You have likely heard the phrase that if something sounds too good to be true, it probably is. Nothing could be further from the truth when it comes to how a Ponzi scheme works and how it can spin out of control.
Some of the most trusted individuals in the business and finance industries, during their time, turned into the biggest Ponzi Schemes of all time. Included in this list are well-known names such as Bernie Madoff, Tom Petters, and more recently, Sam Bankman-Fried.
While, in most cases, these individuals seemed believable to many people, it was soon discovered that they were all running a scam. Curious about some of the world’s biggest Ponzi Schemes that are on record today? Keep reading to learn more.
What is a Ponzi Scheme?
In essence, a Ponzi Scheme is based on a fraudulent claim by the head of an investment organization claiming to be able to invest money that will result in high returns with low risk to the investor. The crux, however, while in the beginning, it seems legitimate, the company is using later investment money to cover the returns paid to early investors.
In most cases, this scheme is revealed when fewer new investors are providing the funds for paying back early investors. Additionally, the scheme can bottom out when too many investors come to pull their money out all at the same time, which the organization does not have the funds to pay them back.
What Are the World’s Biggest Ponzi Schemes?
Over the years, there have been many Ponzi Schemes that have gone on the record as being some of the biggest in history. This ranking has either come from the amount of money that was swindled or the notorious nature of the person running the scheme.
Are you curious about some of the biggest Ponzi Schemes on record today? Keep reading to find out which ones cut.
Most people, when they hear the name Bernie Madoff, they link it to one of the biggest Ponzi schemes in history. This is because when the fraudulent behavior was finally exposed, Bernie Madoff was said to have cheated investors out of more than $60 billion.
Originally known as a Wall Street guru who spent years taking investment money from individuals and putting it into what he called a split-strike conversion, the actuality is that he was running a Ponzi scheme. Instead of the investment money building a profit as he showed on paper, he was falsifying records and paying early investors off with money from later investors.
When the market began to collapse during the Great Recession in 2008, Madoff confessed to his sons the truth of what he had been up to. He was arrested the next day and later sentenced to 150 years in prison. He died in prison in 2021 at the age of 82.
Related: Was the Fall of FTX Known as a Bernie Madoff Scheme?
Sergei Mavrodi launched MMM in 1989 as a computer tech supplier and had nothing to do with the financial world at the time. Later, however, he decided to begin selling stock in his company which was just the beginning of his Ponzi scheme.
At the beginning of 1994, Mavrodi announced that consumers could now own a piece of MMM and were originally selling the stock for a small amount of money. Because he was a trusted businessman, investors flocked to purchase the stock that had the promise of bringing in a lot of money.
It was later discovered that although he claimed to pay out those who wanted to get their money back, he did so with later investors' money. Through this scheme and his later scheme of selling MMM coupons when he could not access more stock, he ended up defrauding investors for more than $10 billion.
FTX and Sam Bankman Fried
One of the more recent cases of a Ponzi scheme is the one of FTX founder, Sam Bankman Fried. Although his cryptocurrency exchange company was legitimate at the time of its founding in 2019, it is said that Bankman-Fried mishandled billions of dollars from investors.
The charges against Bankman-Fried showed that he had been defrauding investors for years and using their money to fund his own political and business events. Once known to the crypto world as a respectable businessman, he is now known as the FTX founder who defrauded investors out of more than $10 billion.
Although Bankman-Fried has been charged with many counts of fraud and conspiracy charges, he is currently out of jail on bond and confined to his parent's home in California. This once crypto genius led one of the biggest Ponzi schemes in the world and is said to have personally profited from it over the years.
Related: The Fall of FTX
Allen Stanford, Stanford Financial Group
Once known as a respectable banker, Robert Allen Stanford is known now to have orchestrated one of the biggest Ponzi schemes in the history of the financial industry. While investors thought their money was going into CDs and various stocks, Stanford was using the funds for his own personal lifestyle needs.
A Texas native who is said to have had a humble beginning soon became an investment banker with much larger dreams. He founded Stanford Financial Group in Antigua in 1991 to help others reach their financial goals, or so they thought.
Stanford was convicted in 2012 for defrauding more than 50,000 investors and cheating them out of more than $7 billion. He was sentenced to 110 years in a Florida prison for his crimes and the majority of his victims have never recovered their funds.
Tom Petters, Petters Group Worldwide
A Minnesota native, Tom Petters had aspirations of becoming a successful businessman for many years as a young man. He founded his first business, Ear Electronics when he was still in high school.
While on the surface, Petters was seen as a reputable businessman who helped many companies get their footing after the financial crisis, he was defrauding them behind the scenes. He was often seen with many of the movers and shakers of the world and deemed a lifesaver in the business world.
Under it all, however, it was discovered that Petters and his company were cheating investors out of more than $3 billion. Once this was discovered, he was indicted and later convicted of one of the biggest Ponzi schemes in history. He is now serving a prison sentence of 50 years with no possibility of parole or early release.
You May Also Like: Bitcoin Ponzi Schemes & How to Identify Them
This article was brought to you by the Crypto Sports Betting on MintDice. Originally posted to the MintDice Blog.