New Book on Ponzi Schemes Digs Deeper into the World of the Con Artist,
Offers New Solutions to Investors
Ponzi schemes have made headlines since Charles Ponzi first used the technique to defraud
investors nearly 100 years ago. Today, they cost investors approximately
$10 billion per year. Yet, they all share common characteristics that
should warn investors and keep them from investing. How, then, have con
artists, from Charles Ponzi to Allen Stanford and every one in between,
been able to use the same techniques to dazzle and defraud wealthy, educated
individuals and sophisticated institutions for nearly a century?
That’s the central question in renowned legal scholar Tamar Frankel’s
The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims.
According to the book’s description, Tamar Frankel believes the answer
may lie in “the common characteristics of the con artists and their
"Con artists remind us of honest people,” Frankel writes. “They
are similar to entrepreneurs, eternally and unshakably optimistic, and
they act like (and are) gifted salespeople."
To make her case, Frankel “offers clear yet comprehensive descriptions
of the various designs of Ponzi schemers' attractive offers and flags
the ways in which they mask their deception through specialized methods
of advertising and selling. She then constructs lucid profiles of the
con artists and their victims, exposing the core nature of the people
at the heart of the schemes and showing how over time the lines between
predator and prey are blurred.”
If the similarities are as convincing as Frankel seems to suggest, the
methods for protecting oneself against a Ponzi schemer should be similar
to those used against an affinity fraudster: Know the tricks and techniques
the con artists use to gain their victims’ trust and access to their funds.
In addition to the
red flags that I’ve repeatedly warned investors about, Frankel’s book
offers a few new warning signs to watch for, including 1) complicated
strategies and/or complex stories to explain the expected level of returns,
2) feigned reluctance to take an investor’s money or let him/her
in on the “opportunity,” and 3) excessive secrecy.