en masse.

Naturally, there was not enough money for everyone, because their only source was new investors, and Charles Ponzi was arrested and sentenced to five years for fraud. All that was acquired by overwork in one year of this incredible rise, the deceived investors divided up until 1924.

After being released from prison after five years, Charles Ponzi began doing what he did best - financial fraud. This continued until 1934, when the patience of the US government ran out and Ponzi was deported to Italy.

Description of the Ponzi scheme

Since then, all financial fraud of this kind has been called a Ponzi scheme. The essence of such schemes is to attract customers under a solid, good-looking sign, the name of which, as a rule, does not say anything specific ( "International Offshore Investments", "Highly profitable investment projects" etc.). Clients are lured by promises of income that significantly exceeds bank interest.

The essence of the scheme is to attract as many participants as possible, paying profits to old participants solely from the contributions of new ones. Thus, the success of launching such a scheme depends solely on the growth rate of new depositors. If at the initial stage it is possible to set such a rhythm that the number of new investors covers the requirements for their deposits of old investors, then such a scheme is quite capable of unwinding to a serious scale. Naturally, in the end, for obvious reasons, this scheme collapses, but until that moment its founder can get hold of quite a decent fortune and hide in an unknown direction (in all likelihood, somewhere closer to the palm trees and the sea).

The inevitable destruction of a Ponzi scheme occurs when:

1. The founding father of the scheme leaves his offspring, taking with him all the money raised
2. The influx of new investors is decreasing, and the requirements for payments on previously invested; funds grow. There is not enough money for payments and panic begins when everyone wants to return their money at once;
3. Vigilant law enforcement authorities expose the cunning scammer while the scheme is still running (but this option is extremely rare and can not be considered).

MMM-2011? Better read how these pyramids began to be built at the beginning of the 20th century.

Charles Ponzi was born on March 3, 1882 in the city of Luga, located near Ravenna (in northern Italy). This Italian became famous for creating the famous "Ponzi scheme", a large financial pyramid, which was simply innumerable in Russia in the 90s of the last century.

True, the difference between the "Ponzi scheme" and the Russian pyramids is visible to the naked eye. The thing is that the Italian created a rather interesting story around his scam, and logically it looked very harmonious. For the time being, no one doubted that a Ponzi scheme could help you make big money in a short time.

"Ponzi Scheme"

In 1919 Charles Ponzi had a business idea. He decided that he could take up the production of an international magazine. Without thinking twice, Ponzi sends a letter to a Spanish company to learn more about cooperation in the magazine business.

In response, Charles received a letter containing international exchange coupons. At the post office, anyone could exchange these coupons for stamps and send the letter back.

But the most interesting thing was that in Spain one stamp could be obtained for 1 coupon, and as many as 6 in the USA. A similar situation was with other European countries. Ponzi quickly realized that he could play on this.

So, the essence of the "Ponzi scheme" is that he offered people to earn money by reselling stamps.

Luckily, the exchange rates contributed to this.

Alas, there was an obvious problem - there were not enough exchange coupons to satisfy the future demand for the services of the Ponzi company. But Charles himself did not think about it at all. After all, he had no intention of reselling. His goal was to create a simple financial pyramid, when the money of subsequent investors is paid to the previous ones.

So, in the same year, Charles Ponzi borrows $ 200 from a furniture maker Daniels. With this money, he rents an office, buys a table and two chairs (the legend says that he dined with the rest of the money). Then he registers a company, where he is the only employee at that time.

Ponzi's offer came as a surprise to many Boston residents - he offered to invest in his papers and receive 150% of the invested amount in just 45 days. Those. if a person invested 100 dollars, then after 45 days he could expect to receive 150 dollars, and after 90 - as much as 200.

At the same time, the situation with Ponzi was strikingly different from what was happening in Russia in the 90s. The Italian spoke in detail about how he was going to make money by initiating people into his idea with arbitration.

And people fell for it. Crowds went to Ponzi. Officials, policemen, ordinary citizens. Charles also fueled interest in his enterprise with custom articles in the press. And people fled for the simple reason that everyone (regardless of nationality) wants to be rich in no time. Ponzi became more and more famous. They believed him, the early investors actually got their money, and even such newspapers as The New York Times interviewed Ponzi. In general, things went well.

By the spring of 1920, the company employed 30 people, and 18-year-old Lucy Martelli was in charge of operational management. Ponzi himself moved away from direct participation in the company's activities. In addition, Charles Ponzi's depository account with the Hannover Trust Company was opened at this time. It was through her that almost all of Ponzi's money passed. Many believe that everyone at HTC knew about this scheme, and even helped turn it around.

In May 1920, Charles fulfills his dream - he acquires a huge house for 35 thousand dollars. The mansion (and this was it) had 22 rooms, and it was located in the banking district of the Lexington quarter. But it didn't take long to rejoice. After all, after a couple of months, the “Ponzi scheme” was revealed.

This happened in the middle of the summer of 1920. Then the "old friend" Ponzi Daniels, who watched the ascent of the Italian, sued him. He believed that Ponzi owed him half of all his profits, according to their agreement (yes, we are talking about a loan of that $ 400).

Under Massachusetts law, all Ponzi accounts were frozen for the duration of the trial (there is no such terrible law in this state now). As you understand, for a financial pyramid, freezing accounts is a severe blow!

But that was only the beginning. Soon the government started an audit of the Ponzi company. Charles, under pressure from the state's attorney, stopped accepting money. Savers poured in to Ponzi doors to collect their money. Someone managed to do it (according to some estimates, about 1000 people), but someone, alas, did not.

Be that as it may, but the audit revealed the fraudulent scheme of the Italian, who did not do what he planned (and could not, since there were not the proper number of coupons in circulation to cover the entire amount). The Ponzi company was an ordinary pyramid scheme where money was simply distributed. She had no profit. Money from new participants simply went to old investors.

The result of this whole adventure: of the 10 million dollars received by Charles Ponzi, he managed to return only 8 to investors. The rest, apparently, was spent on the salaries of his employees and himself. For his fraud, the Italian received only 5 years in prison.

After the release, Charles did not start a new life. He continued to create new machinations. True, in terms of their scale, they did not even reach one hundredth of the “Ponzi scheme”. All these were petty deeds, for which, in the end, in 1934 he was deported to his homeland.

Charles did not stay long in Italy. The world war was approaching, and he went to seek his fortune in Brazil. There he died in 1949. The capital of the great financial fraudster amounted to only 75 dollars, which was enough for the funeral alone.