The Great American Economic Meltdown (Part 2)

Ponzi’s Offspring Dupes Investors

By Gilbert T. Geis, Ph.D., CFE

This article, the second of two parts, is adapted from a chapter in “Readings in White Collar Crime,” Second Edition, from David Shichor et al. (Long Grove, Ill.: Waveland Press Inc., forthcoming). Reprinted by permission of Waveland Press Inc. All rights reserved. 


2010-JanFeb-economic meltdown 


The 2008 corporate scandals at Bear Stearns, Countrywide, Lehman Brothers, AIG, and others that led to the American economic meltdown weren’t all based on white-collar crime. However, the study of white-collar crime should focus not only on violations of the letter of the law, but also on the acts by those in positions of power who, in their occupational roles, seriously harm others.  

This article concentrates on two Ponzi cases – the Bernard L. Madoff Investment Securities scheme and the alleged Stanford Financial Group fraud – which show the underbelly of corporate corruption during the recent economic meltdown.  


Charles Ponzi (1882-1949) unwittingly gave his name to a form of white-collar crime – the Ponzi scheme – which characterized two of the major scandals during the world’s most recent economic breakdown.  

The basic ingredients of a Ponzi scheme are very simple. You have to get enough people interested in putting money into whatever investment you’re promoting by promising them desirable profits. Then you pay off the initial investors with the funds that keep coming in as other people are attracted by the rewards reaped by the first investors. It’s likely that those original investors will be so delighted with their gains that they’ll leave the money they’ve “earned” with you to reap even greater returns. So, for a time, a great deal of money will be coming in and not much going out.  

A Ponzi scheme demonstrates the truth of one of the oldest maxims in the financial world. If something is offered that flagrantly flies in the face of common sense, it’s very likely to be nonsensical – and probably crooked.  

Italian-born Charles Ponzi had stumbled about after migrating to the United States until he hit upon the idea that he could, in theory, buy postage stamps issued internationally to facilitate commerce, and sell them at a significant profit in the United States. Investors flocked to the company he originated. He never quite got around to purchasing the stamps, which actually wouldn’t have come close to financing the scheme he advertised. When he was exposed, Ponzi received a five-year prison sentence.  

After his release, he set up another scam, this time based on Florida land sales. It ended with seven more years in prison and, thereafter, deportation to Italy, where he later died impoverished (Dunn, 2004; Zuckoff, 2006). 







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