There have been a number of famous Ponzi schemes throughout history, and they continue to happen today
What is a Ponzi scheme, you ask? A Ponzi scheme is a type of investment fraud that pays investors with the money from new investors rather than from profits. Here are 10 of the most famous Ponzi schemes in history.
1. The Madoff Scheme
A Ponzi scheme is a financial scam that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profits generated by the underlying business.
The Bernard Madoff investment scandal was a major case of stock and securities fraud over an approximately 20-year period that culminated in Madoff’s arrest on December 11, 2008. Madoff confessed to running a Ponzi scheme in which he admitted to defrauding investors of billions of dollars. The scam ran for at least 17 years and possibly as long as 40 years. Estimates of the total losses incurred by victims range from $17 billion to $64.8 billion.
2. The Stanford Scheme
There are a few reasons why the Stanford Scheme is one of the most famous Ponzi schemes. One reason is that it bilked investors out of billions of dollars. Another reason is that it was perpetrated by a very well-known figure, Allen Stanford. Finally, the scheme had far-reaching effects, with victims in countries all over the world. It had a shocking ending with Stanford being convicted of fraud and sentenced to 110 years in prison.
In this case, Allen Stanford generates returns for older investors through revenue collected from new investors. Ponzi schemes typically collapse when they can no longer bring in enough new money to keep up with payments owed to older investors.
3. The ZeekRewards Scheme
The ZeekRewards Scheme was one of the largest Ponzi schemes in history. It was shut down in August 2012 by the US Securities and Exchange Commission (SEC) after raising more than $600 million from over 1 million investors. In order to make money, ZeekRewards Scheme participants were encouraged to buy penny stocks through the company’s online store. The stocks were then resold to other participants at inflated prices, providing the bulk of revenue for the scheme.
4. The Petters Scheme
The Petters Scheme was a $3.5 billion dollar Ponzi scheme that operated between 2000 and 2008. The scheme was founded by Minnesota businessman Thomas Petters, who used it to finance a wide variety of business ventures, including purchasing and reselling electronics, entertainment companies, and pet supply stores. In October 2008, Petters was arrested and charged with 20 felony counts of wire fraud and money laundering.
5. The Bitconnect Scheme
Bitconnect was one of the most famous Ponzi schemes in recent years. The scheme ran from 2016 to 2018, and during that time, it managed to earn investors more than $2 billion.
The scheme worked by promising incredibly high returns to investors, who were then encouraged to reinvest their earnings and recruit new investors. This created a chain of investments that was sustainable as long as there was enough new money coming in.
However, eventually, the scheme collapsed after the cracks started to show. New investment slowed down and there was not enough money to pay out the promised returns anymore. This led to many people losing a lot of money, with some estimates suggesting that around 90% of investors lost everything they put in.
6. The Relationship Marketing Scheme
The relationship marketing scheme was one of the most famous Ponzi schemes because it was very well-organized and convincing. Arthur Anderson, one of the most respected accounting firms at the time, helped mastermind and promote the scam. It’s estimated that over 100,000 people invested in the scheme, which resulted in losses of over $200 million.
7. The TMT Investments Scheme
Ponzi schemes are a type of investment fraud where the operator, or “promoter”, pays returns to investors from funds contributed by new investors, rather than from profit earned by the individual operators. Many of the earlier schemes failed when the promoter ran off with the money, but more recent schemes have been created that use complex investment vehicles and offshore bank accounts to make it more difficult for law enforcement authorities to track down the proceeds.
The TMT Investments scheme was one of the most famous Ponzi schemes because it managed to defraud investors out of a staggering $500 million before finally being shut down by police. Trevor Milton and Thomas Petters were sentenced to 20 and 25 years in prison, respectively, for their roles in a $3.65 billion Ponzi scheme.
8. The KITM Group Scheme
The KITM Group Scheme was one of the most famous Ponzi schemes because it was marketed as a genuine business opportunity that could help people make a lot of money. The operators of the scheme promised extraordinary profits to their investors, but instead, they simply took their money and ran.
This type of scam is unfortunately all too common and often comes with high-pressure sales tactics that can be very convincing. The founder, Sergei Mavrodi, managed to steal over $40 million from thousands of people before he was finally arrested and brought to justice.
9. The CabbageTech Scheme
CabbageTech was one such scheme that promised investors huge profits if they handed over their cryptocurrency to the company. However, after investigations by the Securities and Exchange Commission (SEC), it was revealed that CabbageTech was nothing more than a scam and that its owner had no intention of ever paying back any of the money he had taken from investors. In 2018, Patrick McDonnell was sentenced to 10 years in prison for running a cryptocurrency-based Ponzi scheme that defrauded investors out of $194 million.
10. The NCFE Group Scheme
The NCFE Group Scheme was one of the most famous ponzi schemes because it defrauded nearly 5,000 people of more than $215 million. It was so successful because it promised high rates of return (up to 48%), allowed investors to withdraw their money at any time, and had a very sophisticated website and marketing materials. In fact, the scheme was so well-designed that many victims didn’t realize they were being scammed until it was too late. In 2013, brothers Neil and Christopher Farmer were sentenced to 13 and 7 years in prison, respectively, for running a £38 million (approximately $50 million) Ponzi scheme.