Hierarchical Ponzi schemes
Who is Carlo Ponzi?
The pyramid scheme is a fictitious project based on a fraudulent investment plan that eventually leads to the bankruptcy of many investors and sends their savings into the wind. The concept behind a pyramid scheme is simple, and it's easy to explain how it works. However, many investors are often exposed to fraud and fall into the trap of the pyramid, which takes several forms in the art of persuasion through the temptations and promises of resonant imaginary numbers. "Pyramid Chart" It is an organized scheme that takes the form of a pyramid, as its name indicates.
One of the fraudulent methods used to convince and attract people is that when large sums are deposited in the concerned company founded by the owner of the idea of the pyramid to be the hidden front for his fraudulent business, these sums are invested in productive projects with high returns and profits monthly and annually, and this is much more than what banks provide in terms of interest on frozen deposits. And since the main character of human beings is greed, the love of money and quick profit, the mind begins to stop thinking and the voracious eyes widen at the sight of money, then it becomes clear to the top of the pyramid, the scheming man, that the prey, not the investor, has fallen into his net, so he seizes the opportunity to demand money and more of it, promising high benefits. With a guarantee of the basic capital.
The name of the owner of the pyramid spreads in the core of society as a successful businessman with a good reputation and credibility, and he participates in profitable projects as a guarantor of the capital and benefits according to the regulations and laws. People from all classes flock to him, hoping and wishing for him, and he is the person who is qualified, deified and entrusted with money and property to invest in them gold and petroleum, which he converts into double profits. And all this comes without any question or even an inquiry by the depositors about how to manage the money due to the blind trust in this responsible person. The external view of things is very superficial. As for the inside, there is a void in the shape of a black hole.
All there is to the matter is that when the old person receives the money from the victim investor promising him abundant profit, everything that is paid in cash at maturity is from the capital of the investor himself. For example, if we assume that one of the major investors handed the old person an amount of $100,000 one hundred thousand dollars, hoping to generate profits of up to 15% per month as a result of returns through an investment. But all the old man actually does is withdraw the 15% figure from the same $100,000. And if we count that there are hundreds of investors whose money ranges from a hundred thousand dollars to a million dollars, then the old man has obtained wealth from nothing, using this wealth for his personal pleasures, enjoying the luxury of life, squandering money, claiming that he has concluded commercial deals and signed successful contracts for factories and companies, so that the situation continues. He remained the same for a few years until he was exposed. Then the false truth and the fabricated accounts become clear, and dreams collapse, and with them the palace of illusions that was originally built on paper. Either Al-Haram flees or turns himself in, declaring his bankruptcy, to be imprisoned for a short period of time, while finding a legal settlement for his financial situation.
In fact, it is impossible for this cycle of cheating to stay put and continue forever. As when the capital runs out and the investors stop paying, the scandal appears when things reach the bottom of the pyramid and the accounts evaporate. And it becomes impossible to recruit new owners of money in order to pay the costs of the previous class of investors.
Who is Carlo Ponzi?
This scheme was named after Charles Ponzi, who thought, planned and managed this fraudulent program from 1919 to 1920. An American of Italian descent, he entered the United States in November 1903, specifically to Boston to start working in a restaurant in Glee. The dishes. Hence, he was promoted to waiter based on customer service but was soon after fired for theft. In 1907, Ponzi moved to Montreal and worked there as an assistant teller in the Zarossi Bank, and his mission was to market the services provided by the bank to investors and immigrants from Italy, including returns of 6%, nearly double what the banks were paying at the time. As a result, the bank witnessed rapid growth, but after a while the bank declared bankruptcy due to bad bank loans and mismanagement of funds, and the owner fled. Ponzi found himself unemployed, broke, and alone. One day, he forged a $420 check, and when he was arrested, he pleaded guilty and spent three years in a prison in Quebec.
In 1911 he was released. Ponzi returned to the United States and became involved again in the smuggling of Italian immigrants to America and spent two years in prison in Atlanta. After his release, he met Rose Genko and married in 1918.
In 1919, Ponzi established his own company “OLD COLONY FOREIGN EXCHANGE COMPANY” And he began marketing his scheme. He used to take money from investors, promising them to provide fantastic profits to be paid monthly, with a sure guarantee of capital. And all without disclosing how the funds are managed or introducing the business deals. And when the time came for the payment, he would only withdraw from the capital itself, delusional (the investor) that the money paid to him was part of the profits from several successful deals and trading in shares on the stock exchange. And so on until all the money that was in his possession evaporated. A year after the establishment of the alleged company, his matter was exposed and it became clear to everyone that there was no return, no profits, and of course no projects to mention, and he was arrested several times on charges of fraud as a result of repeated lawsuits, and he suffered troubles and hardships and witnessed several trials and imprisonment several times until 1934.
In 1937, his wife demanded and obtained a divorce. He traveled back to Italy, trying to revive his hierarchical schemes, but in vain, for he fell on deaf ears, and none of the inducements he had put in place succeeded. At one point, Benito Mussolini gave him a job in the financial sector in his government, which he headed at the time. However, Carlo Ponzi abused that job and was forced to travel to South America, but not, as usual, before embezzling a sum of money from the Italian treasury. Ponzi lived the rest of his life in abject poverty, working occasionally as a translator and suffering from health problems. In 1941 he suffered a heart attack, which greatly weakened him. His eyesight began to gradually diminish. In 1948 he was almost blind and a cerebral hemorrhage left him paralyzed in his right arm and leg. He died in the Charity Hospital in Rio de Janeiro on January 18, 1949.
It is easy to see how the hierarchical system interacts. However, participation in it (regardless of the form it takes) entails a lot of risks. It is very important to prepare for a full study and dive into the smallest details before proceeding with the decision and entering into the potential project.
The nine largest frauds occurred in the thirty years to date.
EF HUTTON Corporation 1985
It was considered one of the most important and prestigious American financial companies alike. Fall in the field of stock exchange, financial trading in futures contracts as well as stocks and treasury bonds. Until it began to collapse and declared complete bankruptcy in 1985. In 1980, the company began issuing paper checks, which are drawn checks without the drawer having a balance that allows it to be paid. Hutton's management used this strategy to profit from daily interest movements of $250 million. In 1985, the company admitted the charges related to it. In exchange for a guilty plea, none of the executives were prosecuted and allowed to go about their business as usual. In 1986, it was bought by the American company Lehman Brothers, SHEARSON LEHMAN BROTHERS, which in turn declared bankruptcy in 2008 when the major financial crisis occurred.
ZZZZ Corporation 1986
The owner of this company is Barry Minkow. On the surface, he looked like he was building and building a multi-million dollar company. In fact, he was providing thousands of false documents and false sales receipts. The company's policy was close to following a hierarchical Ponzi scheme, which led to the loss of investors as well as shareholders, sums of $50 million.
CENTENNIAL TECHNOLOGIES Inc. – 1996
This company was welcomed by stock investors on Wall Street, when the share price rose to $55.50 during 1996. Thus, it was considered the best performing company on the New York Stock Exchange at that time. But in reality, the management was orchestrating and recording sales that never happened, coordinating some highly rewarded internal executives for falsifying their data and lying to the media and investors alike. According to the investigations of the Stock Exchange Supervision Committee, it was found that " Technology Centennial. She overstated her profit percentages over a two-year period by about $40 million. As for the repercussions of the company's collapse, more than 200,000 shareholders lost almost all of their money.
1997 BRE-X Corporation
This Canadian-Indonesian company reported that it held more than 200 million ounces of gold, making it one of the richest gold miners. This led to an insane rise in its shares, which made hundreds of its investors into the rank of the rich overnight. On the 19th of 1997, it became clear that the story of the mine was a figment of the imagination, and the share price became worthless. As a result, the major pension funds in Quebec and Ontario (Canada) that have invested heavily in BRE X securities have lost millions and millions of dollars.
ENRON – 2001
Houston-based Enron Corporation. Due to its huge revenues, it was considered the seventh largest company in the United States. And through some rather complicated mathematical practices, including registering the establishment of fictitious companies, the company was able to hide its debts, which amounted to millions of dollars, in exchange for presenting accounting books containing fictional figures and profits formulated in a highly professional and accurate manner. And in 2001, when the investigative committee began to uncover the hidden, Enron looked like it was on the verge of collapse. Soon after the scandal occurred, the company's share price fell from more than $90 to less than 0.70 cents. Thousands of employees lost their savings and many investors lost billions of dollars.
WORLDCOM - 2002
It is one of the giant companies in the field of telecommunications. Its accounts were intensively audited and it was found that all the accounting books were heavily mined. Where all expenses were recorded under the investment item. The total of the so-called investments amounted to about 3.8 billion dollars, and it was nothing but ink on paper. It was also found through the investigation that the management, in agreement with the accounting department, were claiming imaginary profits in the company's official book. Upon closing, thousands of employees lost their jobs and investors their money, and the company's share price fell from $60 to less than 0.20 cents.
Tyco International Corporation – 2002
This company, which manufactures electronic components and operates in safety and healthcare equipment, was once considered a safe haven for blue-chip investors. Until its CEO, Dennis Kozlowski, began the process of (suction) of funds from the company under the name of the loan item and the illegal sale of shares. Together with Chief Financial Officer Mark Swartz, Kozlowski obtained nearly $170 million without the knowledge of Tyco's shareholders. He also arranged the sale of 7.5 million unlisted shares valued at $450 million. When the facts became clear, the company began to collapse, and the stock fell by 80% within six weeks.
- Adelphia Cable Line Company is one of the five largest companies in the United States. It began to unravel when two of its CEOs, along with the three founders, were accused of falsifying the company's securities and other violations, including theft and concealing hundreds of millions of dollars in its financial statements. This led to the bankruptcy of the company and the deeds of the shares owned turned into mere papers with no real value.
Bernard Madoff. MADOV 2008
Former Chairman of the Nasdaq Stock Exchange and Founder of Madoff Investments and Securities. He was handed over to the authorities by his two sons on December 11, 2008 after being accused of reviving and following Carlo Ponzi's pyramid scheme. And Madoff, who is 70 years old, continued for a period of fifteen years with deception, and the result was the evaporation of no less than 50 billion US dollars, and this was considered the largest fraud in the history of mankind.