The 10 Nastiest Ponzi Schemes Ever

This is a blog post by Drea Knufken.

Bernard Madoff pulled a shocker last week by revealing that his exclusive investment securities firm was actually the biggest Ponzi scheme in the history of mankind. As the impact of Madoff’s decades-long crime reverberates around the world, it invokes memories of past Ponzi masters, who laid the groundwork for planet-sized schemes like Madoff’s.

Ponzificating–perpetuating a fraud by paying off early investors with new investors’ money–is a concept as old as Indian giving. Honoring everyone involved in the act would be like writing a history of cheating itself. So we narrowed the Ponzi criminals down to the more recent, more nasty ilk, including Madoff himself:

10. The Fraudulent Feminist

(Note: This isn’t Howe. Just an 1880s woman from a catalog.)

In 1880, Boston Ponzian Sarah Howe promised women 8% interest on a “Ladies Deposit.” She said it was only for women, selling an implicit assumption of safety. She took the money and ran.

Nastiness Factor: Bad. Way to break the sisterhood of trust, Sarah.

9. The Haiti Haters >

Ponzi schemes popped up all over Haiti in the early 2000’s. These schemes sold themselves as government-backed “cooperatives.” They ran mainstream-sounding ads, some of which featured Haitian pop stars. As a result, people felt safe investing more than $240 million–60% of Haitian GDP in 2001–into the schemes, which ended up being a massive swindle.

Nastiness Factor: Bad. Haiti is already one of the poorest countries in the world. People there eat mud cakes when times get bad. Cheating them out of their meager savings is sick; alas, it also appears to be systemic.

8. The Scientologist Snake

Earthlink co-founder and Scientology minister Reed Slatkin posed as a brilliant investment advisor for A-list Hollywood residents and corporate bosses. Working out of his garage, Slatkin cheated the rich and famous out of roughly $593 million, creating fake statements referring back to fake brokerage firms to prove his mettle. He fed the Church of Scientology with millions of his winnings. In 2000, the SEC caught wind that Slatkin wasn’t licensed, and busted the scheme.

Nastiness Factor: Mild. Cheating the rich and famous usually results in fewer bankruptcies than, say, misling seniors out of their retirement funds.

7. The Lottery Uprising

When Albania was moving out from behind the Iron Curtain in the mid-1990s, a powerful government and environment of questionable ethics resulted in a financial system dominated by pyramid schemes. The government endorsed various Ponzis, which robbed the majority of the population and netted more than $1 billion in losses. Albanians rioted and overthrew the government.

Nastiness Factor:
Deplorable. Don’t government officials realize that endorsing Ponzi schemes might get them overthrown?

6. The Costa Rica Crooks

Three Costa Rican brothers, Enrique, Osvaldo and Freddy Villalobos, defrauded clients–mostly American and Canadian retirees–out of $400 million in a 20-odd-year unregulated loan scheme that started in the late 1980s. They promised interest rates of 3% per month on a minimum investment of $10,000. Villalobos moved money through shell companies before paying investors. Its staying power had to do with the fact that margins were low, the brothers were disciplined, and the outfit just barely skirted past laws.

Nastiness Factor: Mild. The size of the operation gives it a place on this list, but the brothers also had real assets to back them up. It’s Ponzi Lite, but that doesn’t ease the burden on people who lost everything.

5. The Biblical Bilker

In fraud-rich Florida, the Greater Ministries International church used Bible-speak to cheat its flock out of $500 million. Starting in the early 1990s, the church, led by gun-toting minister Gerald Payne, offered worshippers investments in gold coins. Payne then created an investment plan that would “double the ‘blessings’ that people invested” by funneling money towards the church’s fake precious metals investments. According to the Anti-Defamation League,

Payne said that God had modernized the multiplication of the loaves and fishes and asked him to share the secret.

$500 million later, the Feds caught Payne, but most investors never got their money back.

Nastiness Factor: Disgusting. Anyone who uses holy speak to bilk people out of their retirement savings is disgusting, plain and simple.

4. The Boy Band Bandit

Beginning in the late 1980s, Lou Pearlman, Art Garfunkel’s cousin and former manager of ‘N Sync and the Backstreet Boys, offered attractive returns through his FDIC-insured Trans Continental Savings Program. The scheme was neither a savings and loan nor FDIC-approved, but that didn’t stop Pearlman from bilking investors out of nearly $500 million, with which he planned on funding three MTV shows and an entertainment complex.

Nastiness Factor: Deplorable. Pearlman was already a multimillionaire. The fact that he became a compulsive criminal after that means he should sit in a cell for a very long time.

3. The Retiree Plunderer

Mexican resort owner Michael Eugene Kelly schemed retirees and senior citizens out of $428 million. He offered them timeshare investments in Cancun hotels that he called “Universal Leases.” The timeshares came with rental agreements promising investors a nice fixed rate of return. Most of his victims used their retirement savings, thinking they would get solid, low-risk returns. The SEC says that “more than $136 million of the funds invested (came) from IRA accounts.” Kelly, meanwhile, bought himself a private jet, racetrack, and four yachts.

Nastiness Factor:
Disgusting. Defrauding senior citizens out of their retirement savings is just about as low as you can go.

2. Madman Madoff

Bernard Madoff’s scam is still unfolding. The facts as we know them now are that Madoff spent decades building the biggest Ponzi scheme in history, bilking nonprofits, famous people, funds, banks, and countless others out of $50 billion.

Nastiness Factor: Deplorable. The man single-handedly destroyed charities, life savings, and other organizations yet to be named. The amount of money involved earns him a spot just below Charles Ponzi himself.

1. The Namesake

The King of Get Rich Quick, Charles Ponzi became a millionaire in six months by promising investors 50% return in 45 days on international postal coupon investments. He earned $15 million, which in 1920s terms was serious money. After Ponzi was caught, investors only received $5 million back.

Nastiness Factor: Mythical. This ancestor of fraudulent men passed his name on to the many schemes that would follow his own. His legacy, and his scheme, are forever memorialized, earning them a unique Nastiness Factor label.

Drea Knufken is a freelance writer, editor, ghostwriter and content strategist. Her work has appeared in national publications including WIRED, Computerworld, National Geographic, Minyanville, Backpacker Magazine and others. For more information, please visit www.DreaKnufken.com. You can also find Drea via her blog, Facebook, LinkedIn and Twitter

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Comments

  1. ted's Gravatar Comment by ted on December 16th, 2008 at 8:01 am

    What about Social Security?

  2. Serge Chaly's Gravatar Comment by Serge Chaly on December 16th, 2008 at 8:08 am

    What about MMM fraud in Russia in nineties?

  3. Byron's Gravatar Comment by Byron on December 16th, 2008 at 9:18 am
  4. Craig's Gravatar Comment by Craig on December 16th, 2008 at 11:55 am

    Let’s not forget one of the largest recent ones, The Foundation for New Era Philanthropy, which affected over 1000 charitable organizations and many thousands of donors, and totaled out at over $500 million.

    http://en.wikipedia.org/wiki/Foundation_for_new_era_philanthropy

  5. Steve's Gravatar Comment by Steve on December 16th, 2008 at 4:38 pm

    Sounds like Indiana Teachers Retirement!!! The State of Indiana owes the funds billions that it used over the years to balance it’s general fund budget.

  6. Lester Hunt's Gravatar Comment by Lester Hunt on December 17th, 2008 at 9:11 am

    Ted,

    Social Security is not a Ponzi scheme. Yes, it is ethically problematic, but for a different reason that Ponzi schemes. After all SS “clients” know from the beginning that they are gaining at the expense of newer “clients.” The problem is that it is coercive and larcenous, not that it is fraudulent.

  7. da scam's Gravatar Comment by da scam on June 2nd, 2009 at 12:23 pm
  8. Anthony Shaw's Gravatar Comment by Anthony Shaw on June 2nd, 2009 at 12:23 pm

    Social Security is coercive and larcenous–spare me. Anybody ever heard of Wall Street? Banks credit card practices? Sorry but those are real criminal enterprises.

  9. Bernard's Gravatar Comment by Bernard on June 2nd, 2009 at 12:33 pm

    How about 401k plans? Think about it. The only way your money can grow at the promised 7-10% per year, since the US GDP historically grows at 3-4%, is to continuously lure in fresh suckers. It’s the very definition of a Ponzi scheme.

  10. Bernard's Gravatar Comment by Bernard on June 2nd, 2009 at 12:42 pm

    @Lester Hunt – I think many, if not most participants in Ponzi schemes realize exactly what they’re getting into. Everybody knew Madoff was cheating – and they still wanted in. SS is like 401ks, the very definition of a Ponzi scheme – promises of returns that are impossible without new suckers – or willing participants – being drawn in.

  11. George's Gravatar Comment by George on June 27th, 2009 at 9:25 pm

    Let’s face it. The main reason that these schemes were so successful is that people are GREEDY. I do not feel sorry for someone who is stupid enough to think that they can get enormous returns on their money when traditional sources are only paying small fractions of that amount. Also that ones who scream about losing millions never talk about the millions that they may have already made from these schemes when they got in at the start.
    The so called brokerage house could be grouped into the same category. they often promise returns that they know are never going to occur.

  12. w.victory's Gravatar Comment by w.victory on July 13th, 2009 at 12:41 pm

    wait folks , how about mutual benefits corp. ? 30,000 thats right sir, 30,000 investors partook of the pie wherby a viators given 1/2 cash for his/her life insurance policy only to leave the investors who were promised a minimum of 12% per year to learn the drs. who performed the ha..life expectancy figures [what the term of the investment was based on]were in total cahoots w/thats right the good ol boys @ mbc thru a conspiracy[from day one]as they told the drs. well lets put this persons LE @ 36mos. this one @ 48 mos. etc etc.
    all crapola.
    lost a total of $2billion and NEVER a mention of it in media /tv or for that matter on-line.
    ponzi scheme started in 94 w/sole intent on frauding the elderly !! bastards!! all in jail ,so what, does us no good . I say force them to work to repay every cent .
    we are so weak to criminals that rip us off w/white shirts and ties on vs a gun in our faces, ludicrous!!and frauding those that put up the $$ so they could enjoy their last time on earth w/no financial worry leaving only the investors out in the cold w/nothing to show .
    now in receivership and along the way . we are basically forced to make premium payments to maintain the policies our monies are tied to regardless of the fact this duty was what the co. MBC was paid to do.
    I can only dream of the day when the viator passes away now . a direct different thought process I had when investing . thought I was helping the elderly ,so the conspirators turn us all against the viators in order to recover the have to die. so the insurance co. travelers etc will not give us the names of our viators for fear we do something to hasten their departure from this earth so we get paid.
    we are NOT criminals as the schemers are but would like to get the real picture of how old ,what med cond. our viator is in .
    by law the ins. co. has to make visits to check the status of the viators but have yet to inform us about this.
    we sit waiting /no knowledge of how long while our wonderful gov looks out fro all the lawyers involved but not the principals they just say they doubt there will be any monies for the investors. makes a lot of sense doesn’t t? whata country where the crooks keep the $$ while only the attys . keep getting paid since they need the money so desperately..

  13. Bill G.'s Gravatar Comment by Bill G. on August 16th, 2009 at 9:33 pm

    This is why one should read and study the field of trading instead of joining the band-wagoning to the slaughter. Any investor letting someone else invest his/her money is foolish. The trained and educated Technical Investor will never get caught up in a Ponzi scheme because “charts don’t lie” and people in the field of making money always lie (to get your money). Fundamental traders are ripe and dependent on what some crook says in the news, a.k.a Mad Money’s Jim Cramer.

    When the news was reported on Entertainment Tonight about Bernie Madoff announcement of a major investment opportunity and only the “A-List need apply” (invited to participate). I nearly laughed my head off at the hook thrown out to sucker the ignorant so call “A-Listers” in. I was right.

    My advice to all of you fundamental traders is to read and study technical trading and the Ponzi Schemers will disappear off the market by attrition, because no one will fall for it.

  14. Commonwealth Club's Gravatar Comment by Commonwealth Club on August 26th, 2009 at 4:59 pm

    Though you might enjoy Mr. Frank’s expert take on this: Ken Fisher at the Commonwealth Club of California (8/11/09) Enjoy!

    http://www.youtube.com/watch?v=V10CbPoAL9k

  15. Bill G.'s Gravatar Comment by Bill G. on September 30th, 2009 at 8:02 pm

    Ted,
    Social Security is a retirement account. You can access it at any time plus go on site and see your account balance; or use an on-line investment calculator. Do that with a Pozi Scheme.

  16. S. E.'s Gravatar Comment by S. E. on September 23rd, 2010 at 3:08 pm

    Actually, “Social Security” is worse than a Ponzi scheme because employees and employers are required to participate in the government-mandated retirement program, whose coffers Congress continues to raid to fund other “public service” programs. People are not “forced” to fund Ponzi schemes.

  17. Drew's Gravatar Comment by Drew on December 16th, 2010 at 7:56 pm

    the last comment by S.E. is unfortunately very sad and true about the USA. Congress has bilked (excuse me perpetually borrowed) the Social Security Trust Fund. You know all the over-taxes at 15% per year all private industry employees and their employers must pay in for your 30 – 40 years of working. And now the Govt. is admitting it must move retirement SS age from 65 to 69 (and by the time most GenXrs retire it will be moved to the mid-70s, or about when most men are dead, because THE GOVT. ALREADY LOOTED THE SOC. SECTY. TRUST FUND !) And where did all our forced savings go? Not only to fund Iraq and Afghan Wars, but even moreso, to give Multi-Million$ Pensions to Govt. Employees (which is main cause of Washington’s HUGE DEFICITS) who typically retire by age 55 and at $40,000 to $120,000 per year = Millions each.

  18. djk's Gravatar Comment by djk on May 7th, 2011 at 7:42 pm

    Yes what about SS.
    It has been the longest running Ponzi ever. Its founders like FDR are long dead never having been brought to justice. You can’t opt out of paying even if you know its a ponzi. Most people are dead before they know they spent thier whole lifes being ripped off even thier heirs get nothing. So in essence SS robs everyone, young children and those not even born yet. Worst of all some are still defending it. Can we say denial?

  19. david's Gravatar Comment by david on February 26th, 2012 at 7:28 pm

    how about seed faith ministries. If that isn’t a ponzi scheme what is? They get away with it by hiding behind the first amendment. They are on tv right now on Daystar promoting this very scheme.

  20. woody marshall's Gravatar Comment by woody marshall on May 12th, 2012 at 10:45 am

    This guy from jordan swears you can on your home if you follow a few steps. Live in your home for over 10 years and you somehow can force your bank to give you clear title to your home. Also he claims you can buy a new car and then default on payments transfer into someone else’s name and they can’t repo it. He owns a car dealership. Has any one heard f this. it.

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