Posts Tagged ‘hedge fund’

How to Avoid Ponzi Schemes

Posted February 2, 2009 by Bernz

The recent arrest of celebrity financier Bernard Madoff brought to light an old investment scam, one that is enjoying a recent resurgence as investors try desperately to hold on to their returns.

The ponzi scheme is named after 1920’s investment manager Charles Ponzi. Ponzi had promised his investors that they would double their money in 90 days- a feat which was not being accomplished anywhere else at the time. Dubious investors were won over by testimonials by happy clients and were soon bringing in amazing returns on their own investments. What Ponzi didn’t tell anyone was that it was impossible to make that kind of return on investment. What he had to do to keep up appearances was to pay the astronomical returns out of new investment contributions. Ponzi’s scheming would have eventually collapsed when the new money couldn’t keep up with the promised returns but instead Ponzi called himself out. He was irritated that a firm down the street had started a similar program and he called the police. Ponzi spent several years in jail before being deported back to Italy. He died penniless two decades later.

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Posted in Estate Planning, Financial Education, Financial Goals, Misc, Wealth Building | No Comments »