Infamous Fraudsters Series: Charles Ponzi

The landscape of fraud is constantly evolving as criminals continually develop new ways to attack businesses and customers.

Millions of people are affected by fraud every year and it is estimated that in 2019, criminals made $4.2 trillion from fraudulent activity worldwide. But, fraud has always taken place.

In this series we will be profiling some of the most notorious fraudsters of all time, their crimes and how they got away with them for so long…

Charles Ponzi

The second subject in our series of infamous fraudsters is Charles Ponzi. Charles Ponzi is one of the most infamous fraudsters of all time after defrauding people out of millions of dollars in the 1920s.

Charles Ponzi’s original scheme was focused on the US Postal Service.  At that time, the postal service had developed international reply coupons that allowed a sender to pre-purchase postage and include it in their correspondence. The receiver would take the coupon to a local post office and exchange it for the priority airmail postage stamps needed to send a reply.

Under the heading of his company, Securities Exchange Company, he promised returns of 50% in 45 days or 100% in 90 days and due to his success in the postage stamp scheme, investors were immediately attracted. Instead of actually investing the money, Ponzi just redistributed it and told the investors they made a profit. The scheme lasted until August of 1920 when The Boston Post began investigating the Securities Exchange Company.

While this type of fraudulent investment scheme was not originally invented by Ponzi, it became so identified with him that it now is referred to as a “Ponzi scheme.” His scheme ran for over a year before it collapsed, and it is estimated that it cost his “investors” $20 million, $250 million as of 2020.

Ponzi schemes are a scam as the money that’s invested is always being ‘recycled’, and the company never makes a real profit – it just redistributes the money. As long as new investors keep putting their money in, the company appears to be doing well, and returns are generated for early investors with money taken from later investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.

However, they eventually bottom out when the flood of new investors dries up and there isn’t enough money to go around. At that point, the schemes unravel.

The concept of the Ponzi scheme did not end in 1920. As technology changed, so did the Ponzi scheme and in 2009, Bernie Madoff was convicted of executing the largest Ponzi scheme in history, defrauding billions of dollars from thousands of unknowing investors.

Millions of people are affected by fraud every year and it is estimated that in 2019, criminals made $4.2 trillion from fraudulent activity worldwide.

How We Can Help

The issue with getting money back from a Ponzi scheme is that people willingly hand over their money, often without checking that the company they’re investing in is legitimate. If you’re contacted with an opportunity which seems too good to be true, it usually is; the Financial Conduct Authority (FCA) keeps a register of all the companies they regulate so it’s worth checking this.

However, a number of unknowing customers are signed up to schemes without knowing as their identities are stolen by fraudsters. Here at Acuant, we provide a range of solutions and specialise in identity verification and fraud prevention:

• Our identity verification tools ensure your customers are exactly who they say they are and can head off criminal activity at the pass by matching customer data with transaction histories, making it easy to identify high-risk customers, remain AML compliant, and avoid the taint associated with fraudulent activity.
• Our leading solution to mitigate the risk of impersonation fraud, FraudWeb searches over 600 million records on the Dark Web for your customers’ information to prevent fraud from taking place.

FraudWeb provides an extra level of security by searching and monitoring customer PII against compromised data on the Dark Web.

Our global ID, KYC & AML platform, Sodium serves our complete suite of solutions via a single API. This solution enables all data sources to be cross-referenced and deliver truly enhanced customer due diligence.

Utilise a single element or multiple processes – it’s entirely up to you. Learn more about how we can help to automate and simplify your verification processes to help you to learn more about your customers. One simple integration; a flexible 360° solution which is scalable and secure.

Book a demo today and see for yourself how powerful our suite of solutions are.