‘Seductive charm’: There’s a surprising thread linking Ponzi, Madoff, and today’s brazen crypto scammers

The trick to playing Carlo Ponzi on stage—yes, that Carlo Ponzi, the famous scam artist—is to be heinous, but seductive.

“You can’t just make him a villain,” Massimo Giordano, an actor who has developed a one-man show based on Ponzi’s life and deeds, told Fortune. “He was an evil man, but that only tells part of the story. He seduced people; he was compelling. I play him so that the audience is almost pulling for him to succeed. Almost, but not quite.”

Giordano—whose professional stage credits range from Puck in Shakespeare’s A Midsummer Night’s Dream to the protagonist in the Italian version of The Full Monty—has reprised the role of Ponzi dozens of times, mostly as part of a financial education program for Consob, Italy’s securities regulator. The program is aimed at showing high school and college students, and members of professional associations, the risks of confidence schemes like the one that briefly made the Italian-born Ponzi a multimillionaire in 1920 dollars.

Such frauds are on the rise the world over, investigators report, particularly during the pandemic.

Duping new investors to pay others

After immigrating to the U.S., Ponzi concocted a low-tech, but high-payoff fraud. It involved buying discounted U.S. postal reply coupons (vouchers for foreign return postage) abroad, and then selling them at face value at Boston post offices. But he was really using the money from new investors to pay interest to previous investors, and to establish a reputation. Wall Street schemer Bernie Madoff, who died last week behind bars—12 years into a 150-year term—followed the Ponzi blueprint to a T.

Ponzi promised to give investors $150 for every $100 they loaned him within 45 days. As was the case with Madoff, Ponzi’s caper didn’t end well.

Ponzi took half a dozen Boston banks down with him, and he served prison terms in Massachusetts, Florida, and Georgia. U.S. courts—including the Supreme Court headed at the time by former President William Howard Taft—repeatedly closed loopholes Ponzi exploited. Finally, he was deported back to his native Italy in 1937. He died blind, partially paralyzed, and destitute in Brazil, a dozen years later, at the age of 66.

Wall Street’s biggest scammer

Madoff’s malfeasance was a Ponzi scheme on steroids. Adjusted for inflation, the $18 billion Madoff scam was the biggest in Wall Street history. By the time investigators busted him in 2008, the investment strategist had swindled a sum that’s more than 50 times that of the financial carnage Ponzi caused. 

Tamar Frankel, a Boston University professor emeritus whose long career focused on fiduciary law and the regulation of financial systems, wrote a book on Ponzi and his legacy called The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims. Frankel told Fortune there was a common thread through Ponzi to Madoff and on to their contemporary heirs.

“The financial mechanisms behind the con man’s moneymaking scheme are always secret or hard to verify,” Frankel said. “There is always a smell of illegality, persistent but subtle enough that people are willing to overlook it in order to get at the financial returns.” 

Frankel said that both Ponzi and Madoff had the kind of seductive charm that Giordano, the actor, referred to. They looked the part—expensive clothes and cars, an air of being above the fray—all of which masked a lack of empathy or traditional morals. Men like these, Frankel said, were “narcissists of the first order.”

The ignoble ends met by Ponzi and Madoff (and the empty pockets of their investors) have done little to dissuade new generations.

Fraud rises with COVID numbers

Even before the pandemic, financial fraud was big business, costing victims $5 trillion annually. Since then, it has grown in new and unforeseen ways.

The Securities and Exchange Commission put out a warning in December that Ponzi scheme frauds are on the rise. That such scams would proliferate during a bull market, and amid a pandemic, were hardly a surprise to investigators.

“Fraudsters use times of uncertainty and change, such as the current COVID-19 pandemic, to lure victims into investment scams,” the SEC’s Office of Investor Education and Advocacy warned. Investors, it said, should be extra vigilant of “frauds like Ponzi schemes, fake CD [certificate of deposit] scams, bogus stock promotions, and community-based financial scams.”

The Italian financial regulator Consob, meanwhile, sees the new Ponzis and Madoffs increasingly moving their confidence schemes online, part of a larger regional crime wave of financial fraud. Otherwise, the old scam of using money from new investors to pay profits to those who come later is still the preferred modus operandi. 

Nadia Linciano, head of Consob’s economic studies unit, gave “CoronaCoins” as an example of one particularly effective fraud that has arisen recently, one that preys on investor mania behind cryptocurrencies and society’s preoccupation with COVID-19. Launched at the start of the pandemic, the crypto tokens are said to become rarer—and more precious—as more people are infected by the coronavirus or die from it.

Other schemes include unregistered websites billed as “investment funds” or “trading sites” that guarantee dramatic returns produced by nebulous financial strategies. 

Consob officials say the online sites usually don’t last long enough to rack up the massive damage Ponzi or Madoff caused. But the new incarnations have the advantage of casting a wide net that can reach numbers of potential financial victims that would be unthinkable before the Internet. And sheer numbers—they are more difficult to confront: Shut down one operation, and it will just pop up somewhere else under a new name.

Frankel, the law professor and author, said the one thing that does not change is the type of person who falls victim to such schemes. 

“I don’t know if the Internet makes things easier or harder for con artists, because people don’t change,” she said. “Some people are always on the lookout for easy money, but it’s not necessarily about money. They always want to feel like they are special, that they’re in on a secret, that they are part of an exclusive group, and for that, they are willing to overlook the warning signs.”

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