by Tal Lifshitz | November 2018
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Madoff. Stanford. Rothstein.

“Ponzi” schemes are now ubiquitous — the type of fraud where investors are repaid their own money so that the scheme appears to be a successful investment and more investors can be hoodwinked. This form of scheme originated with its namesake, Charles Ponzi, who defrauded millions in the 1920s by falsely claiming he could sell international postal coupons at 100 percent profit. Ponzi financed his purported business through promissory notes, which he always readily repaid.

Ponzi’s business, in actuality, was a sham. Rather than paying money from profits, Ponzi was paying investors their own money back. As Chief Justice Taft explained, when analysis of Ponzi’s scheme found its way to the Supreme Court, Ponzi “was always insolvent, and became daily more so, the more his business succeeded. He made no investments of any kind, so that all the money he had at any time was solely the result of loans by his dupes.” Cunningham v. Brown, 265 U.S. 1, 8 (1924). There have been thousands of similar schemes. While no official statistics are available, a word search on a federal case database yielded more than 6,000 references to Ponzi.