Are You Being Had? Learn From 5 Crazy Ponzi Schemes

by Joe Epstein on 13 June 2014 0 comments

Whether you call them "Ponzi schemes" or "pyramid schemes," one thing you definitely don't want to call investment scams is "something I fell for."

So take a look at a few of history's biggest and boldest schemes — each illustrates something to keep in mind when weighing your own investment opportunities. And each is a good reminder: scams like these are very real, and a wise investor must be very vigilant.

1. Chinese Ant Antics

Businessman Wang Fengyou's pyramid scheme was nothing if not creative: he convinced investors (generally individual farm workers) to buy ants — yes, ants — from his company, feed them a special diet for three months, and then sell them back to his company for a profit. The insect livestock, it was said, would then be turned into pharmaceuticals.

Amazingly, people bought it, and within a decade Wang's company had a billion dollar annual turnover, until 2007 it is, when the company collapsed after investors started demanding returns on their investment. Even more amazingly, though, is the fact that over 1 million people invested. The takeaway here? The amount of investors in your same boat doesn't mean said ship will stay afloat — don't let the illusion of safety in numbers influence bad investment decisions.

2. 'N Scheme

Lou Pearlman was the larger than life producer behind 'N Sync and Backstreet Boys in the 90s. In 2006, he added another huge production to his resume: a $300 million ponzi scheme in which he persuaded banks and individuals to invest in "Trans Continental Airlines," a purely fictitious company. Though Pearlman plead guilty and is currently serving a 25-year sentence, his investors are only just now starting to recoup their losses, and will likely only be paid out four cents on the dollar.

Interestingly, Pearlman had been suspected of operating a pump and dump scheme decades earlier, so perhaps the takeaway here is that even though everyone is innocent until proven guilty in the eyes of the law, allegations of foul play (even unproven ones) should make you think twice about investing with someone.

3. The Pyramid Pastor

In September of 2003, longtime Scientology minister Reed Slatkin pleaded guilty to mail fraud, wire fraud, and money laundering after the FBI launched an investigation uncovering $240 million he had swindled out of investors. Much of the money went to the Church itself, which eventually agreed to repay millions of ill-gotten funds. Slatkin sold himself as a financial whiz, and while of course there's nothing to say that a minister can't also be an excellent investor, the case may give you pause before investing with someone who's head isn't 100% focused on getting big return on investment.

4. The Minnesota Money Man

Talk about "Minnesota nice": Tom Petters, a St. Cloud man with deep roots in the state, raised nearly $4 billion, making the third largest Ponzi perpetrator in US history. He's currently serving 50 years in Leavenworth, but that doesn't necessarily put money back in the pocket of his victims, many of whom were senior citizens. The elderly are often seen as potentially easier prey, meaning you should:

  1. Be weary of investments aimed at them.
  2. Make sure to help your parents be equally weary!

5. Madoff Madness

You know the name, you know the scheme. But what you may not know is that former NASDAQ chairmen Bernie Madoff generally took investments from (and thus defrauded) people and organizations making very sizeable (multiple million) contributions. Meaning that being financially elite — unlike the Chinese ant-farmers or elderly folks taken for a ride in Minneapolis — is no insurance against being had. It just means you have more to lose.

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