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The biggest money thieves in the financial industry aren't what you might think.
At first, when you think about robberies, bank robbers with large bags of cash come to mind. To be fair, there have been some major bank robberies over the past few decades.
This article by the Thrillest shows the 10 most successful bank robberies in history, including several examples of thieves who got away or stolen money that still hasn't been accounted for.
Still, many of the robberies on that list show brute force attacks. They include instances where robbers held up hostages or dug tunnels to bank vaults.
The types of money thieves who scare me more than bank robbers are those who go years without being detected. They are the ones who can defraud their friends and family without so much as a second thought.
I'm referring to the people who orchestrate Ponzi schemes. These people usually have sophisticated financial minds and run in elite circles. They use their connections and charm to swindle people out of their hard earned cash.
What is a Ponzi Scheme?
You might have heard of a Ponzi Scheme before. It's named after Charles Ponzi, a con man operating in the early 1900s, and he promised clients a 50% profit within 45 days or a 100% profit within 90 days. His scam involved buying postage in other countries and redeeming them in the US.
In a nutshell, Ponzi schemes are when a someone promises you better-than-average returns on your money. However, instead of actually earning those returns, they use the money from new clients to pay older investors. These only work if there's a large supply of new investors to pay older investors (and the scammer skims a little or a lot off the top for their own).
Ponzi schemes can be in operation for years until their supply of new customers runs dry. They also usually stop when someone notices criminal activity and reports them, which makes new investors less likely to invest… and when the money dries up, the scam can't continue.
Below are some examples of the biggest, most successful Ponzi schemes of all time – that is, until they got caught.
The “Hamilton” Scheme
You might have heard that the Broadway show Hamilton is one of the hottest Broadway tickets in existence. The show won 11 Tony awards last year, and as a result, tickets get marked up, scalped, and are in high demand among the Manhattan elite.
That's why two men named Matthew Harriton and Joseph Meli saw an opportunity. When something is scarce, people pay a lot of money for it. So, the two used their connections to investors and promised to bulk buy tickets to high demand shows like Hamilton and sell them at a premium.
They told investors they'd get high returns but like many Ponzi schemes, they simply used new investing dollars to pay off old investors and kept some of the money for themselves. Eventually, they got caught.
Well, officially, this is a new case as of January of this year, so it has not been resolved yet and they have not been found guilty. However, the accusation is that the SEC says they defrauded people out of $81 million dollars.
A recent Bloomberg article says that part of the reason they were successful was that they recruited a few well-known investors and used them as the basis to recruit more. In sum, beware of who you think your friends are!
Allen Stanford went from being one of the richest men in the USA, one of the few billionaires, to being in a prison cell when authorities uncovered his Ponzi scheme.
Stanford sold certificates of deposit (CDs) issued from the bank in Antigua (that he founded). People like CDs because they are considered “safe” investments. However, according to his CFO, he “made up numbers and cooked the books.”
Meanwhile, he used his investors' money to live the high life including buying a private island and owning several properties and mansions.
He is currently serving a life sentence in prison. His CFO turned him in in exchange for a lighter sentence of 5 years for himself.
The Pigeon King
I had to mention this Ponzi scheme because it's truly bizarre.
This took place in Canada, where a man named Arlan Galbraith, was found guilty in 2014 for a Ponzi scheme involving pigeons.
Galbraith maintains his innocence, but the jury found otherwise. Essentially, Galbraith sold pairs of pigeons to farmers and promised to “buy back their offspring at fixed prices for 10 years.” He promised to sell the birds as food or “racing pigeons” but he never did. He just kept reselling the offspring to other investors and thus, had to have a constant stream of new customers and contracts.
Lest you think this sounds like a small operation, he took $42 million from farmers all in all. He eventually could not buy back the birds as promised under his contract. This meant that he didn't pay back $356 million he owed to farmers.
He maintained his innocence, but it turns out that the pigeons weren't even worthy of eating or racing. They were “a bunch of junk — crossbreeds.” Galbraith declared bankruptcy and was sentenced to over 7 years in prison.
Bernie Madoff is probably the most recognizable name on this list.
Just five years ago, a judge sentenced him to 150 years in prison for defrauding people out of $20 billion dollars.
Part of the reason he was so successful was that he spent his whole career working in the financial industry. He had a way of garnering people's trust. According to an article in The Guardian, Madoff even fooled people who ran hedge funds and formerly worked for the SEC.
Madoff is currently serving his prison term but caused much strife to his wife and family. Both of his sons have died since he went to prison, and he ruined many people's lives with his greed.
As you can see, these four Ponzi scheme examples show how clever and manipulative these men really were. Not only did they get investors to part with millions and millions of dollars but they fooled people who have been in business for decades.
The moral of the story is to always do your homework. If something sounds too good to be true, it probably is. Just because someone claims you'll get a better than average return doesn't mean you will.
Investing your money is serious business, and you shouldn't make investing decisions based on what friends or family members say. You can hire a trusted financial advisor, but better yet, do your own research to find which investing decisions work best for you.
Do you know of a Ponzi scheme that isn't on this list? Have you ever had a friend or family member ask you to invest in their big idea? What type of investments do you like to make with your money?