Ponzi scheme - Morningbull

Ponzi scheme
From Wikipedia, the free encyclopedia
1920 police mugshot of Charles Ponzi
A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high
returns ("profits") to investors out of the money paid in by subsequent investors, rather than
from net revenues generated by any real business. It is named after Charles Ponzi. [1] A Ponzi
scheme has similarities with a pyramid scheme though the two types of fraud are different.
It usually offers abnormally high short-term returns in order to entice new investors. The
perpetuation of the high returns that a Ponzi scheme advertises (and pays) requires an everincreasing
flow of money from investors in order to keep the scheme going.
The system is destined to collapse because there are little or no underlying earnings from the
money received by the promoter. However, the scheme is often interrupted by legal
authorities before it collapses, because a Ponzi scheme is suspected and/or because the
promoter is selling unregistered securities. As more investors become involved, the likelihood
of the scheme coming to the attention of authorities increases.
The scheme is named after Charles Ponzi, who became notorious for using the technique after
emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a
scheme, but his operation took in so much money that it was the first to become known
throughout the United States. His original scheme was in theory based on arbitraging
international reply coupons for postage stamps, but soon diverted later investors' money to
support payments to earlier investors and Ponzi's personal wealth. Today's schemes are often
considerably more sophisticated than Ponzi's, although the underlying formula is quite similar
and the principle behind every Ponzi scheme is to exploit investor naïveté.
Hypothetical example
Suppose an advertisement is placed promising extraordinary returns on an investment—for
example 20% for a 30 day contract. The precise mechanism for this incredible return can be
attributed to anything that sounds good but is not specific: "global currency arbitrage", "hedge

futures trading", "high-yield investment programs", "offshore investment", or something
similar.
With no proven track record for the investors, only a few investors are tempted, usually for
smaller sums. Sure enough, 30 days later the investor receives the original capital plus the
20% return. At this point, the investor will have more incentive to put in additional money
and, as word begins to spread, other investors grab the "opportunity" to participate. More and
more people invest, and see their investments return the promised large returns.
The reality of the scheme is that the "return" to the initial investors is being paid out of the
new, incoming investment money, not out of profits. No "global currency arbitrage", "hedge
futures trading" or "high yield investment program" is actually taking place. Instead, when
investor D puts in money, that money becomes available to pay out "profits" to investors A, B,
and C. When investors X, Y, and Z put in money, that money is available to pay "profits" to
investors A through W.
One reason that the scheme initially works so well is that early investors—those who actually
got paid the large returns—quite commonly reinvest their money in the scheme (it does, after
all, pay out much better than any alternative investment). Thus those running the scheme do
not actually have to pay out very much (net)—they simply have to send statements to
investors that show how much the investors have earned by keeping the money in what looks
like a great place to get a high return. They also try to minimize withdrawals by offering new
plans to investors, often where money is frozen for a longer period of time, for example 50%
return per month for one year. They then get new cash flows as investors are told they could
not transfer money from the first plan to the second.
The catch is that at some point one of three things will happen:
1. the promoters will vanish, taking all the investment money (less payouts) with them;
2. the scheme will collapse under its own weight, as investment slows and the promoters
start having problems paying out the promised returns. When the promoters start
having problems, the word spreads and more people start asking for their money,
similar to a bank run);
3. the scheme is exposed, because when legal authorities begin examining accounting
records of the so-called enterprise they find that many of the "assets" that should exist
do not.
What is and is not a Ponzi scheme
• A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying
as it does on a disbelief in financial reality, including the hope of an extremely high
rate of return. However, several characteristics distinguish pyramid schemes from
Ponzi schemes:
o In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with
all of them directly. In a pyramid scheme, those who recruit additional
participants benefit directly (in fact, failure to recruit typically means no
investment return).
o A Ponzi scheme claims to rely on some esoteric investment approach, insider
connections, etc., and often attracts well-to-do investors; pyramid schemes

explicitly claim that new money will be the source of payout for the initial
investments.
o A pyramid scheme is bound to collapse a lot faster, due to the necessity of
exponential increases in participants to sustain it. By contrast, Ponzi schemes
can survive simply by persuading most existing participants to "reinvest" their
money, with a relatively small number of new participants.
• A bubble. A bubble relies on suspension of disbelief and an expectation of large
profits, but it is not the same as a Ponzi scheme. A bubble involves ever-rising (and
unsustainable) prices in an open market (be that shares of a stock, housing prices, the
price of tulip bulbs, or anything else). As long as buyers are willing to pay everincreasing
prices, sellers can get out with a profit. And there doesn't need to be a
schemer behind a bubble. (In fact, a bubble can arise without any fraud at all - for
example, housing prices in a local market that rise sharply but eventually drop sharply
because of overbuilding.) Bubbles are often said to be based on "greater fool" theory.
Although, according to the Austrian Business Cycle Theory, bubbles are caused by
expanding the money supply beyond what genuine capital investment supports, and in
this case would qualify as a Ponzi scheme, with expanded credit taking the place of an
expanded pool of investors.
• Robbing Peter to pay Paul. When debts are due and the money to pay them is lacking,
whether because of bad luck or deliberate theft, debtors often make their payments by
borrowing or stealing from other monies they have. It does not follow that this is a
Ponzi scheme, because from the basic facts set out there is no indication that the
lenders were promised unrealistically high rates of return via claims of unusual
financial investments. Nor (from these basic facts) is there any indication that the
borrower (banker) is progressively increasing the amount of borrowing ("investing")
to cover payments to initial investors (as, again, Ponzi was not the first to do).
• A pension fund can share some of the characteristics of a Ponzi scheme in that, except
during the final period of the fund's life-span, the outgoing cash used in any month to
pay pensions is usually taken from the incoming contributions of the active members
of the pension scheme. In a year of poor equity returns such as 2008, a pension fund
can often perform worse for its members than a Ponzi scheme.
Notable Ponzi schemes
The eponymous scheme was orchestrated by Charles Ponzi, who went from anonymity to
being a well-known Boston millionaire in six months using such a scheme in 1920. Profits
were supposed to come from exchanging international postal reply coupons. He promised
50% interest (return) on investments in 45 days or “double your money” in 90 days. About
40,000 people invested about $15 million all together; in the end, only a third of that money
was returned to them.
Extremely high-volume schemes
Many Ponzi schemes in unregulated markets have bankrupted hundreds or thousands of
people when they finally run dry.
19th century

1980s
1990s
• Before Ponzi, in 1899 William "520 Percent" Miller opened for business as the
"Franklin Syndicate" in Brooklyn, New York. Miller promised 10% a week interest
and exploited some of the main themes of Ponzi schemes such as customers
reinvesting the interest they made. He defrauded buyers out of $1 million and was
sentenced to jail for 10 years. After he was pardoned, he opened a grocery store on
Long Island. During the Ponzi investigation, Miller was interviewed by the Boston
Post to compare his scheme to Ponzi's — the interviewer found them remarkably
similar, but Ponzi's became more famous for taking in seven times as much money. [2]
• Between 1970 and 1984 in Portugal, a woman known as Dona Branca maintained a
scheme that paid 10% monthly interest. In 1988 she was sentenced to 10 years in
prison. She always claimed that she was only trying to help the poor, but in her trial it
was proven that she had received the equivalent of 85 million euros. [3][4]
• In January 1984 Adriaan Nieuwoudt started a scheme with an apparent product in
South Africa. Subscribers to the scheme were sent an "activator", that was used to
grow "cultures" in milk, which was then sent back to the Kubus Kwekery for about
30% return on the money paid for the "activator". The Cape Supreme Court held that
the kubus scheme was an illegal lottery. [5]
• Sixteen hundred investors in Diamond Mortgage Company and A.J. Obie, two firms
with the same managers, lost approximately $50 million in what the Michigan Court
of Appeals described as "the largest reported 'Ponzi' scheme in the history of the
state." It led to the passage in 1987 of the MBLSA (Mortgage Brokers, Lenders, and
Servicers Act)." [6][7]
• In the 1980s in San Diego, California, J. David & Company, an alleged currency and
commodity trading and investing operation named after its founder, J. David
Dominelli, a withdrawn and shy (and thus, presumably, "genius") currency and
commodity trader, was revealed to be a Ponzi scheme which took in $200 million and
returned $120 million to investors, leaving a net loss of $80 million. The scheme
touched all levels of upper class business and professional life in San Diego and
environs, and involved the Mayor of Del Mar, California, a cozy upscale beach town
just north of La Jolla, who was J. David's assistant and live-in companion, and others,
including the prominent New York law firm Rogers & Wells (now Clifford Chance),
which had advised J. David (through a rogue partner) and others. [8][9][10][11][12] When
the fall came, J. David briefly escaped to Montserrat in the Caribbean, but was
returned ultimately to plead guilty to federal charges and receive 20 years' federal
imprisonment. [13]
• In Romania, between 1991 and 1994, the Caritas scheme run by the "Caritas"
company of Cluj-Napoca, owned by Ioan Stoica promised eight times the money
invested in six months. It attracted 400,000 depositors from all over the country who
invested 1,257 billion lei (about a billion USD) before it finally went bankrupt on 14
August 1994, having a debt of 450 million USD. The owner, Ioan Stoica was
sentenced in 1995 by the Cluj Court to a total of seven years in prison for fraud, but he
appealed and it was reduced to two years; then he went on to the Supreme Court of
Justice and the sentence was finally reduced to one year and a half.

• MMM was a Russian company that existed in the 1990s. It involved at least two
million people and collected as much as $1.5 billion before its collapse. Its founder
was sentenced to 4.5 years in prison in 2003.
• In late 1994, the European Kings Club collapsed, with ensuing losses of about $1.1
billion. This scam was led by Damara Bertges and Hans Günther Spachtholz. In the
Swiss cantons Uri and Glarus, it was estimated that about one adult in ten invested
into the EKC. The scam involved buying "letters" valued at 1,400 Swiss francs that
entitled buyers to receive 12 monthly payments of 200 Swiss francs. The organisation
was based in Gelnhausen, Germany. [14]
• In May 1995, Pennsylvania's attorney general moved to freeze the assets of the
Foundation for New Era Philanthropy and its chairman, John G. Bennett, Jr. The
organization had raised over $500 million from 1,100 donors. Participants, including
the Red Cross, had believed they were participating in a matching-gifts program
through New Era but, in fact, it was really a Ponzi scheme. Losses amounted to $135
million.
• In early 1996, the SEC filed a civil action against Bennett Funding Group, its chief
financial officer, Patrick R. Bennett, and other companies Bennett controlled, in
connection with a massive Ponzi scheme. The companies fraudulently raised hundreds
of millions of dollars, purportedly to purchase assignments of equipment leases and
promissory notes. [15]
• From 1993 until 1997 a church named Greater Ministries International in Tampa,
Florida, headed by Gerald Payne bilked over 18,000 people out of 500 million
dollars. [16] Payne and other church elders promised the church members double their
money back, citing Biblical scripture. However, nearly all the money was lost and
hidden away. Church leaders received prison sentences ranging from 13 to 27 years.
• In the mid-1990s, Albania was transitioning into a liberalized market economy after
years under a State-controlled economy reinforced by the cult of personality involving
longtime Communist leader Enver Hoxha; the rudimentary financial system became
dominated by pyramid schemes, and government officials tacitly endorsed a series of
pyramid investment funds. Many Albanians, approximately two-thirds of the
population, invested in them. By 1997 the inevitable end came: Albanians, who had
lost $1.2 billion, took their protest to the streets where uncontainable rioting and
attacks on government infrastructure led to the toppling of the government and the
temporary existence of a stateless society. Although technically a Ponzi Scheme, the
Albanian scams were commonly referred to as Pyramid Schemes both popularly and
by the IMF. [17]
21st century
• In 2000, a Ponzi scheme perpetrated by Scientology minister Reed Slatkin came
unraveled when the U.S. Securities and Exchange Commission regulators became
aware that Slatkin was not a licensed investment adviser. Slatkin had raised some
$600 million from over 500 wealthy investors, mostly Hollywood celebrities. [citation
needed]
• In December 2005, in Los Angeles, California, Larry Toshio Osaki, who ran a Ponzi
scheme (of large purportion) and continued to offer bogus investments in accounts
receivable "factoring" after being ordered to cease and desist by a Federal judge, was
sentenced to 20 years in federal prison. In addition to the prison term, Judge Stephen
V. Wilson ordered Osaki to pay more than $145 million in restitution to victims.

• The Brothers was a large investment operation, eventually exposed as a Ponzi scheme,
in Costa Rica from the late 1980s until 2002. The fund was operated by brothers Luis
Enrique and Osvaldo Villalobos. Investigators determined that the scam took in at
least $400 million. Most of the clientele were American and Canadian retirees but
some Costa Ricans also invested the minimum $10,000. About 6,300 individuals
ultimately were involved. Interest rates were 3% per month, usually paid in cash, or
2.8% compounded. The ability to pay such high interest was attributed to Luis Enrique
Villalobos’ existing agricultural aviation business, investment in unspecified European
high yield funds, and loans to Coca Cola, among others. Osvaldo Villalobos’ role was
primarily to move money around a large number of shell companies and then pay
investors. In May 2007 Osvaldo Villalobos was sentenced to 18 years in prison for
fraud and illegal banking. Luis Enrique Villalobos remains a fugitive. [18]
• In May 2006, James Paul Lewis, Jr. was sentenced to 30 years in federal prison for
running a $311 million Ponzi scheme over a 20-year time period. He operated under
the name Financial Advisory Consultants from Lake Forest, California
[citation needed]
• In October 2006 in Malaysia, two prominent members of society and several others
were held for running an alleged scam, known as SwissCash or Swiss Mutual Fund
(1948). SwissCash offered returns of up to 300% within a 15-month investment period.
Currently, this HYIP investment is offered to citizens of Malaysia, Singapore, and
Indonesia. It claimed investors’ funds were channeled to business activities ranging
from oil exploration to shipping and agriculture in the Caribbean. The company claims
to be operating out of New York and incorporated in the Commonwealth of
Dominica. [19][20][21]
• On Friday 13 April 2007 a person named Sibt-e-Hassan Shah, aka "Double Shah," was
arrested by government officials in Wazirabad, a small town of Pakistan. [22] Sibt-e-
Hassan claimed to double investors' money within 30 days in the beginning of his
scheme, later extended to 90 days. He is suspected to have gathered very large
investments (approx US$ 1 Billion) in a very short time period.
• On June 27, 2007 former boy band mogul and notorious con artist Lou Pearlman was
indicted by a grand jury on several counts of fraud which is turning out to be one of
the largest and longest running United States Ponzi schemes ever. [citation needed] His
scheme lasted for over 20 years. The final total damage may rest somewhere near
$500 million dollars. [23] Pearlman's scam involved bilking investors out of their
savings with a fraudulent savings and loans program claiming it to be FDIC insured
though it was not. On March 4, 2008, Pearlman agreed to plead guilty to charges of
conspiracy, money laundering, and making false statements during a bankruptcy
proceeding, and to testify for the prosecution of several accomplices, according to law
enforcement officials. On May 21, 2008, Pearlman was sentenced to 300 months in
jail with the stipulation that he could cut one month off his sentence for every $1
million dollars he paid his investors back.
• On August 17, 2007, the Philippine National Bureau of Investigation filed syndicated
estafa cases against 27 officers and investors of FrancSwiss Investment, a "Ponzi"
pyramiding scam on the Internet. Charged were Michael Mansfield, chief financial
officer; Kurt Sandelman, risk management team leader; Rupert Benedict Da Vinco,
investment team leader; Julia Rodriguez, international banking team leader; Hector
Willem Sidberg, marketing and international affairs; and Fernando Munoz, customer
service leader; Roger Smith, the British chief operation officer of FS Investment in the
Asia-Pacific region; Bensy Fong, the Singaporean system operation officer; Raymond
Chua, Singaporean marketing officer; a certain Michelle and Mike, Filipino secretaries
and collectors of money from investors; 16 investors, including arrested suspect

Eleazard Castillo, 26, a native of Cabuyao, Ilocos Sur, allegedly one of the financial
advisers of FrancSwiss Investment. 41 investors claimed they lost a total of $75,000 to
the investment scheme. FrancSwiss deceived investors in the Philippines of 1 billion
($50 million). [24]
• In Slovakia, the so called non-banking institutions collected appx. 25 bil. SKK ($1
billion) from 300-350 thousand people. There were around 30 of these companies,
such as BMG Invest and Horizont Slovakia, Drukos, AGW, 1. dôchodková,
Sporoinvest and SaS. Mr. Fruni, the owner and director of both BMG and Horizont
will sit 11,5 years in prison, according to the Court's judgement from April 2008.
• In the third and the biggest Philippines Ponzi scam (involving $150 million and $250
million), criminal charges, based on suit filed by 21,000 complainants were filed on
June, 2008, with the Department of Justice, against against Performance Investments
Products Corp (PIPC) officers and incorporators for violation of the Securities
Regulation Code (SRC), versus: Singaporean national Michael H.K. Liew, PIPC
president; Cristina Gonzalez-Tuason, general manager, and other officers and agents -
Ma. Cristina Bautista-Jurado, Barbara Garcia, Anthony Kierulf, Eugene Go, Michael
Melchor Nubla, Ma. Pamela Morris, Luis Aragon, Renato Sarmiento Jr., Victor Jose
Vergel de Dios, Nicoline Amoranto Mendoza, Jose Tengco III, Oudine Santos and
Herley Jesuitas. [25]
• Minnesota, USA - allegedly orchestrated by Minneapolis, Minnesota celebrity
businessman Tom Petters. On December 1, 2008 Tom Petters was charged by the
Federal government as the mastermind behind a $3.5 billion Ponzi scheme that bilked
investors over a 13-year period. Tom Petters lived an extravagant lifestyle supported
by his Ponzi scheme. Petters faces 20 counts of wire and mail fraud, conspiracy and
money laundering for the alleged investment scheme that ran from 1995 through
September of 2008. He is expected to plead not-guilty, but his co-conspirators in the
Ponzi scheme, Deanna Coleman, Robert White, Michael Catain and Larry Reynolds,
have all pled guilty. The Petters Ponzi scheme came to an end when Petters's top coconspirator
Deanna Coleman turned government informant and wore a wire. Petters
and the others were planning to flee to countries without extradition agreements with
the U.S. Deanna Coleman and Michael Catain had properties in Costa Rica. [26][27]
• Jordan : Many traders were arrested on October / November 2008 for multi Millions
Ponzi Scams.
[citation needed]
• November 2008: The Kyiv Post reported on November 26th 2008 that American
citizen Robert Fletcher (Robert T. Fletcher III; aka "Rob") was arrested by the the
SBU (Ukraine State Police) after being accused by Ukrainian investors of running a
ponzi scheme and associated pyramid scam netting $20 Million USD (Kyiv Post also
reports that some estimates are as high as $150M USD).
• In December 2008, former chairman of the NASDAQ Stock Market, Bernard Madoff,
was arrested and charged with a single count of securities fraud, but one which "may
rank among the biggest frauds ever" totaling "$50 billion of fraudulent losses"
becoming the biggest Ponzi scam in history. [28]
Other notable schemes
Other notable (but involving smaller amounts of money) Ponzi schemes include:
• Sarah Howe, who in 1880 opened up a "Ladies Deposit" in Boston promising eight
percent interest, although she had no method of making profits. This unique scheme
was billed as "for women only". Howe disappeared with the money from her scam. [2]

• The novel Chance by Joseph Conrad depicted a Ponzi scheme in 1914 before Ponzi
himself had hit the scene. Conrad's scammer "de Barral" offered ten percent interest
on deposits in his operation "without system, plan, foresight, or judgement".
• On March 22, 2000, four people were indicted in the Northern District of Ohio, on
charges including conspiracy to commit and committing mail and wire fraud. A
company with which the defendants were affiliated allegedly collected more than $26
million from "investors" without selling any product or service, and paid older
investors with the proceeds of the money collected from the newer investors. [29]
• In late 2003, a scheme by Bill Hickman, Sr., and his son, Bill Jr., was shut down. He
had been selling unregistered securities that promised yields of up to 20 percent; more
than $8 million was defrauded from dozens of residents of Pottawatomie County,
Oklahoma, along with investors from as far away as California. [30] Hickman was
sentenced to 8 years in state prison.
• In December 2004, Mark Drucker pleaded guilty to a Ponzi scheme in which he told
investors that he would use their funds to buy and sell securities through a brokerage
account. He claimed that he was making significant profits on his day trades and that
he had opportunities to invest in select IPOs that were likely to turn a substantial profit
in a short period of time. He promised guaranteed returns of up to fifty (50%) percent
in 90 days or less. In less than two years of trading, Drucker actually lost more than
$850,000 in day trading and had no special access to IPOs. He paid out more than $3.6
million to investors while taking in $6.3 million. [31][32]
• In June 2005, in Los Angeles, California, John C. Jeffers was sentenced to 168 months
(14 years) in federal prison and ordered to pay $26 million in restitution to more than
80 victims. Jeffers and his confederate John Minderhout ran what they said was a
high-yield investment program they called the "Short Term Financing Transaction".
The funds were collected from investors around the world from 1996 through 2000.
Some investors were told that proceeds would be used to finance humanitarian
projects around the globe, such as low-cost housing for the poor in developing nations.
Jeffers sent letters to some victims that falsely claimed the program had been licensed
by the Federal Reserve and the program had a relationship with the International
Monetary Fund and the United States Treasury. Jeffers and Minderhout promised
investors profits of up to 4,000 percent. Most of the money collected in the scheme
went to Jeffers to pay commissions to salespeople, to make payments to investors to
keep the scheme going, and to pay his own personal expenses. [33]
• In February 2006, Edmundo Rubi pleaded guilty to bilking hundreds of middle and
low-income investors out of more than $24 million between 1999 and 2001, when he
fled the U.S. after becoming aware that he was under suspicion. The investors in the
scheme, called “Knight Express”, were told that their funds would be used to purchase
and resell Federal Reserve notes, and were promised a six percent monthly return.
Most of those bilked were part of the Filipino community in San Diego. [34]
• In April 2006, Hank Hankley and Snyder Nguyen fled from China after the bilkery of
more than $3 million from investors in the Shanghai Stock Exchange. They remain at
large. Hu Jintao and in conjunction with the Falun Gong movement have issued a
$500 thousand reward for their capture.

• On May 10, 2006, Spanish police arrested nine people associated with Forum
Filatelico and Afinsa Bienes Tangibles in an apparent Ponzi scheme that affected
250,000 investors from 1998 to 2001. Investors were promised huge returns from
investments in a stamp fund. [35]
• 12DailyPro was a version of what is commonly known as a "paid autosurf" program
where "investors" deposited money and received an extremely high profit (44%)
within a short period (12 days). Charis Johnson created what authorities considered
one of the largest modern-day versions of the Ponzi scheme. She accumulated a total
of over US$1.9 million from the program. More than 300,000 people joined over the
course of eight months, spending over $500 million. [36] When a federal investigation
of 12DailyPro took place, its main payment processor, Stormpay, froze all funds
related to it. Stormpay has since refused to return any of these funds. On February 24,
2006, the United States Securities and Exchange Commission (SEC) ordered
12DailyPro and its parent company to cease and desist all operations. On February 28,
a Los Angeles judge ordered all company assets and records to be turned over to an
appointed receiver for investigation. Charis F. Johnson now faces criminal and civil
suits from both local and federal agencies.
• On August 31, 2007, the Securities and Exchange Commission ("SEC") filed an
emergency action against James Blackman Roberts ("Roberts"), FOMAC International,
Inc. ("FOMAC"), and Consultores Las Tres Americas S.A. ("Consultores LTA") to
halt an ongoing Ponzi scheme and freeze assets for the benefit of defrauded investors.
The complaint filed by the SEC alleges that, since 2002, the defendants have raised at
least $50 million in principal from approximately 450 investors located primarily in
the U.S. and Costa Rica. The complaint further alleges that as early as 2005, the
defendants experienced significant losses while trading investor funds in the Forex
markets, misappropriated at least $3 million, and then used new investor money to pay
returns and principal to existing investors. As a result, the complaint alleges, the
defendants misrepresented to investors that these Ponzi payments were actually
returns from their Forex trading. [37] It should be noted that the above-mentioned
allegations have yet to be proved before a Court of law, and that the US and Costa
Rican law considers any person innocent until proven guilty.
• On September 20, 2007, a complaint was filed in Federal District Court in Manhattan,
accusing political fund-raiser Norman Hsu of operating a Ponzi scheme. Hsu attracted
investments by claiming to be running a legitimate business involving the importation
of clothes from China, and is reported to have cheated investors out of at least $60
million. [38]
• In May 2007, the Florida Office of Financial Regulation and the Florida Department
of Law Enforcement announced they were investigating local Bradenton investment
broker Michael O. Traynor, 56, and his son, Matthew O. Traynor, 28, on complaints
from at least a dozen residents in Sarasota and Manatee counties alleging that the
Traynors defrauded clients out of approximately $8 million in investor funds. On
November 16, 2007, Michael Traynor, who had found many of his clients though his
church social circles, was arrested on a first degree felony grand theft charge that he
had stolen $6.5 million from his investors. It is believed Traynor stole funds from at
least 34 clients in Sarasota, Manatee and Hillsborough counties between 2001 and
February 2007. At least ten investors filed complaints with state regulators, and many

had unfruitful meetings with Traynor to have money returned, including those who
met him through Bradenton Christian Reformed Church and Bradenton Christian
School. Representatives of the Florida Department of Law Enforcement called
Traynor's scam a "classic Ponzi-scheme". Traynor had sold investments in Manatee
County for InterSecurities Inc., also known as ISI, since 1997, and was the company's
Bradenton branch manager before he was fired in February 2007.
• Michael Eugene Kelly (born October 6, 1949) is the owner of Yucatan Resorts, Resort
Holdings International, Puerto Cancun and Avanti Motor Corporation. He is accused
by the FBI and the United States Attorney's Office of operating a $428 million Ponzi
scheme that defrauded over a thousand elderly and senior citizens of their retirement
money. Kelly was arrested in his hospital room at the Mayo Clinic on December 22,
2006 just before he was about to be discharged and return to one of his homes in
Cancún, Mexico. In pretrial services, Kelly claimed that he makes $55,000 a year and
only has $48,000 in assets. In spite of his claim of meager earnings, Kelly offered a
private jet, four yachts and race track as collateral at his detention hearing. He was
denied bail and is currently in the Metropolitan Correctional Center, Chicago waiting
for arraignment. Since his arrest, Kelly has attempted to avoid indictment by arranging
a plea agreement that includes paying restitution to the victims.
• In 2008, many Ponzi schemes are flourishing in Colombia [39] . Those schemes for
which complaints are filed are the only ones that the Colombian police have been able
to stop and have their organizers detained. Curiously, an organizer of one of these
schemes was in fact a policeman. There are many Ponzi schemes going on right now,
and even though they are quite popular and, as of February 2008, at least one of the
organizers publicly admitted operating what can be defined as a Ponzi scheme,
authorities haven't been able to act legally against the people behind organizations
such as People Winner, DRFE (Dinero Rápido, Fácil y Efectivo - Quick, Easy and
Effective Money) and DMG which have strong support from individuals who have
already got their profits. The most prominent of these organizations is DMG, which
has a strong support from their investors, since it hasn't faced any complaint from their
customers in three years. However, since DMG's mechanisms are obscure and haven't
been revealed by its founder, David Murcia Guzmán; and rumours and accusations
linking DMG with Chupeta, a well-known drug lord, Colombian government closed
DMG on November 17th [40] . Throughout this exchange of accusations, Murcia
Guzmán has accused Grupo Aval and its owner, Luis Carlos Sarmiento, of making
fake pyramids like DRFE and pushing Colombian government and media to
criminalize DMG [41] . Murcia Guzmán is now detained [42] .
• Matteo Quintavalle is - according to the source quoted in the following footnote - an
Italian scammer, who cheated investors with more than US$10 million by promising
very high yield in Costa Rican real estates and hotels. After being involved in a serie
of frauds in Italy, Mr. Quintavalle grabbed money in San Francisco,California and
went to Costa Rica and bought hotels, resorts and even soccer players ' contracts and
gave false contracts to the original investors let they think they were owning those
properties in Costa Rica. Mr. Quintavalle is currently under arrest awaiting trial.[33
• Currently (May 2008) the Finnish National Bureau of Investigation is investigating a
long running scheme where possibly over 10,000 people could have lost up to €100
million investing in WinCapita's WinClub "investment club", supposedly a currency

trading scheme. Investigators now say they have found no evidence that WinCapita
ever engaged in any legitimate currency trading at all. [43]
• On May 7, 2008, The U.S. SEC filed suit against The Little Shell
Goldquestinternational (site currently down due to court order) as an alleged Ponzi
scheme [44] . The company claimed an 87.5% YoY return on an investment by trading
on the Foreign Exchange. According to SEC filing, as much as 80% of an investors'
investment would be paid out as commissions. On May 20, 2008, U.S. District Judge
Lloyd George authorized the use of necessary force to help a receiver obtain property
and records of GoldQuest [45] . Cook receiver services was appointed by the court in
order to
take such action that is necessary and appropriate to preserve and take control of and to
prevent the dissipation, concealment, or disposition of any assets of, or managed by, Gold
Quest and its affiliates. [46]
.
• On May 27, 2008, the Philippine National Bureau of Investigation (NBI) filed a case
of syndicated estafa based on complaint of Korina Sanchez and 15 other investors,
against the officials of Power Generation Trading Corporation regarding a
multimillion-peso investment scam by using the “Ponzi” scheme. Those indicted were:
Chief executive officer Rudy Enrique Olalia, treasurer Lourdes Olalia, corporate
secretary Marie Frances Yuvienco and 21 others, including Bernie De Venecia. [47][48]
• In September 2008 a one-time English teacher called Sakvithi Ranasinghe vanished
with around $9 million in depositors' money in Sri Lanka.
See also
• Stock Market
• Finance
• Multi-level marketing
• Holiday Magic
• High-yield investment program
• Investment
• Bucket shop
• List of finance topics
• Pyramid scheme
• Lottery
• Get-rich-quick schemes
• Matrix scheme
• Reed Slatkin
• Double Shah
• Federal Reserve
References
1. ^ "Ponzi Schemes" , which also describes the original Ponzi scheme in detail)

2. ^ a b Zuckoff, Mitchell. Ponzi's Scheme: The True Story of a Financial Legend.
Random House: New York, 2005. (ISBN 1-4000-6039-7)
3. ^ Visão, Apanhados pelos selos, 18 May 2006.
4. ^ CanalSurWeb, Banqueros del pueblo, 12 May 2006
5. ^ Legal City, Scams and other money-making schemes.
6. ^ "People v. Greenberg,"176 Mich App 296, 299; 439 NW2nd 336(1989) cited in U.S.
Supreme Court, 05-1342, Watters vs Wachovia Bank, page 6. At [1] American Bar
Association site ABAnet.com, Retrieved August 29, 2007
7. ^ [2] Keyfetz, Lisa, "The home ownership and equity protection act of 1994:
extending liability for predatory subprime loans to secondary mortgage market
participants." Loyola Consumer Law Review, Vol 18:2, pages 165-166. Retrieved
August 29, 2007
8. ^ "Rogers & Wells Settles Suit", New York Times (1986-03-31).
9. ^ "J. David Case: Damages Set", New York Times (1987-08-28).
10. ^ http://www.sandiegohistory.org/journal/86fall/dominelli.htm
11. ^ Rancho Santa Fe, California
12. ^ Lindsey, Robert (1985-08-21). "Retrial of San Diego Mayor is Opened", New York
Times.
13. ^ "20-Year Term For Dominelli", New York Times (1985-06-25).
14. ^ http://www.graumarktinfo.de/gm/grauestars/starradar/walhalla/:Damara-Bertges-
European-Kings-Club-Chefin:Die-K%F6nigin-und-ihr-Gefolge/493274.html
15. ^ http://www.sec.gov/divisions/enforce/claims/bennett.htm
16. ^ "Extremism in America: Greater Ministries International", Anti-Defamation League.
Retrieved on 18 July 2007.
17. ^ Christopher Jarvis, The Rise and Fall of Albania's Pyramid Schemes, Finance &
Development: A Quarterly Magazine of the IMF, March 2000.
18. ^ http://www.amcostarica.com/051707.htm
19. ^ The Star, Malaysia, 4 October 2006.
20. ^ Today, Singapore, 24 January 2007.
21. ^ Bank Negara, Malaysia, Malaysia, 5 September 2006.
22. ^ Ali, Hasan (April 14, 2007). "Pir Double Shah arrested". Daily Times.
23. ^ Orlando Sentinel February 6, 2007 Pearlman, companies face $317 million in
claims
24. ^ Inquirer.net, Charges filed against 27 in alleged pyramiding scam
25. ^ newsinfo.inquirer.net, $250-M ESTAFA, DOJ acts to speed up cases in PIPC scam
26. ^ Star Tribune
27. ^ Tom Petters Indictment - PDF
28. ^ Bernard Madoff arrested over alleged '$50 billion fraud'
29. ^ http://www.internetfraud.usdoj.gov/
30. ^ http://www.ethicscheck.com/consumers/scamreport/rpt_04_11_23.htm
31. ^ http://www.usdoj.gov/usao/gan/press/12-01-04.html
32. ^ http://www.sec.gov/litigation/admin/34-49824.htm
33. ^ http://www.usdoj.gov/usao/cac/pr2005/087.html
34. ^ "Man Pleads Guilty to Federal Charges after Swindling more than $24 Million from
Local Victims" November 16, 2005 U.S. Immigration and Customs Enforcement.
Retrieved December 23, 2007
35. ^ http://news.bbc.co.uk/2/hi/business/4757741.stm
36. ^ http://www.tlennonfor12dailypro.com/media/12DP_FirstInterimReport.pdf
37. ^ http://www.sec.gov/litigation/litreleases/2007/lr20264.htm
38. ^ http://www.nytimes.com/2007/09/20/us/politics/20cnd-hsu.html

39. ^ La estafa Ponzi azota a Colombia, DMG también colapsará at YouTube
40. ^ Gobierno intervino a DMG El Espectador, November 17, 2008
41. ^ David Murcia Guzmán vs. Terrorismo Financiero at YouTube
42. ^ [3] El Tiempo, November 20, 2008
43. ^ WinCapita not engaged in currency trading (Finnish) YLE News, May 8, 2008
44. ^ Gold-Quest International, et al.: Lit. Rel. No. 20557 / May 7, 2008
45. ^ ReviewJournal.com - Business - Judge OKs using force to seize Gold-Quest records
46. ^ Cook Receivership Services Inc. - Gold Quest International Receivership
47. ^ Inquirer.net, 24 charged in multimillion-peso investment scam
48. ^ GMA NEWS.TV, Colleagues deny human rights lawyer’s involvement in Ponzi
scam