Scams are all over the place, but even before online scams became the richest prize for con artists, there were schemes that were so successful that they became a global phenomena without benefit of the Internet. One of the most famous of these was the Ponzi scheme, named after businessman Charles Ponzi who in 1920 conceived of the brilliant notion of using sleight of hand to make a bundle by juggling other people’s money.
Considering that it is nearly a century old, one would suppose that people would know better than to participate in a Ponzi scheme, but in fact because it is such a simple concept that can take many forms perpetuated by what appears to be legitimate businesses, it is still a matter of concern in securities regulation. The most recent case was filed by the US Securities and Exchange Commission in May 2014 against a fund manager based in Chicago, who had allegedly used the money from new investors to pay redemptions by existing client and using the excess for personal expenses.
The problem is that mere participation in a Ponzi scheme can land an investor in hot water. Financial institutions that have likewise been duped by a clever operator are especially at risk of criminal litigation as well as claims of breach of fiduciary duty and the like from investors. In the case of the fund manager, any financial institution that invested may also be named in any claim by plaintiffs as a participant in the scheme.
While Ponzi schemes are considered white collar or non-violent crimes, they nevertheless have long-term consequences for those charged with participation. It would infinitely be preferable to get out of it with nothing more than money lost.