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 BULL
STREET
– The art of the Con
In the United States we are all familiar with Boston’s, Mr.
Charles Ponzi, who under the guise of doing an extremely sophisticated
arbitrage between U. S. Dollars and higher yielding convertible International
Postal Union Coupons, offered to pay investors unbelievable returns in
exchange for investment in his program. By remunerating early investors
with handsome profits and extensive advertising, the word spread and Ponzi
had attracted almost $10 million and 10,000 investors before the scheme
imploded. Mr. Ponzi had previously served time in Canada for forgery and
within ten days of his release from jail, was again arrested for smuggling
aliens into the United States. Before his career ended in Brazil where
he died in 1949 leaving an estate of $75, he became involved in a Florida
Real Estate Pyramid scheme and ultimately jumped bail to avoid prison
for larceny.
In the United States as well as a good part of the rest of
the world, today, Mr. Ponzi would have been selling a security which would
have to have been registered with the Securities and Exchange Commission
with certain disclosures within his proposed offering document. Under
American "Blue Sky" regulations the document would also have
to conform with regulations and requirements of the State of Massachusetts.
When reading the offering memorandum required by these to oversight regulators,
it is more that likely that investors would have had second thoughts about
the investment. That is if it got that far, Ponzi could well have determined
that he didn’t want to reduce his transparent fraud to writing where it
could have been picked apart or in the alternative, either the State of
Massachusetts or the Securities and Exchange Commission would have determine
that the claims were irresponsible and not allowed the sale. This is not
say that Ponzi couldn’t have gone door to door with his scheme without
filing the required forms, but that would have been to overt even for
the uninhibited Mr. Ponzi.
Not only was his scheme widely publicized, especially when
he was remanded to the local jail to literally serve out his remaining
years, but he wasn’t the first to attempt what is now generically know
as "the Ponzi Scheme."
While Ponzi attempted to do in some of the residents
of Boston with his contrivance, others recently have gotten away with
stealing a country. In Russia after advertising a similar fraud through
newspapers and television the perpetrator, the president of MMM, ran for
office and was duly elected. According to Russian Law he became sacrosanct
and could not be prosecuted. Here was a theft that made Ponzi look like
"Little Lord Fauntleroy" leaving tens of thousands of people
penniless and yet today he serves in one of the highest elected offices
in Russia and goes unpunished. Poof Go the Profits A pyramid scheme collapses,
infuriating investors and triggering the country’s worst free-market crisis
(152)
Elsewhere, savvy investors might have smelled a rat
earlier. But this was post communist Russia, where capitalism is wild,
woolly and new. The come-on, in any event, had been slick and seductive:
pervasive TV commercials that wafted visions of apartments in Paris and
vacations in California, and preposterous returns of 2,000% annually with
no minimum investment. With those tactics, it did not take long for 5
million Russians to pour money into the offices of the MMM investment
firm, the country’s biggest and best-know stock fund.
The came the painful lesson: thing too good to be
true usually aren’t.
“Last week investors learned the hard way about the old-fashioned
Ponzi scheme. MMM suddenly collapsed. By week’s end thousands of investors
swarmed around its Moscow offices trying to redeem their pieces of paper.
Many of the shorn had come from the Moscow Commodity Exchange on the other
side of town, where windows were broken before they were told to try their
luck at the company headquarters instead. On Saturday that market evaporated
when the company folded up shop, and shares that had dropped from a high
of $62 to 50 cents last week were worthless. A regularly scheduled meeting
of the Cabinet was devoted almost entirely to the most dramatic financial
scandal since the fall of communism.”
Of lessor dimensions but of greater proportions on a national
level was a variation on the exact same scene with a different location,
Albania. The Albanians were probably further removed from world events
than any other group people with the possible exception of Tibetan Monks
who disdained communications as part of their vows. Not having been familiar
with what had occurred only a short time before were offered the same
opportunity. This time an entire country was wiped out and instead of
getting elected based on the swindle, the government was almost boiled
in oil. Albanian President, Sali Berisha naturally proclaimed his innocence
and placed blame squarely upon the Mafia.
"Hey,
the United States invented this Ponzi guy, maybe so suckers in Boston
got taken before anybody knew better, but no one would be sucker enough
to fall like that today like the Ruskys and Banians." "Bunky,
did you ever here of Laurance S. Rockefeller, Pat Boone, or Treasury Secretary
William E. Simon?"
Bennett, 57, is chief executive officer of the Foundation for
New Era Philanthropy, a charity based in Radnor, Pennsylvania, which he
began in 1989. A former drug-program administrator, who advised nonprofits
on management and fund-raising techniques, Bennett became a popular and
influential figure in Philadelphia’s philanthropic and cultural circles,
thanks in part to the prayer breakfasts he often held. New Era soon became
the answer to a lot of prayers: Bennett promised the organizations and
individuals he approached a 100% return on their contributions within
six months, thanks to anonymous donors who would match their gifts. New
Era would only keep the interest earned during the search. It sounded
too good to be true, especially since the mysterious benefactors were
known only to Bennett. But when he delivered on his early promises, the
news spread and investment in New Era increased exponentially; last year
it rivaled the Rockefeller Foundation in its largesse (total: $100 million).
Cathryn Coate, executive director of the Greater Philadelphia Cultural
Alliance, says; ‘The world on the street was that Bennett was a super
credible man, impeccable. You hear things like, ‘Oh, I’ve known Bennett
for 15 years.’ It’s not like a bunch of quick-fix guys duped a bunch of
bozos.’
Bennett was only doing what Charles Ponzi did in Boston back
in 1919, paying back one wave of investors with money he received from
ensuing waves. Like Ponzi, Bennett was something of a civic hero for a
while, and like Ponzi, he was careful not to draw attention to himself
with a flamboyant life-style.
Listed among New Era’s creditors were Rockefeller ($11.4 million),
Simon ($6.5 million) and Boone, although the largest individual loser
was the Rev. Glenn Blossom of Dresher, Pennsylvania ($27.4 million), who
was using the funds to establish a seminary. All in all, New Era claimed
$5551 million in liabilities against just $80 million in assets.
Bennett’s secret was that he was able to marry
two powerful but seemingly contradictory human instincts: greed and charity.
Those who threw in with New Era were so anxious to give, and to get, that
they overlooked the obvious. But the greed and charity have met before.
Charles Ponzi’s biggest extravagance was a $100,000 donation he made to
an orphanage." (153)
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