You Can't Cheat an Honest Man - James Walsh [151]
The District Court upheld this conclusion.
For the next three years, Jobin convinced the federal bankruptcy court to avoid payments that M&L had made to investors. By 1996, when she finally liquidated the bankruptcy estate, she had recouped almost $10 million. So, while Jobin wasn’t able to balance the accounts of the bankrupt business, she was able to mitigate the damage.
CONCLUSION
Conclusion: The Mother of All Ponzi Schemes
The later half of the 20th Century has seen a confusing mix of eroding public trust in certain institutions (and burgeoning trust in others), growing self-absorption among many people and an increase in material wealth that’s not always evenly distributed.
The result is a favorable climate for Ponzi schemes. The uneven distribution of wealth encourages greed and fear. Self-absorption breeds secrecy and gullibility. The migration of public trust from dogged government regulators to vapid television celebrities creates a moral vertigo that makes crime all but inevitable.
With Ponzi and pyramid schemes appearing in many places, people looking to make money have to move cautiously. It’s true that some of the biggest fortunes are made on the fringes of markets and industries. But these fringes can be treacherous places. “How do you know a partnership’s oil properties are really there, or that they really have bank accounts?” says Bill McDonald of California’s Department of Corporations. “You assume the [investment brokerage] does due diligence and that what they tell you is accurate.”
If the progress of Ponzi schemes during the past hundred years has proved anything, it’s that accuracy is hard to come by and trust has to be earned. This creates a conundrum: You need to be most guarded about precisely the people and situations most likely to occur. “I ask people: If it’s such a good deal, why is some guy you don’t know calling up to offer it to you?” says Peter Hildreth, New Hampshire’s securities regulator.
To protect yourself from Ponzi schemes, remember the following, common-sense tips:
• Don’t expect to get rich quickly. If an investment sounds too good to be true, it probably is.
• Most bad deals offer high yields and meaningless talk of “guarantees” to “zero risk.” High returns almost always imply high levels of risk.
• Be suspicious of any investment opportunity that seems inordinately complicated. This often is intentional—it encourages consumers to make the investment on faith.
• Ask an investment adviser or accountant to review the prospectus or offer memorandum with you. Promoters who balk at this kind of review should be treated with suspicion.
• Ponzi schemes often straddle regulated and non-regulated markets—but reputations travel. Check out the promoters with government regulators or industry trade groups.
What’s remarkable about Ponzi’s legacy is that, no matter how many times investors lose money, new schemes keep coming forward. And the schemes don’t recognize demographic limits. Greedy and naive people of all sorts—young and old, black and white, rich and poor— line up to throw good money after bad.
Social Security’s Troubling Profile
Nobel Prize-winning economist Paul Samuelson famously wrote:
A growing nation is the greatest Ponzi game ever contrived—and that is a fact, not a paradox. ...the beauty about social insurance is that it is actuarially unsound.
Pundits who want to provoke response like to call the U.S. Social Security program some variation on “the biggest Ponzi scheme in the world.” And they have a point. Social Security shares many common traits with a classic Ponzi scheme. Like a Ponzi scheme, Social Security is a program that transfers