Rogues of Wall Street

CHAPTER 7 Ponzi Schemes and Snake Oil Salesmen

This chapter is concerned with financial institutions that use illegal methods to gain investors and buyers. The first section deals with investment managers who do this by falsely pumping up their performance in the manner of Ponzi schemes ala Madoff. The second section deals with financial institutional salespeople who smooth‐talk and graft their way into the graces of individuals, pension funds, institutional clients, banks, charities and trusts through the old‐fashioned methods known as bribery and corruption. Finally, we will then look at how these tried and trusted methods for fooling people and for taking advantage of fools can be countered.

Ponzi Schemes

Much has been written and said about Bernie Madoff, but he was neither the first nor the last to conjure a money‐making machine out of thin air.

In 1920 in Boston, Charles Ponzi's supposed arbitrage scheme was just a masquerade for paying off early investors with the deposits of later investors. Ponzi claimed he would double investors' money in 90 days through a bizarre plan to buy and resell international postal‐reply coupons. Ponzi collected more than $8 million from about 30,000 investors in just seven months before the scheme collapsed. He served five years in prison for using the mail to defraud. Thus, the Ponzi scheme was born. A bit later, Swedish businessman Ivar Kreuger, known as the match king, built his own Ponzi scheme, defrauding investors based on the ...