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History of the Ponzi scheme

Numerous Ponzi schemes have popped up around California over the years. A recent Ponzi scam artist is James Paul Lewis, Jr., who in 2006 received a sentence of 30 years in prison for running a Ponzi scheme in California for 20 years. 

A Ponzi scheme is briefly defined as an unrealistic investment opportunity where the mastermind of the organization takes money from a first group of people. These people are later paid back by a second group and so on and so forth. This money is never actually invested. It merely becomes redistributed among all the members. 

Charles Ponzi

Ponzi schemes are a relatively recent invention, and they originated in Boston. In 1919, Charles Ponzi developed a scam using pre-paid postal reply coupons. Initially, Ponzi simply had his friends invest money, and he promised them a full return of their investments within 90 days, which he was able to accomplish by simply redistributing their funds. As word got around, more people began investing. His plan only lasted until 1920 when federal agents shut down his operation. Ponzi was later sent to prison on account of fraud.

Modern examples of Ponzi schemes

Although this activity is illegal, it has not stopped numerous people from attempting it. Perhaps the most famous Ponzi scheme of all time was the one conducted by Bernie Madoff. Over the course of decades, Madoff stole approximately $65 billion. Madoff's company actually began legitimately, but over time it transformed into something illegal. As a result of his crimes, Madoff received a prison sentence of 150 years. There are several other well-known examples of Ponzi schemes coming to light, including those run by Reed Slatkin, Tom Petters and Lou Pearlman. Even though many of these schemes lasted for decades, the perpetrator was always found and brought to justice. Despite the harsh penalties, many entrepreneurs engage in Ponzi schemes to this day. 

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