Ponzi 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.”
By Jonathan Ping | Book Reviews | 2/17/06, 10:45pm