The Essays of Samuel Person
The Con Goes On
April 10, 2000
Ever hear of Charles Ponzi, who embezzled millions in the 1920s and died a pauper?
Charles Ponzi is the person for whom a certain confidence (i.e., "con") game was named. While Ponzi is memorialized in infamy, arguably his con is as old as recorded (or even unrecorded) history. He set a pattern of deceit and chicanery that continues on unabated.
The nature of the "Ponzi scheme" is to lure investors by promising a ridiculously high rate of return. Common sense should indicate that a return on investment that seems too good to be true generally is a set up.
In essence, the deal is to find willing investors (i.e., "suckers") who will invest. As the con artist continues to rake in the money, early investors are given their promised rate of return with the money from newer investors. When the house of cards crumbles, which it eventually does, the last investors are left holding an empty bag, or standing in a parking lot wondering why the investment house s plush office is permanently closed.
It is not illogical that Ponzi schemes have made the news lately in view of the greed-motivated desire by investors for obscene rates of return. Indeed, some real "whoppers" have been disclosed in various parts of the United States; they are merely examples of the type of "Ponzi" activity that has occurred over the years.
In Naples, Florida, one David Mobley convinced a group of investors that his "hedge funds" would enrich them. According to newspaper reports, the estimate was that Mobley defrauded investors out of $59 million over a period of several years. Almost at the same time that the Mobley affair became news (late February 2000), an Associated Press item of March 3, 2000, indicated that in New Jersey, "a stockbroker (John C. Natale) admitted that he cheated 180 investors from around the world of $40 million that they had invested in hedge funds over the past eight years."
Last week, law enforcement officials in Florida announced that they would conduct a series of seminars designed to educate investors about the schemes. One wonders if it will matter since these episodes are motivated by a human frailty for an easy buck. Con artists will always find a group of people waiting to part with their money. After all, the perpetrators of the scheme are very smooth, and convince their victims by dint of their personality, charm, and outward manifestations of success.
Besides, the "hedge fund" games are "private" undertakings for "sophisticated investors," and hence not subject to regulation as are other sectors of the financial services industry, i.e., stockbrokers, insurance brokers, mutual funds, etc. Additionally, those who become victims are often afraid to admit as much; they are reluctant to admit their stupidity. While "hedge funds" are a relatively new application of an old game, no doubt there have been other schemes as well, including "pyramid clubs," something that we are all familiar with; they operate on the same basic principle as the Ponzi scheme.
Further, newer and more sophisticated cons are created by the fertile minds that are always on the prowl for an easy buck. (In this connection, the Internet may well prove to be a godsend for potential con artists!) All these frauds prove the validity of P. T. Barnum s classic observation that "A sucker is born every minute."
Those who perpetrate the schemes will continue so long as there are suckers willing to be impressed and led down the primrose path by the con artists of the world. The prevalence of these affairs gives new meaning to the words of Willie Sutton, the notorious bank robber, who said, "I rob banks because that is where the money is." Perhaps this line should be updated and/or paraphrased to say that the con artists perpetrate the Ponzi schemes because the victims have the money, and are easy marks.
