Ponzi schemes, phone scams and other types of fraud

The Ponzi scheme first emerged in 1920 when Charles Ponzi fraudulently raised millions of dollars across New England. To do so he invented a phony investment plan and promised investors a 50 per cent profit within 45 days. Eventually, it collapsed under its own weight. While the early contributors profited from their involvement, those who joined in the latter stages lost all of their money.

The Burlington Post
November 17, 1999

Ponzi schemes, phone scams and other types of fraud

Senior citizens are often targetted by professional fraud artists as they are often more trusting.
In addition, they may have access to cash that has been saved for their retirement.

As a result, seniors may be approached by someone who falsely identifies himself as a bank inspector asking them to assist in investigating a crooked bank employee. This involves withdrawing cash from the bank to test the employee’s honesty. The cash is turned over to the phony inspector who is supposed to take it back to the bank, but never does. Banks do not involve their customers in such investigations and anyone approached in this way should call the police.

SENIORS TARGETTED
Another scam targetting seniors (and others) involves a telephone call advising you have won a big prize. The catch is you have to pay the sales tax or a handling charge which is usually in the $800 or $900 range. Of course, the prize never arrives even after the money is paid. Anyone in Ontario who is approached in this way can call Project Phonebusters at 1-888-495-8501 to determine if the company involved is listed in police files.

The sentences for fraud can range from probation for small-time first offenders to long penitentiary terms for repeat offenders. Restitution goes a long way in keeping an offender out of jail but it doesn’t always work.

The two longest fraud sentences in Canada were given to a couple of first offenders. William Player was sentenced to 15 years in jail for defrauding three trust companies of $330 million. London lawyer Julius Melnitzer got nine years for using fake securities to take three banks for $12 million. In addition, he used what is called a Ponzi scheme to defraud friends and colleagues of another 15 million.

The Ponzi scheme first emerged in 1920 when Charles Ponzi fraudulently raised millions of dollars across New England. To do so he invented a phony investment plan and promised investors a 50 per cent profit within 45 days. He lived up to this promise initially. The first investors told everyone they knew about this great deal and new money came pouring in.

The problem was that there was no real investment and Ponzi was using this new money to pay off his original investors. In addition, he was skimming a percentage to buy himself a big house and car and all the things necessary to make him look like a successful businessman. As a result, he had to raise more and more just to keep his scheme afloat. Eventually, it collapsed under its own weight. While the early contributors profited from their involvement, those who joined in the latter stages lost all of their money.

This is what eventually happens in all Ponzi schemes. It is also the result in pyramid schemes. These are different enough, however, that we will look at them separately in another column.

Before we leave this area, however, we should be aware we are all investing in a government–backed Ponzi scheme. The Canada Pension Plan takes the money paid in today by current workers and pays it out to workers who have already retired. The money today’s workers will get upon retirement will come from the contributions of future workers. We can only hope that the Canadian government makes this work better than Charles Ponzi did.


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