The original Ponzi scheme occurred in 1920, when Charles Ponzi amassed almost $10,000,000 by conning people in Boston by having them invest in a fake enterprise.
While a Ponzi scheme can range from simple to very complex, its basic elements are the same: Find investors and pay them returns using the money from new investors. Once there are no more new investors it’s pretty much over, and the entire scheme implodes on itself.
The original Ponzi scheme dealt with stamps, but many translate over to the world of real estate fraud.
A recent case in New Jersey found investors falling for a house-flipping scam: the fake company said they would make their money by investing in old, rundown homes and reselling the fixed-up homes, only to really keep the money themselves. By the time investors and law enforcement got suspicious, the money was gone and spent, hidden with relatives in a foreign country or in an offshore bank account.
Police and forensic accountants have made it clear to the public that it is nearly impossible to reclaim the lost investments due to the very nature of the crime. The money is rarely hiding in a safe somewhere – instead it has been funneled through many investors and spent. The victims often have little recourse as their life savings are wasted, and their finances have been hit so hard they can’t afford an attourney or private investigator.
One Canadian forensic accountant told the Canadian Press this week he estimated that there are over 100 unnoticed Ponzi schemes operating in the country and that Canada is especially at risk because of its weak penalties.
These cases are all over the news of late mostly due in part to investors panicking over the failing market and wanting to take their money out of the investment, only to find it wasn’t there anymore. As always, if something is too good to be true – it is.
