Ponzi Scheme Examples

Ponzi schemes are named after Charles Ponzi, an Italian immigrant who lived in the United States in the 1920s. Ponzi discovered a way in which he could take advantage of international mail coupons to make a large profit. Seeing an opportunity, he set his plan in motion and began soliciting investors.

Almost immediately, Ponzi ran into difficulty operating his plan. He then ceased the actual operation of the plan, but continued to recruit new investors. He started promising investors as much as a 50% return on their investment within 90 days. By mid-1920, Ponzi was earning about $250,000 per day and was paying the returns for his existing investors with funds contributed by new investors.

The scheme eventually collapsed as investors became informed that the amount of money Ponzi had allegedly invested in international mail coupons far exceeded the amount of coupons actually in circulation, and Ponzi spent four years in federal prison.

Although still an investment scam, there is a difference between the Ponzi scheme that Charles Ponzi operated, and a pyramid scheme. Visit our Ponzi Scheme vs. Pyramid Scheme Page to learn more.

Perhaps the most famous Ponzi scheme known today was operated by Bernie Madoff. Madoff was able to operate his scheme for over 30 years by offering steady, adequate returns to investors, regardless of the direction of the market. By the end of his scheme, he had conned investors out of nearly $65 billion, according to CNNMoney.

In 2008, as the economic downturn steepened, Madoff’s investors tried to cash out and requested nearly $7 billion back in returns. Madoff only had about $200 to $300 million left and was, therefore, unable to pay his investors, leading to the collapse of his scheme. Madoff was caught in 2008 and charged with 11 counts of fraud, theft, perjury, and money laundering. He is currently serving a 150 year prison sentence.

It is often difficult to identify a Ponzi scheme. It took Madoff’s investors 30 years to realize what was wrong. If you believe you may be a victim of a Ponzi scheme, it’s important that you act quickly. Our securities lawyers can help evaluate your case, and see how you may recover your investment fraud losses.

Since its inception, Gibbs Law Group has been on the forefront of investment fraud prosecution. We have recovered damages in cases alleging a variety of frauds and scams, including:

Medical Capital Litigation

This class action was brought on behalf of investors who suffered from an investment scam by four different financial entities. These entities disguised Medical Capital notes as reliable investments for their clients, which later turned out to be investments in a Ponzi scheme. Gibbs Law Group served as Co-lead Council on this case and secured a settlement of $80 million on behalf of investors.

Towers Financial Corporation Noteholders Litigation

Gibbs Law Group served as liaison counsel in this class action brought against promoters and professionals who falsely marketed Towers Financial Corporation’s promissory notes. The Securities and Exchange Commission described this failed investment scam as the “largest Ponzi scheme in U.S. history.”

American Express Class Action Lawsuit

This class action as brought against American Express Financial Advisors who claimed to offer financial planning and advice tailored to client’s specific circumstances. In reality, these advisors provided “canned” financial planning, and gave clients general advice meant to direct them to specific mutual funds. Gibbs Law Group helped secure a $100 million settlement on behalf of American Express clients in this case.

Auction-Rate Securities Class Action Lawsuits

Gibbs Law Group served as co-lead counsel on a number of lawsuits against banks and broker-dealers who misrepresented the liquidity and risks of auction-rate securities. This misrepresentation resulted in the collapse of the auction rate securities market. The lawsuits helped spark the interest of state regulators, and many Wall Street firms eventually agreed to re-purchase auction rate securities from investors who bought directly from the banks.

H&R Block IRA Class Action Lawsuit

Gibbs Law Group served as co-lead counsel in a class action lawsuit against H&R Block. The case alleged that the company mislead customers in the sale of “Express IRAs.” Our law firm helped acquire a $19.4 million settlement to repay the fees charged under the Express IRA program.