Ponzi scheme believed to be operating in area

June 9, 2021, 8:42 am
Kevin Weedmark


Moosomin RCMP believe a Ponzi scheme may be operating in the area and they want to hear from anyone who may have been approached to invest in the scheme.

“We’ve been hearing there might be one circulating in the area, and people are being victimized and might not even know that it’s illegal and they’re actually victims of a crime,” said Cst Trina Brace of the Moosomin RCMP.

“It’s different than multi-level marketing where there are actual products involved, it’s just money changing hands.

“If people have participated in it we would like them to come forward so it can be stopped,” said Brace.

A Ponzi scheme is a fraudulent investing scam which generates returns for earlier 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.

Both Ponzi schemes and pyramid schemes 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.

Similar to a pyramid scheme, the Ponzi scheme generates returns for earlier investors by bringing in new investors, who are promised a large profit at little to no risk.

Both fraudulent arrangements are premised on using new investors’ funds to pay the earlier backers.

Companies that engage in a Ponzi scheme focus all of their energy into attracting new clients to make investments.

Ponzi schemes rely on a constant flow of new investments to continue to provide returns to older investors. When this flow runs out, the scheme falls apart.

The term “Ponzi Scheme” got its name from Charles Ponzi in 1919, but similar investment scams can be traced back to the mid-to-late 1800s, and were orchestrated by Adele Spitzeder in Germany and Sarah Howe in the United States.

The methods of what came to be known as the Ponzi Scheme were described in two separate novels written by Charles Dickens, Martin Chuzzlewit, published in 1844 and Little Dorrit in 1857.

Charles Ponzi’s original scheme in 1919 was focused on the U.S. Postal Service. The postal service, at that time, 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. Due to his success in the postage stamp scheme, he was able to attract investors.

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.

As a result of the newspaper’s investigation, Ponzi was arrested on August 12, 1920, and charged with several counts of mail fraud.

As technology changed, so did the Ponzi scheme.

In 2008, Bernie Madoff was convicted of running a Ponzi scheme that falsified trading reports to show a client was earning a profit on investments that didn’t exist. Madoff died in prison on April 14, 2021.

Regardless of the technology used in the Ponzi scheme, most share similar characteristics:
• A guaranteed promise of high returns with little risk
• A consistent flow of returns regardless of market conditions
• Investments that have not been registered with the Securities and Exchange Commission (SEC)
• Investment strategies that are secret or described as too complex to explain
• Clients not allowed to view official paperwork for their investment
• Clients facing difficulties removing their money

Anyone who thinks they may have been approached about a Ponzi scheme is asked to contact the Moosomin RCMP at 306-435-3361.