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 a strong word). He was born in Italy, but, like many of his peers in those years, emigrated to the United States.

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

Background

It all started in Boston in 1919, when, having borrowed $200 from one of his acquaintances, Charles Ponzi founded his own company "The Securities Exchange Company". Officially, his company was engaged in arbitrage in the international response coupon market.

The International Reply Coupon (IRC) is a paper put into circulation by the Universal Postal Union and exchanged for postage stamps in countries that are members of this union.

Ponzi noticed that the value of these coupons was different countries vary significantly. He declared IOC arbitration, attracting his first investors and subsequent investors, to whom he promised $500 in income for every $1,000 invested throughout three months(this is 200% of annual income excluding interest capitalization).

Everything seemed 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 information that IOCs can only be exchanged for postage stamps. That is, in principle, they cannot be used as a tool for generating income.

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

His entire campaign came to grief when the person who lent him the first $200 to create the company (a certain Daniels) demanded 50% of the income received by the company. And these incomes were already about $250,000 a day (this is exactly the amount that more and more new investors brought in every day).

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

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

After leaving prison five years later, Charles Ponzi began doing what he did best - financial fraud. This continued until 1934, when the US government's patience ran out and Ponzi was deported to Italy.

Description of the Ponzi scheme

Since then, all financial frauds of this kind have been called Ponzi schemes. The essence of such schemes is to attract customers under a solid, attractive sign, the name of which, as a rule, does not indicate anything specific ( "International offshore investments", "Highly profitable investment projects» etc.). Clients are lured by promising them income that significantly exceeds bank interest.

The essence of the scheme is to attract as many participants as possible, paying profits to old participants exclusively 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 growing to a serious scale. Naturally, in the end, for obvious reasons, this scheme collapses, but until that moment its founder can acquire quite a decent fortune and hide in an unknown direction (in all likelihood, somewhere closer to palm trees and the sea).

The inevitable collapse of a Ponzi scheme occurs when:

1. The founding father of the scheme leaves his brainchild, taking with him all the money collected
2. The influx of new depositors is decreasing, and demands for payments on previously invested ones; funds are growing. There is not enough money for payments and panic begins when everyone wants their money back at once;
3. Vigilant law enforcement agencies expose the cunning fraudster while the scheme is still in operation (but this option happens extremely rarely and cannot be considered).

Ponzi scheme - English Ponzi Scheme, is an investment scheme that provides returns to earlier investors from funds received from later investors. It may look legitimate at first, but a Ponzi scheme usually breaks down once the influx of funds from new investors becomes insufficient to pay out the old ones. In some cases, a Ponzi Scheme is initially used without malicious intent, but with the goal of making a profit while fulfilling all obligations to investors. However, in most cases, the scheme is created for fraudulent purposes to benefit its organizers, by whom little or no effort is made to generate profits for investors.

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

There is a fairly common misconception that a Ponzi scheme is a type of 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 create the appearance of a serious organization promising high returns in a short period of time, the Ponzi scheme has a central figure who makes most of the money from the scam. In contrast, a pyramid scheme involves creating a network of investors who, in turn, actively recruit new investors and usually receive a percentage of any investments made as a result of their efforts. That is, in a classic financial pyramid everything cash flows are not tied to one face.

Moreover, a Ponzi scheme does not rely solely on new investors to continue to function. As a related strategy, a Ponzi scheme also involves bringing back into the scheme earlier investors who have already earned some income from their initial investments by persuading them to reinvest all of those funds. This strategy is not typical of most pyramid schemes, which primarily rely on continually attracting new or new investors to be able to continue to operate.

Although most countries have laws that prohibit similar practice and involve penalties in the form of fines and/or imprisonment, sometimes a Ponzi scheme is very difficult to identify in its development stage. Over time, as the scale of activity grows and increases, the functioning of the scheme inevitably becomes obvious and usually ends lawsuits and bankruptcy. However, at this stage, most investors will experience significant losses for which the likelihood of recovery is extremely low.

A Ponzi scheme is an investment scam that initially promises investors maximum returns with virtually no risk. At the same time, profit is generated only for early investors through financing by new ones who join it. Thus, this scheme is viable exactly until the flow of investors stops, after which it will immediately collapse.

Principle of operation

The Ponzi scheme got its name after the Italian swindler Charles Ponzi, who developed it. He worked as a clerk in America, first implementing the model in 1919.

We will tell you in detail about the principle of operation and the Ponzi scheme in this article. It resembles a financial pyramid in that it is also based on the funds of new investors to provide income to old investors. True, there is a key difference between these schemes. It consists in the fact that the manager first collects all the funds himself. In a financial pyramid, any of the participants in the process directly receives income. In the case of a financial pyramid, the manager does not have access to all the money in the system.

It is worth noting that, despite the difference in the principle of income distribution, both the Ponzi scheme and the financial pyramid are doomed to failure, since sooner or later the money for payments will inevitably run out.

Details

Now let's look at this system in more detail. Essentially, a Ponzi scheme is an investment scam in which an organization or individual verbally guarantees income solely through the use of new capital. At the same time, it will be attracted from new investors, and not from the profits received by new investors. At the same time, the Ponzi scheme pyramid attracts a large number of people due to higher returns. Especially compared to other types of investments.

It’s interesting that sometimes a Polka Ponzi scheme can start out as a completely legitimate business, remaining one exactly until the moment when it reaches the promised profitability by legal means no longer seems possible.

It also happens when the business itself turns into a pyramid if it begins to function on fraudulent terms. Whatever the situation initially, high profitability requires ever-increasing volume financial resources from new and new investors so that the scheme lives and functions.

Characteristics

To better understand its structure, we note that at the initial stage, all investors are promised high returns, moreover, by investing money in traditional financial instruments. For example, futures.

Fraudsters also use similar terms when they promise offshore investments that can attract a large number of investors. Thus, the promoter sells his shares through investors, taking advantage of their lack of knowledge and competence.

Almost always such schemes are followed at the very beginning investment policy by investing in hedge funds or other available financial instruments. Can turn into a Ponzi scheme and a hedge fund if the organization begins to rapidly lose its assets. At the same time, the organizers hide losses by starting to falsify auditors' reports in order to continue attracting investments.

Other examples

In the 20th century many financial strategies and the tools became Ponzi schemes. For example, Allen Stanford used certificates of deposit banking organizations, with the help of which he managed to leave thousands of gullible citizens with nothing. At the same time, the certificates of deposit themselves are insured and the risks of their use are minimal. But Stanford was giving out coupons, which was pure fraud.

In every scheme, the promoter will initially fulfill his obligations to attract as many new investors as possible, while the current ones invest additional funds. With the advent of new participants, a cascade effect occurs. As a result, payments to old investors are made from money coming from new participants. At the same time, there is simply no profit.

Such high excess returns also encourage old investors to leave their money in the system. As a result, the organizer of the scheme has no need to return the money. All he can do is send regular notifications about the client’s ephemeral profits.

The organizers of such a scheme strive by all means to minimize the withdrawal of money by coming up with new investment options. If someone nevertheless decides to take the money, it is paid to him in order to maintain the myth of solvency for the other participants.

Schema disclosure

Even if such a scheme is not discovered by the authorities, it will collapse very soon. There are several good reasons for this.

Firstly, the promoter himself may disappear with all the accumulated money.

Secondly, such a scheme requires a continuous flow of investments to ensure the volume of all payments. If the flow of incoming funds slows down, the scheme will collapse, since the organizer simply will not be able to provide further payments. Such delays in liquidity usually lead to panic among investors, then most investors try to return their investments as soon as possible. These problems are reminiscent of liquidity crises that occur at large banks.

Third, external market forces may have an impact. A sharp economic recession. A striking example is the Madoff financial pyramid scandal in 2008.

Biography of a scammer

The scheme was named after Charles Ponzi. Having emigrated to the USA, he created one of the most original financial pyramids. It is known that he arrived in America in 1903, losing all his savings along the way, presumably he lost them in gambling. All his attempts to make money were unsuccessful until 1919, when he opened his own company with $200, which he borrowed from furniture maker Daniels.

The company he registered was called "Securities Exchange Company". She began to engage in arbitration transactions, issuing promissory notes. According to them, she was obliged to pay $1,500 for every thousand dollars received in three months.

Already in 1920, Ponzi handed over control of the company to young Lucy, and he himself moved to an expensive mansion. In the summer of the same year, the pyramid he created collapsed after a lawsuit from one of the investors, who demanded half of the profits of the entire company. According to the laws of that time, Ponzi’s funds in banks were frozen; already on July 26, he announced the cessation of accepting new deposits due to tax police inspections. This became a catastrophic mistake; investors immediately wanted to take their money back.

On August 12, he was detained, revealing a debt of 7 million dollars, despite the fact that there were only 4 million in the accounts. In October, his company was declared bankrupt, and Ponzi himself was sentenced to five years in prison.

On the loose

Once free, he did not stop financial fraud, so a few years later he was deported to Italy.

He taught English language, and then, under the patronage of Mussolini, moved to Rio de Janeiro, where he became the official representative of Italian Airlines. There he died in 1949 at the age of 66 from a cerebral hemorrhage.

Brought to life on screen

In 2014, a biographical drama called “Ponzi Scheme” was released. The film was directed by French director Dante Desart.

The tape describes in sufficient detail and clearly the operation of this scheme. Interestingly, such an idea had already appeared in literature, but Ponzi was the first to actually implement it. Similar fraudulent schemes were described by Charles Dickens in his novels Little Dorrit and Martin Chuzzlewit.

Modern adaptations

Many believe that the modern craze for cryptocurrency is nothing more than another attempt to implement a Ponzi scheme for ICOs. According to some experts, this simply kills innovation, being nothing more than a financial pyramid.

Fundraising campaigns have been accused of maximizing profits by taking advantage of the confusion surrounding blockchain technology. As a result, they manage to deceive numerous inexperienced participants in this scheme, who receive false promises, trust dubious advertising, and count on significant investment opportunities and extremely high profits.

Instead, they are doomed to fail, since such schemes remain profitable only until the supply of new money runs out.

At the same time, there are also those who believe that cryptocurrencies have nothing in common with fraudulent schemes. Many are convinced that Bitcoin will never be able to fulfill its purpose. The Ponzi scheme will be implemented again.

Builders of financial pyramids have existed for centuries. The founder of the first of them is Charles Ponzi, after whom this invention is solemnly named. It's funny, but if any of the pyramid builders had bothered with simple mathematics, they would have realized that in order to pay 100% of the profits to 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 claims of the first 9,000 investors. So, on the tenth turn of the financial pyramid, theoretically 13,122,000 investors should make contributions. But the whole problem is that after the 15th revolution the number of investors will be greater than the entire population of the earth! Therefore, the Ponzi scheme is doomed to failure sooner or later. And what is written below only confirms this rule.

Ponzi pyramid

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

Charles created The Securities Exchange Company, or SXC, where he invited several investors. They had 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 old investors part of the amounts brought in by new ones. By July 1920, Ponzi bills brought him up to 250 thousand dollars daily. The Boston Post regularly published generously paid endorsements of Ponzi's activities.

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

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 accepting deposits due to inspections. This was a mistake; investors ran in droves to take their money. On August 10, 1920, federal agents initiated an investigation. She found that SXC did not invest a penny at all, but only paid interest using proceeds from new investors. During the trial, part of the money was found. But the investors managed to return only 37% of the value of the bill. Ponzi received, according to various sources, from 3 to 5 years in prison, his movable and real estate, and a fine of $250 thousand was imposed on him.

Madoff

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

Having saved about 5 thousand dollars, he founded his own company: Madoff Investment Securities. After some time, his brother Peter, both sons and even nephews were already listed in his business in various positions. The Madoff company 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 25 largest participants in this exchange, a pillar of Wall Street and a pioneer of electronic trading. It was Bernard Madoff, by the way, who was the first to computerize the entire process in his company.

Madoff Investment Securities was considered among investment funds The USA is one of the most profitable and reliable. It brought about 12-13% per annum to its investors. On the sidelines, of course, there were rumors that Madoff's success was ensured by access to insider information: too many banks, hedge funds and charitable organizations were his clients. However, as long as everything was fine, no one really cared. 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 some of their funds from Madoff, but both of the tycoon’s sons behaved like cowards and pawned their dad: having received “repentance” from him, they handed him over on a silver platter. to his authorities.

Well, if without lyrics, then during the 13 years of its activity, the company Madoff Investment Securities, as an investigation later found out, did not make a single transaction on the stock exchange. None! She paid all interest to previous investors from the funds of new arrivals. 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 was mercifully sentenced to 150 years in prison. One of Bernard's sons committed suicide while the investigation was ongoing. Just like, by at least another of the investors who suffered losses.

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

Data. The Medoff pyramid is the largest in history. As a result of its collapse, about 3 million people and several hundred financial institutions in the USA, France, Spain, the Netherlands, Italy and Switzerland were affected. Here are the biggest losses:

• Hedge fund Fairfield Sentry Ltd - $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.
• HSBC Bank - $1 billion.
• Royal Bank of Scotland - $600 million.
• Bank "BNP Paribas" (France) - $460 million.
• The Boston-based Robert I. Lappin Charitable Foundation is completely bankrupt.
• Bank South Korea- 63 million dollars.

MMM

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

Coming from a family of installers and economists, he took all the best from his parents: he was excellent at counting in his favor and wonderfully “assembled” high-rise financial objects - pyramids.

It must be said that from the very beginning, fate suggested to him that he needed to live “more boldly, more cheerfully, more inventively,” having been awarded at birth with a double heart defect. Doctors predicted his death in the cradle, but Sergei deceived their expectations.

In 1989 he organized 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: resold computers and other office equipment imported into the country.

And only 1994 is officially considered the year of the creation of the financial pyramid, in which almost 15 million investors participated. MMM issued 991 thousand shares at a price of 1 thousand rubles per share, and they have been on sale since February. At the same time, the company introduced bilateral quotes with a margin for buying and selling. This led to rapid spread, as shares traded on the basis of "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 for a billion shares. However, the Ministry of Finance of the Russian Federation did not issue permission. And then Mavrodi had an idea that was brilliant in its simplicity: he printed and released “MMM tickets,” which were not securities, but were formally equal to 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, Sergei himself donated money to the investor.

From February to August 1994, ticket prices increased 127 times, and the number of depositors reached 15 million people. According to the recollections of former Deputy Prime Minister Alexander Shokhin, at government meetings Chernomyrdin “swears at the security forces, demanding that at least something be done before everything bursts.”

Payments of money continued until July 27, after which Sergei Mavrodi, by his decree dated July 29, announced a reduction 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, quadrupling every month. On August 4, 1994, Mavrodi was arrested for tax evasion. His office was closed, a search was carried out 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. Next - crowds of defrauded investors and statements by the head of MMM that everything was “stole” by the state. 50 people committed suicide. No one was able to return the money - legal subtleties got in the way.

Unlike America, our pyramid builder was not put behind bars. On the contrary, he became a deputy of the State Duma! And he even tried to run for president. After the first pyramid, the second and third ones followed, 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. Head of 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, who at that time headed the board of directors of the Tokyo company L&G K.K., which declared itself bankrupt. This company, according to The Japan Times, promised to pay investors 9 percent dividends for every million yen invested every three months, in other words, about 40% per annum! L&G K.K. also issued its own electronic money, called Enten, which investors received in exchange for funds deposited in its accounts.

Kazutsugi Nami

According to Jiji Press, 37 thousand investors invested in L&G K.K. about 126 billion yen (US$1.4 billion). The Japan Times newspaper, based on data from the Kyodo News agency, assessed the attracted 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 Japanese history. Until this time, the largest fraud in the land of the rising sun was considered the case of the Toyota Shoji company, which operated in the 1980s. She attracted 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

February 17, 2009, immediately after the start financial crisis collapsed (with the help of journalists and government law enforcement agencies) another (besides Madoff) largest American history pyramid - 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 Stanford International Bank, whose clients were more than 30 thousand people. The financial institution's assets under management were valued at $50 billion. Stanford also owned Management Company Stanford Capital Management. All three organizations were members of the SFG.

Allen Stanford

SFG's services were used by private and institutional investors and companies from 136 countries. In January 2009, financial analyst Alex Dalmady published an article in the Venezuelan economic magazine VenEconomia, catchily titled “The Duck” (El Pato), in which he tried to “calculate” financial institution, like the one run by Bernard Madoff, who had just been exposed by the authorities.

Alex Dalmadi chose his company on three points: it offered clients high interest rates, was run by a small group of people and 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 maximum bet V American 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 trading of meat, as well as the sale of used cars.

Alex's article did not go unnoticed. A month after publication, several American departments became interested in the activities of SFG almost simultaneously: the Commission on securities and US Exchanges (SEC), Federal Bureau of Investigation (FBI), Commission on financial regulation Florida Commission on Regulation (FOFR) financial markets(FIRA).

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

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