Ponzi : The Legend Lives On

Ponzi Book CoverPonzi scheme. You’ve most likely heard of the term, although you may not know exactly how it works. A Ponzi scheme is a scam where investors are promised amazingly high returns on their money based on some ‘secret super-investment’, but in reality the money to pay older investors is simply taken from the money of new investors. Of course, this can’t go on forever, and the investors involved at the end are usually left with nothing.

Let’s take the most recent ‘investment program’ which reeks of being a Ponzi scheme, 12DailyPro, which is now being investigated by the FBI. The story of this interested me so much I started reading ‘Ponzi: The Incredible True Story of the King of Financial Cons‘. The similarities between his story and 12DailyPro are astonishing.

Let’s start with Charles Ponzi, an Italian immigrant in the 1920s who promised a 50% return in only 45 days, compared to the 3-4% that banks were giving out at the time. He stated that the crazy returns he got were from some sort of international transactions involving postal stamps and currency exchanges. The first people involved were skeptical, but when he delivered on the promise in 45 days, people started rushing in with their money. At his peak, he had about $10 million (in 1920s money!!) of other people’s cash. Of course, there was a spectacular collapse when the government finally stepped in and shut it down. Even at the end, Ponzi still had many devoted followers who refused to believe it was a scam.

Ok, now fast forward to the present:

12DailyPro.com debuts, and promises a 44% return on your money in only 12 days, as compared to the ~4% APY banks are giving out now. The investment program states that the money comes from users surfing websites with advertisements for about 5 minutes a day, amongst other vague things. The first people involved were skeptical, but as the site consistently delivered the said returns, people started rushing in with their money. Millions of dollars are reported to have went through the company. Due to recent investigations by various state and federal authorities, the site has shut down, with many people losing tens of thousands of dollars. Even during this collapse, 12DailyPro still has many devoted followers who refuse to believe it was a scam.

Eery, isn’t it? I believe some people invested in 12DailyPro knowing full well it was a Ponzi, but also aware that the early adopters could come out well ahead. I think the rest truly thought they had found a gold mine that would erase all their debts and give them passive income forever. Anyways, the book was really good and almost made you root for Ponzi and want him to come out on top. I couldn’t put it down, the story really shows how greed can blind people.

For more on 12DP, check out this Wall Street Journal piece. A quote from the article:

Asked if he thought the gains were too good to be true, Mr. White said, “I suppose there was a possibility it was a Ponzi scheme. You always had that at the back of your mind.” He added: “144% in 12 days? You don’t get that from your bank.”

Comments

  1. wow, I’m surprise I’ve never heard of this.

    reading the forum is SCARY.

    some of them really think they’re victims… it’s all so one sided and.. brainwashing.

    good post. I’ll be sure to take a look at that book too..

  2. imagined if they had used paypal instead of stormpay. lol..

  3. My brother tried 12dailypro and made around $13 after fees. Last check came in a week before stormpay shut everything down (probably a bad thing since he won’t learn a lesson).

    On a somewhat similar topic, the estimated top prize for Powerball reached $365 million and I was wondering at what point would it become ?worthwhile? (as in, positive expected value) to buy a lottery ticket. My back of the envelope calculations were: $146 million (local newspaper stated odds of winning were 1 in 146 million) * 2.0 (assuming around 50% in taxes) * 2.1 (to get the payment in a lump sum) = $613.2 million?and that?s if there?s no split. I believe the odds of that happening are 1 ? ((146 million ? 1) / 146 million)^(number of tickets sold). Powerball.com said they would only increase the jackpot by $25 million if there?s no winner, so I?m assuming at least 25 million tickets are sold. With 25 million tickets sold, the chances your winning ticket is split with someone else is 16%. I didn?t bother to assume opportunity cost. Bottom line: don?t play powerball until it exceeds $730 million.

  4. No, there’s no way PayPal would have allowed this. They had to go with shadier payment processors with more lax rules, like the ones that some offshore gambling sites use.

  5. The scariest thing is that there are thousands of these kinds of Ponzi scams online these days. A lot of the big promoters just go from scam to scam, getting in early, making a load of cash, and bailing before the inevitable crash. Then they move on to the next one.

    Nevermind the fact that the whole thing’s illegal, the freakiest part of it all is the twisted brainwashing mind-games that goes on. It’s absolutely bizarre.

  6. Do a search for HYIP (high yield investment programs)… you’ll find a lot of scary stuff out there.

  7. And it amazes me how many people still think that this stuff isn’t a scam. http://www.wahm.com has lots defending it. and http://www.walktalkradio.com did a segment on it and while the host is against it she did have a guest that it a real fan.

    Argh… if it sounds too good to be true it probably is.

  8. Busted – link

    I wonder how much Mr Johnson will keep? I wonder if he’ll see jail time?

  9. It’s Ms. Johnson :)

    According to Johnson’s attorney, Noell Tin, a Clarksville, Tennessee, credit card payment processor called StormPay.com “is holding about $50 million of 12dailypro.com’s money.”

    Holy Jeebus.

  10. “money to pay older investors is simply taken from the money of new investors. Of course, this can’t go on forever, and the investors involved at the end are usually left with nothing.”

    If this is illegal, why is the government doing this same scheme with Social Security?

  11. Wheresmybailout? says:

    Alais, I too was scamed under a program that paid 50% in 90 days on investment. At first it worked for two returns. Then the gov’t came in ( stupid gov’t) and shut the operation down! It was one based on a real estate. The guy “supposedly” was using the invested money to purchase foreclosed homes and resale them @ a profit. I believe the scam part is ( not sure case is still under investigation – over 1 year now- Stupid slow gov’t) that the money was being used for personal reason not so much for purchasing foreclosures. But hey, If the guy was willing to borrow to pay his personal bills and payback 50% I did’nt have a problem with that – ( did I?) Show me the money!!!!

  12. Dushyant says:

    Nice post, really very important for anyone who want to invest and earn

Trackbacks

  1. [...] just dooms us to want to believe in impossibly easy money. If you aren’t familiar, check out this previous post on 12DailyPro (another Ponzi which suckered in a much less wealthy crowd) and a book about life of [...]

  2. [...] Do the math, people! Double-digit returns + a bank based offshore in Antigua + no FDIC-insurance = Either fraud or risk to principal. And remember, in schemes like these the interest is always very reliable, coming every single month like clockwork…. until one day it doesn’t. Been that way since the real Ponzi. [...]

  3. [...] brought up comparisons between Social Security and Ponzi schemes. (Have you read the book about the real Ponzi?) Even though seemingly every single economist on Earth has weighed in, this discussion has been [...]

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