WEBVTT - SYSK Selects: How Ponzi Schemes Work 0:00:00.920 --> 0:00:03.760 How d everybody. This is Chuck here on the Ranch 0:00:04.480 --> 0:00:08.680 and How Stuff Work Studios and welcome to Saturday selects 0:00:09.640 --> 0:00:12.840 April nine, two nine. We're going way back into the 0:00:12.920 --> 0:00:16.439 archive for this one, how a Pons Schemes Will Work. 0:00:17.079 --> 0:00:20.439 And honestly, I picked this one because I believe, I 0:00:20.520 --> 0:00:23.920 believe this is the very first instance of me doing 0:00:23.960 --> 0:00:27.480 my bad Italian accent. I think it started with this episode, 0:00:27.520 --> 0:00:30.200 if I'm not mistaken, and it has since become such 0:00:30.240 --> 0:00:32.879 a part of the show, and uh, I thought I 0:00:33.000 --> 0:00:36.680 might as well repost this select episode from where it 0:00:36.680 --> 0:00:39.480 all began. And not only that, but it's a really 0:00:39.520 --> 0:00:42.080 interesting you know, it's a really interesting I'm falling into 0:00:42.120 --> 0:00:47.280 it right now. Pons schemes, very very interesting topic and 0:00:47.479 --> 0:00:50.239 um we we we get into it here we men. 0:00:50.360 --> 0:00:51.720 Let you know how to be aware of him and 0:00:52.080 --> 0:00:54.000 in the history behind it, there was a real Pons 0:00:54.200 --> 0:00:56.920 you know that, all right? Learn all about it right now, everyone, 0:00:57.280 --> 0:01:09.400 How Pons schemes work. Welcome to Stuff you should know 0:01:10.040 --> 0:01:18.280 from How Stuff Works dot Com. Hey, and welcome to 0:01:18.319 --> 0:01:22.679 the podcast. I'm Josh Clark Chuck say Hi, Hi, welcome people. 0:01:22.880 --> 0:01:25.760 This is stuff you should know. Indeed, Chuck's got his 0:01:26.000 --> 0:01:28.680 um little jug of vodka. I got my Fresca and 0:01:28.720 --> 0:01:30.840 we were ready to go. All right, Chuck, No, I 0:01:30.840 --> 0:01:33.880 don't drink vodka wire Chuck, Chuck. Do you know how 0:01:34.160 --> 0:01:36.800 we have these web blogs? Now? There's like a stuff 0:01:36.840 --> 0:01:40.560 you should know, web blog, a k A blog. Yeah, sure, yeah, 0:01:40.600 --> 0:01:42.360 if you want to be all hit or whatever. I 0:01:42.400 --> 0:01:44.039 do know how we have that because I write on 0:01:44.080 --> 0:01:46.759 it every day. I know. I was just starting a conversation, 0:01:46.840 --> 0:01:49.400 Chuck layoff. Well, yes, sorry, Um remember that post I 0:01:49.400 --> 0:01:51.400 put up yesterday that you said like you read three 0:01:51.400 --> 0:01:53.680 times and still couldn't make heads or tails of Yeah, 0:01:53.720 --> 0:01:55.680 I didn't get it. Well, there's a there's a part 0:01:55.720 --> 0:01:58.280 of it, uh, kind of the crux of the whole thing. 0:01:58.840 --> 0:02:00.880 I don't know if that's the case or not, but anyway, 0:02:00.920 --> 0:02:03.240 there's an aspect of it. And it was about these um, 0:02:03.240 --> 0:02:06.880 these two artists and um, well one of them just 0:02:06.920 --> 0:02:11.640 goes by the name Arakawa, right, and his partner, and 0:02:11.680 --> 0:02:13.880 I don't think just artistic partner. I think I think 0:02:13.919 --> 0:02:19.519 that their life partners. Maybe her name is Madeline Gins, right, 0:02:20.440 --> 0:02:25.880 and they have been quite successful at creating this architecture. Um, 0:02:25.919 --> 0:02:29.840 that's intended to achieve immortality, right, how so well, the 0:02:29.880 --> 0:02:33.359 way these two have done it is um by through surprising, 0:02:33.560 --> 0:02:39.959 disturbing architectural choices. Right. Basically, their theory is that if 0:02:40.000 --> 0:02:43.120 you create or if you live in an uncomfortable dwelling, 0:02:43.919 --> 0:02:49.400 um discomfort or comfort leavest the laziness and sedentariness, and 0:02:49.440 --> 0:02:53.920 then that's ultimately what kills you. Holly unproven, but they 0:02:53.960 --> 0:02:56.720 designed their architecture based on that theory, so they keep 0:02:56.760 --> 0:03:00.880 you uncomfortable, and uh, it's unfamil Earlier, I think I 0:03:00.919 --> 0:03:02.720 know this. I think we actually have an article on this, 0:03:03.160 --> 0:03:07.120 Like the floors are undulating, undulating floors and uh yeah, 0:03:07.160 --> 0:03:09.520 I've heard of that. They also like um kind of 0:03:09.600 --> 0:03:15.240 moonscape floors, um angled like ceilings. That just it doesn't 0:03:15.240 --> 0:03:17.760 sound like a very pleasant place to live. Pretty interesting 0:03:17.800 --> 0:03:19.720 that this one guy and these things go for there 0:03:19.720 --> 0:03:22.399 there just to build them, they cost millions of dollars, 0:03:22.720 --> 0:03:24.959 but they have built several. Most of them are lofts 0:03:25.000 --> 0:03:28.160 in in Tokyo. And this one guy who lives in 0:03:28.200 --> 0:03:30.359 one with his family said that he's lost like twenty 0:03:30.360 --> 0:03:33.480 pounds and doesn't have hay fever any longer since he 0:03:33.560 --> 0:03:37.840 moved in there. Yeah. Um, but there their their whole 0:03:38.160 --> 0:03:41.840 firm is basically in jeopardy because they were heavily invested 0:03:42.040 --> 0:03:44.920 with one Bernard made Off, who you may may have heard. 0:03:45.720 --> 0:03:50.160 This guy's reach extends everywhere. We're talking Kevin Bacon, right, 0:03:50.240 --> 0:03:53.800 and there's a six degrees joke in there somewhere. Um, 0:03:53.960 --> 0:03:56.640 I imagine Kiras Sedgewick, since Kevin Bacon is in there, 0:03:56.960 --> 0:04:01.000 Jaja Gabor, Spielberg, Spielberg, and that's just like the tip 0:04:01.040 --> 0:04:03.560 of the iceberg, right, I mean, thousands and thousands of 0:04:03.600 --> 0:04:06.800 people were invested with this guy and it turned out 0:04:07.080 --> 0:04:11.320 he was a Ponzi schemer. That's right, it's a Ponzi scheme. Yeah, 0:04:11.400 --> 0:04:13.680 Chuck likes to say it like that in a tribute 0:04:13.680 --> 0:04:19.159 to the Italian immigrant Mr Charles Ponzi, who was running 0:04:19.160 --> 0:04:22.240 around in the twenties. And actually, yeah, you want to 0:04:22.279 --> 0:04:25.480 talk a little bit about Mr Ponzi. Yeah, I didn't 0:04:25.480 --> 0:04:27.280 know this until I read the article. Is pretty interesting, 0:04:27.279 --> 0:04:29.080 and you know, Ponce's all over the news, so it's 0:04:29.120 --> 0:04:30.960 kind of cool to get some background. Yeah. Oh, and 0:04:30.960 --> 0:04:32.800 also we should probably say thanks to all the people 0:04:32.800 --> 0:04:35.360 who wrote in and requested that we do this podcast, right, 0:04:35.520 --> 0:04:38.120 this one's for you, right. Bernie Madoff made off excuse 0:04:38.120 --> 0:04:40.360 me himself wrote in yeah he did. He's like, hey, 0:04:40.360 --> 0:04:43.520 can you tell everybody what I did? So, yeah, in 0:04:43.560 --> 0:04:47.760 the nineties, Charles Ponse. What he did was at the 0:04:47.760 --> 0:04:50.200 time there was if you want to send mail overseas, 0:04:50.839 --> 0:04:54.040 you would include what was called an international reply cupon 0:04:54.200 --> 0:04:56.919 well if you wanted to reply, right. But it's basically 0:04:56.960 --> 0:04:59.680 sort of like, uh, when you get something from you know, 0:04:59.760 --> 0:05:02.679 mag magazine and the postage is prepaid to return the card, 0:05:02.720 --> 0:05:05.640 you know, right, it's it's prepaid so that you get 0:05:05.680 --> 0:05:08.400 that back to say, hey, these people got that exactly right, 0:05:08.800 --> 0:05:11.320 So this is what you did back then. Uh. He 0:05:11.400 --> 0:05:13.600 had an idea. He said, hey, if I go over 0:05:14.120 --> 0:05:16.920 and buy these in a different country where they're cheaper, 0:05:17.240 --> 0:05:19.800 I can come back and sell them in the United States, right, 0:05:19.839 --> 0:05:22.680 And he could do this because these things were internationally recognized. 0:05:22.680 --> 0:05:25.200 There were same in any country, but apparently they went 0:05:25.240 --> 0:05:27.360 for different prices in different countries. Right, So it's not 0:05:27.400 --> 0:05:30.600 a bad business model, right, right, I would say so right. Uh. 0:05:30.640 --> 0:05:32.320 And things went pretty well at first. He got a 0:05:32.360 --> 0:05:35.240 lot of investors and made some pretty good money, but 0:05:35.400 --> 0:05:37.479 the return that he promised, which what was it again, 0:05:37.839 --> 0:05:41.000 It was a ridiculous promise. It was I think return 0:05:41.040 --> 0:05:44.760 in forty to ninety days. So yeah, that should have 0:05:44.760 --> 0:05:46.719 been a red flag right then. We'll talk about that later. 0:05:47.000 --> 0:05:50.120 But yeah, that didn't go as well as he thought. Um, 0:05:50.160 --> 0:05:52.200 but he kept getting investors and he just kind of 0:05:52.279 --> 0:05:54.480 kept this all quiet. So what he would do is 0:05:54.560 --> 0:05:57.680 he would payback some to the initial investors based on 0:05:57.720 --> 0:06:00.919 the money that the current investors were giving him, and 0:06:01.000 --> 0:06:03.760 just kind of kept going in a cyclical way until 0:06:04.360 --> 0:06:06.039 he had a lot of He started you know, taking 0:06:06.040 --> 0:06:08.920 a little money for himself too, and uh ended up 0:06:08.920 --> 0:06:10.720 having you know, millions of bucks off this in the 0:06:10.800 --> 0:06:15.000 nineteen twenties before it finally crumbled. Um as a big scam. Well, 0:06:15.000 --> 0:06:18.880 the reason he was found out was because somebody apparently 0:06:18.960 --> 0:06:22.359 calculated that, um, there would have had to have been 0:06:22.400 --> 0:06:25.560 about a hundred and sixty million of these things extant 0:06:25.720 --> 0:06:27.479 for him to be making the money he was making, 0:06:27.880 --> 0:06:29.679 and the problem is that there was only twenty seven 0:06:29.720 --> 0:06:32.599 thousand exactly. That's that's kind of what found him out. 0:06:32.680 --> 0:06:34.320 But what I got from this, what I got from 0:06:34.320 --> 0:06:38.400 reading about Ponzi schemes, is that, Um, Charles Ponzi didn't 0:06:38.440 --> 0:06:42.720 appear to be a huckster from the outset, like this 0:06:42.800 --> 0:06:47.440 is actually a legitimate business that he was trying to run. Sure, 0:06:47.480 --> 0:06:51.159 I think it was an act of desperation. Um, And well, 0:06:51.480 --> 0:06:54.760 we should probably talk about exactly how Ponzi schemes work. Right, 0:06:54.920 --> 0:06:57.920 they're pretty straightforward and simple. But I can't imagine that 0:06:57.960 --> 0:07:00.479 as they just get bigger and bigger, you start to 0:07:00.480 --> 0:07:02.520 eat a lot of role aids. Right. I bet that 0:07:03.080 --> 0:07:05.600 that was the original Ponzi scheme, and I'm sure he 0:07:05.640 --> 0:07:08.320 was nervous as it was going. What kind of scheme? 0:07:08.560 --> 0:07:11.240 Pons a scheme? Very nice, Chuck, So do you want 0:07:11.240 --> 0:07:15.200 to give some detailed explanation on how Ponzi schemes work? Yeah, 0:07:15.240 --> 0:07:20.400 it's actually pretty simple. What you do is you, um, 0:07:20.600 --> 0:07:24.320 you come up with a investment a shell sort of, 0:07:24.800 --> 0:07:27.480 and you get people to invest in your in whatever 0:07:27.520 --> 0:07:30.720 you're saying you're gonna invest in. In this case, and 0:07:30.880 --> 0:07:34.160 in the original Ponti scheme, it was these reply coupons, 0:07:34.560 --> 0:07:55.400 but nowadays it's usually like a stock thing. So you 0:07:55.440 --> 0:07:57.720 get these folks to invest and you take their money 0:07:57.960 --> 0:08:02.440 and essentially, UH use that first rung of people to 0:08:02.520 --> 0:08:05.360 attract other people to invest. And once you start getting 0:08:05.360 --> 0:08:08.360 other investors, you can pay back those initial folks and 0:08:08.360 --> 0:08:10.120 they can go on record and say, oh, yeah, you know, 0:08:10.160 --> 0:08:12.560 I made a great return. That's exactly right. And then 0:08:12.600 --> 0:08:16.200 that even more investors right, and more wrongs, and you 0:08:16.320 --> 0:08:18.200 just kind of it's sort of like robbing Peter to 0:08:18.200 --> 0:08:22.080 pay Paul the entire time, right, but you're pocketing like 0:08:22.160 --> 0:08:24.600 Ponzi did some for himself. Right. At a certain point 0:08:24.640 --> 0:08:26.680 you can start skimming off the top, right, And but 0:08:26.720 --> 0:08:28.920 it's not like it take the money and run proposition. 0:08:28.960 --> 0:08:31.000 It's the take of the money, stick around and pay 0:08:31.040 --> 0:08:33.680 people off as much as you can. The problem is 0:08:33.679 --> 0:08:37.319 is to like, people don't divest very easily. When they 0:08:37.440 --> 0:08:41.120 get a better and unbelievable return on something, they want 0:08:41.120 --> 0:08:42.679 to keep investing. Sure, So if you're like, no, no, 0:08:42.800 --> 0:08:45.800 you can't invest anymore, the people are going to start 0:08:45.840 --> 0:08:48.319 to get suspicious. So you've got your first wrong, you've 0:08:48.320 --> 0:08:50.000 got your second wrong, and then so on and so 0:08:50.040 --> 0:08:52.320 on and so on. But to sustain it, you have 0:08:52.360 --> 0:08:54.199 to keep adding more and more wrongs. But the more 0:08:54.240 --> 0:08:57.480 wrongs you add, more difficult it is to pay everybody back, 0:08:58.120 --> 0:09:01.080 so it's inevitable that collapses. But as some people will 0:09:01.840 --> 0:09:04.360 know they're investing in a Ponzi scheme, some of those 0:09:04.360 --> 0:09:07.600 first wrong people. Yeah and yeah, from what I understand, 0:09:08.000 --> 0:09:10.800 people can actually make money off Ponzi schemes. You get 0:09:10.800 --> 0:09:12.520 in early enough, and you're smart enough to get out 0:09:12.600 --> 0:09:14.480 while it getting is good because those are the people 0:09:14.480 --> 0:09:16.880 are gonna get paid first, so they can vouch and 0:09:16.920 --> 0:09:20.320 say this is a really great deal, right exactly? So yeah, sure, yeah, 0:09:20.400 --> 0:09:22.480 So the whole that's that's pretty much a Ponzi scheme. 0:09:22.480 --> 0:09:24.400 And if it sounds a lot like a pyramid scheme 0:09:24.400 --> 0:09:27.480 to you, you would be right. Uh, it's virtually the 0:09:27.520 --> 0:09:30.480 same structure. The one big difference is is that in 0:09:30.520 --> 0:09:33.160 a Ponzi scheme, you're not asked to do anything. You're 0:09:33.160 --> 0:09:35.760 just an investor. They just want your money. Uh. In 0:09:35.800 --> 0:09:38.520 a pyramid scheme, generally you have to do something like 0:09:38.600 --> 0:09:44.000 you are buying in uh to sell something? Sorry? Well no, actually, UM. 0:09:44.040 --> 0:09:47.240 On Amway site they have uh like on the f 0:09:47.400 --> 0:09:50.120 a Q section it's like, is am Way a pyramid scheme? 0:09:50.640 --> 0:09:54.480 And they're like where a pyramid model schemes? The wrong 0:09:54.520 --> 0:09:58.000 word to use and Actually, the pyramid model has worked 0:09:58.040 --> 0:10:03.640 for legitimate businesses Am Wai, Mary kay Um paper Chef, 0:10:03.760 --> 0:10:06.040 pamper Chef. That's another one. So yeah, So I mean 0:10:06.280 --> 0:10:09.560 it can work and it doesn't necessarily have to be illegal. 0:10:10.000 --> 0:10:13.640 That that that's the other distinction between Ponzi schemes and 0:10:13.920 --> 0:10:18.679 um pyramids models is that ponzi schemes are always fraud 0:10:19.000 --> 0:10:22.680 completely false because it's an investment, but the money's never invested. 0:10:23.280 --> 0:10:25.160 So it's so simple. When I read this, I was 0:10:25.200 --> 0:10:28.760 just like, it's the beauty is in its simplicity, Just like, 0:10:28.760 --> 0:10:30.960 give me a bunch of money and I will keep 0:10:30.960 --> 0:10:33.679 it and get more people to give me money. I'll 0:10:33.679 --> 0:10:35.880 give you a little bit, and it's just amazing how 0:10:35.920 --> 0:10:38.520 that works. Can you imagine being such an edgy, savvy 0:10:38.559 --> 0:10:42.839 investor that you actually knowingly invest in ponzi schemes? Who 0:10:42.960 --> 0:10:44.959 does that? I don't know. I bet there's some names 0:10:45.000 --> 0:10:48.120 on the on the Made Off List. Yeah, I'm bet 0:10:48.240 --> 0:10:50.920 I'll bet um. But no, he did everything alone. We'll 0:10:50.920 --> 0:10:54.840 get to him in a minute. Allegedly still more, he confessed, buddy, Well, 0:10:54.880 --> 0:10:57.520 we're certain things are still alleged at this point. All right, Well, 0:10:57.559 --> 0:10:59.240 we'll just go with it. You're such a c O 0:10:59.320 --> 0:11:03.160 A dude. But I appreciate the oh because that includes me. UM. 0:11:04.040 --> 0:11:06.120 So Ponzi wasn't the guy who came up with a scheme. 0:11:06.920 --> 0:11:10.240 He he did it so well that they named it 0:11:10.280 --> 0:11:13.320 after him. But the earliest one we know about goes 0:11:13.360 --> 0:11:17.200 back to, UH eighteen eighty early eighteen eighties in Boston 0:11:17.600 --> 0:11:20.439 with a woman named Sarah Howe. I don't think I 0:11:20.480 --> 0:11:24.040 know about this one, okay, So she actually actively and 0:11:24.120 --> 0:11:28.760 purposefully built a Ponzi scheme, although you know what, with 0:11:28.800 --> 0:11:31.080 it being forty years before Charles Ponzi showed up, she 0:11:31.080 --> 0:11:33.160 probably didn't call it that to herself. What was her name? 0:11:33.200 --> 0:11:36.600 How Sarah how the how scheme? Yes, if she were, 0:11:37.160 --> 0:11:39.600 if she did have enough foresight to know that it 0:11:39.600 --> 0:11:42.000 would eventually be called a Ponzi scheme, how would it 0:11:42.000 --> 0:11:44.040 sound in her head when she said, this is the 0:11:44.120 --> 0:11:50.040 kind of scheme that I'm carrying out. It's a scheme? UM? Anyway, 0:11:50.840 --> 0:11:55.120 Miss Howe basically put together a UM, a group of 0:11:55.160 --> 0:12:00.400 thousands of women investors and UH invested in women's UM 0:12:00.520 --> 0:12:04.480 Women's Liberty bonds, I think is what they were called. UH. 0:12:04.760 --> 0:12:08.400 That's supposedly what the investment was for. But no, it wasn't. 0:12:08.440 --> 0:12:11.720 She just basically carried out a Ponzi scheme um and 0:12:11.760 --> 0:12:14.120 she managed to rake in about half a million bucks 0:12:14.200 --> 0:12:19.280 before she was caught. Uh. And then another guy shortly after, 0:12:19.360 --> 0:12:22.200 about the turn of the century. His name was William 0:12:22.200 --> 0:12:26.319 Franklin Miller, and he also builked investors for about another 0:12:26.400 --> 0:12:29.640 half a million. And this is, you know, substantial enough 0:12:29.679 --> 0:12:33.240 to be remembered a hundred years plus later. But Ponzi 0:12:33.320 --> 0:12:36.520 was the first one, right, Ponsi was the first big one, 0:12:36.559 --> 0:12:38.800 I should say. Uh. And then you don't really hear 0:12:38.800 --> 0:12:41.440 about anybody in in the world of Ponzi schemes. I mean, 0:12:41.480 --> 0:12:45.160 I'm sure you can, but nobody huge doing it right now, 0:12:45.920 --> 0:12:49.079 well until Lou Pearlman. Is that where you're going? I 0:12:49.120 --> 0:12:50.880 was going to go to the Balkans first blist to 0:12:51.040 --> 0:12:53.040 Mr Pearlman. Okay, Yeah, this is one of my favorites, 0:12:53.080 --> 0:12:56.400 just because his associations are kind of funny. H Lou Pearlman, 0:12:56.520 --> 0:12:58.120 who I think you have to say his name like 0:12:58.280 --> 0:13:00.960 Lou Pearlman. That's how I got that impression as well. 0:13:01.000 --> 0:13:02.760 And he kind of looks like that kind of guy too. Yeah, 0:13:03.080 --> 0:13:06.160 he was. Uh, he kind of funded the boy band 0:13:06.160 --> 0:13:08.479 craze in the nineties. I know, you remember the Backstreet 0:13:08.480 --> 0:13:10.800 Boys because of the tattoo you have on your neck, 0:13:11.600 --> 0:13:14.240 and uh, in Sync was the other one. I don't 0:13:14.240 --> 0:13:16.200 know if you have a tattoo of instinctly, okay, I 0:13:16.280 --> 0:13:19.839 was covering all my bases. Uh. So he funded these bands. Uh, 0:13:19.840 --> 0:13:22.800 And it turned out in two thousand and six that 0:13:22.920 --> 0:13:25.640 he was running a big Poncey scheme. He had been 0:13:25.679 --> 0:13:27.760 for like twenty years, right, and a lot you know, 0:13:27.800 --> 0:13:29.760 in Sync and the Backstreet Boys were kind of funded 0:13:29.800 --> 0:13:32.240 on this Poncey schemes. I don't think funded kind of 0:13:32.240 --> 0:13:34.720 at all. I think they were fully fully funded, right, Yeah. 0:13:34.760 --> 0:13:37.040 And this this guy created the Backstreet Boys and in 0:13:37.080 --> 0:13:40.280 Sync and funded him with illegal money. So those yahoo's 0:13:40.360 --> 0:13:44.480 kind of oh ponce with their careers, yes they do. Yeah, 0:13:44.559 --> 0:13:49.720 well their careers past tense, right sure? Um, timber Lakes 0:13:49.720 --> 0:13:51.120 done well for himself. Was he in one of those 0:13:51.200 --> 0:13:55.280 who j T I don't know who that is? Shut up? Um? 0:13:55.320 --> 0:13:59.839 All right, Back to Albania. Yes, Albania. Basically a whole 0:14:00.040 --> 0:14:02.400 bunch of people were working this big Ponzi scheme, which 0:14:02.400 --> 0:14:05.640 from what I understand also, UH can extend the life 0:14:05.679 --> 0:14:10.600 of a ponzi scheme, h. Lou Perlman is an unusual animal, uh, 0:14:10.600 --> 0:14:13.000 and that he could carry it out single handedly for 0:14:13.040 --> 0:14:17.200 twenty years. Um. But in Albania, for a while a 0:14:17.200 --> 0:14:20.800 group of ponzi schemers UM had one set up that 0:14:21.560 --> 0:14:27.560 builked these investors out of two billion dollars before it collapsed, 0:14:27.720 --> 0:14:30.880 which is in Albania, that is thirty of their gross 0:14:30.920 --> 0:14:34.880 domestic product. That's huge, Like how to cripple a country? 0:14:35.040 --> 0:14:38.880 Yeah yeah, and yeah, so yeah, I think Albania is 0:14:38.880 --> 0:14:41.880 probably second world. Um. So, I think a hit like 0:14:41.920 --> 0:14:44.400 that is just ginormous. And that was a big problem 0:14:44.440 --> 0:14:46.480 when it happened. It was because when people found out, 0:14:46.520 --> 0:14:49.120 they started riding in the streets and fires broke out 0:14:49.240 --> 0:14:52.800 and people died. Yeah. Yeah, so that's the Albania, the 0:14:52.840 --> 0:14:56.000 old Albania ponzi scheme. And we should note that Lou 0:14:56.080 --> 0:14:59.680 Parliaman he went to jail or received a sentence of 0:14:59.720 --> 0:15:04.120 twenty five years for conning three hundred million dollars, and 0:15:04.200 --> 0:15:06.840 apparently every million he paid back they cut a month 0:15:06.880 --> 0:15:09.560 off the sentence, which seems really fair, I think so. 0:15:09.800 --> 0:15:12.840 But Pearlman three million dollars sounds like a lot, it 0:15:12.880 --> 0:15:15.480 ain't it was. And then two thousand and eight came 0:15:15.480 --> 0:15:20.160 along the big daddy dude, this guy Bernard made Off, 0:15:20.560 --> 0:15:24.120 one of the founders of Nasdak. Yeah, which is one 0:15:24.160 --> 0:15:26.600 reason why it works so well, because he was beyond 0:15:26.720 --> 0:15:33.000 legit He was beyond legit um. Although he his One 0:15:33.000 --> 0:15:35.360 of the other reasons he was so successful was that 0:15:35.400 --> 0:15:38.920 he was smart. First of all, like Sarah, how he 0:15:39.000 --> 0:15:43.240 used affinity fraud. An affinity fraud is where you are bilking. 0:15:44.240 --> 0:15:47.680 You're you're using the inclusiveness of a of a group 0:15:48.280 --> 0:15:52.760 to um against themselves, right, So he uh used his 0:15:52.840 --> 0:15:56.800 membership in a a uber wealthy, very exclusive Jewish country 0:15:56.800 --> 0:16:01.280 club down in Florida to prey on investors at for um. 0:16:01.360 --> 0:16:03.840 And you know, the affinity fraud happens a lot like 0:16:04.040 --> 0:16:06.960 and usually it happens with religious groups. Somebody comes in, 0:16:06.960 --> 0:16:08.680 it's like, hey, I'm a Lutheran two and I've got 0:16:08.680 --> 0:16:11.560 this great investment. Since he's a Lutheran, you know, he 0:16:11.640 --> 0:16:14.960 seems upstanding, you trust him, and then that's that. But 0:16:15.080 --> 0:16:19.040 made Off very much used affinity fraud, at least at first, 0:16:19.080 --> 0:16:22.560 and then news of his amazing returns got out. But 0:16:22.680 --> 0:16:24.520 as I was saying, the reason he was so successful 0:16:24.600 --> 0:16:27.200 is he didn't pull a Ponzi and say I'll get 0:16:27.240 --> 0:16:30.840 you fifty percent return in forty five days. You know, Uh, 0:16:30.920 --> 0:16:35.640 he offered reasonable I think eleven percent was the average 0:16:35.840 --> 0:16:38.480 returns over the long haul, right, That was the key. 0:16:38.480 --> 0:16:40.720 It was very believable. Well to an extent. Have you 0:16:40.760 --> 0:16:44.520 ever looked at our prospectus, the t row price prospectus 0:16:44.880 --> 0:16:48.040 or prospectus? Yeah, have you ever noticed, like if you 0:16:48.040 --> 0:16:50.160 look at it's like one year, three years, five years, 0:16:50.160 --> 0:16:53.600 ten years, and it'll be up at one year down, 0:16:53.720 --> 0:16:56.840 three years down, five years up. He was offering like 0:16:56.880 --> 0:17:01.360 a straight even kill eleven percent return. You couldn't lose, right, 0:17:01.560 --> 0:17:03.760 So that actually should have been a red flag, but 0:17:03.840 --> 0:17:07.440 it wasn't. Right um. And in two thousand one, Barons, 0:17:07.480 --> 0:17:12.600 the Financial rag they published a an article on him 0:17:12.920 --> 0:17:18.320 specifically was saying made Off can't be offering these returns 0:17:18.359 --> 0:17:22.879 mathematically speaking, this isn't possible. And no one listened. But 0:17:23.040 --> 0:17:26.520 chief among the people who weren't listening was the SEC. Yeah, 0:17:26.600 --> 0:17:28.600 and they've been under a lot of fire lately because 0:17:28.720 --> 0:17:31.560 they did not listen. They did not investigate, even when 0:17:31.560 --> 0:17:34.440 it was kind of handed to them, like hey, several times, 0:17:34.440 --> 0:17:38.159 actually they were like two or three formal complaints to 0:17:38.280 --> 0:17:40.560 them and they never followed up. Well. One reason why, 0:17:40.640 --> 0:17:42.920 and this is even another reason why he was successful, 0:17:43.000 --> 0:17:46.280 is he was also running a legit business alongside it, 0:17:46.960 --> 0:17:49.480 so he could sort of defer, you know, when he 0:17:49.480 --> 0:17:51.119 needed to pay people back and things were getting tight, 0:17:51.160 --> 0:17:52.680 he could pull a little money out of his legit 0:17:52.760 --> 0:17:55.719 business and do that, and apparently did so promptly if 0:17:55.760 --> 0:17:59.520 somebody wanted to um withdrawal. Yeah, they got to check 0:17:59.600 --> 0:18:02.280 like that. Questions asked, Like when Kevin Bacon was like, 0:18:02.840 --> 0:18:05.280 we're heading to Barbados and I need a million dollars 0:18:05.320 --> 0:18:07.800 because I'm gonna buy a hut on the beach, right, 0:18:07.920 --> 0:18:10.119 I'm trying to hide my wife from her shame for 0:18:10.200 --> 0:18:35.920 being in the closer right Yeah. Um so yeah, made 0:18:35.920 --> 0:18:38.680 off was very, very successful, to the tune of fifty 0:18:38.720 --> 0:18:41.959 billion dollars he made off with. I know he's got 0:18:42.040 --> 0:18:43.960 the perfect name for him. I should have been like, wait, 0:18:44.000 --> 0:18:46.639 what's your last name? No, I'm not investing. Every headline 0:18:46.640 --> 0:18:49.000 has already used that, so that's probably stale by now. Yeah, 0:18:49.040 --> 0:18:51.360 thanks for that. Chuck. So what can you do, Chuck? 0:18:51.400 --> 0:18:53.560 How do you stay out of a Ponzi scheme unless 0:18:53.560 --> 0:18:57.920 you're a very savvy investor who's totally unconscionable. Well, uh, 0:18:57.960 --> 0:19:00.880 there's a few things you can look for, um, And 0:19:00.880 --> 0:19:02.919 and it also should be noted that a Ponzi scheme 0:19:03.040 --> 0:19:07.040 is pretty much a one way street to collapse. There's 0:19:07.160 --> 0:19:08.600 really no way to pull it off in the long 0:19:08.680 --> 0:19:11.040 run sustainable unless I think a lot of people might 0:19:11.040 --> 0:19:12.760 start these and think, well, I can get out at 0:19:12.800 --> 0:19:14.600 a certain point, pay everyone back and make a lot 0:19:14.640 --> 0:19:17.840 of money. Um. But yeah, it's it's not a good 0:19:17.840 --> 0:19:19.840 working model in the end. Well, apparently the point to 0:19:19.960 --> 0:19:23.080 a ponzi schemers to keep it going until they die, Yeah, 0:19:23.080 --> 0:19:25.560 which is considered a big success because you live like 0:19:25.560 --> 0:19:28.560 a billionaire and then uh, at the end, you know, 0:19:28.640 --> 0:19:33.240 you die or you know, you off yourself. Speaking of that, 0:19:33.320 --> 0:19:36.480 did you know that um, after he was found out 0:19:36.720 --> 0:19:39.679 made Off was spending a hundred and sixty grand a 0:19:39.840 --> 0:19:45.000 month on personal security at its penthouse. Yeah. Do you 0:19:45.040 --> 0:19:47.840 know how many in Manhattan? Do you know how many bodyguards? 0:19:47.880 --> 0:19:52.160 That buys you? That's like Delta Force money? Yeah? Yeah, 0:19:52.000 --> 0:19:54.880 uh so yeah, some things you can look for. Um. 0:19:54.920 --> 0:19:58.000 The obvious of course is if it sounds too good 0:19:58.000 --> 0:20:00.320 to be true, it is. That's the oldest edge in 0:20:00.320 --> 0:20:03.080 the book, and it's true across the board. Uh So 0:20:03.240 --> 0:20:07.560 someone's making you promises on big returns, then you should 0:20:07.560 --> 0:20:10.600 probably turn around and walk away. Don't let anyone pressure 0:20:10.600 --> 0:20:12.960 you into doing well. Pressure. That's another point too, is 0:20:13.040 --> 0:20:15.320 I mean, it's usually going to be a high pressure pitch, 0:20:15.480 --> 0:20:18.000 like you have a very limited time window, maybe for 0:20:18.040 --> 0:20:20.720 as long as the person standing there, um, and you're 0:20:20.720 --> 0:20:22.760 made to feel like a jackass if you don't take 0:20:22.840 --> 0:20:26.639 them up on it. Um. But yeah, yeah, pressure is 0:20:26.680 --> 0:20:29.959 definitely one one of the factors. And even one like 0:20:30.000 --> 0:20:34.359 you said that uh like made off scam where he 0:20:34.400 --> 0:20:37.080 would not promise huge returns, that might make it a 0:20:37.119 --> 0:20:40.920 little more believable. But everything, like you said, fluctuates, So 0:20:41.200 --> 0:20:43.639 if it's a consistent even if it's a consistent like 0:20:43.720 --> 0:20:47.760 five growth for years, then that should be a red 0:20:47.760 --> 0:20:50.960 flag right there. And also you should um ask questions 0:20:51.200 --> 0:20:54.120 and and demand answers as well, because I mean, if 0:20:54.119 --> 0:20:56.560 you're just if you have a friend who has a 0:20:56.600 --> 0:20:59.199 friend that has this great investment and you cut him 0:20:59.200 --> 0:21:01.280 a check and it turns out to be a Ponzi scheme, Well, 0:21:01.720 --> 0:21:03.800 t s for you. That was a stupid thing to do. 0:21:04.359 --> 0:21:06.679 You should know what your money is being invested in. 0:21:06.800 --> 0:21:09.720 You should know who's investing it. You should and even 0:21:09.720 --> 0:21:12.159 if it's legitimate, you should be asking these questions if 0:21:12.200 --> 0:21:15.119 it's through any of the major brokerages, but not how 0:21:15.119 --> 0:21:17.680 many fees there are. Just just that's a good habit 0:21:17.720 --> 0:21:21.359 no matter what. Uh. And the other thing is um 0:21:21.400 --> 0:21:24.600 even if you're involved in a Ponzi scheme, even if 0:21:24.640 --> 0:21:27.720 you get sucked in, you should never it should never 0:21:27.760 --> 0:21:30.920 break you and leave you bankrupt. Excellent point, Chuck, because 0:21:30.960 --> 0:21:33.080 this is probably the most important important point. Well. And 0:21:33.080 --> 0:21:35.679 they always say diversification is a key to a good portfolio, 0:21:35.760 --> 0:21:38.640 and this is definitely true here. You should not invest 0:21:38.680 --> 0:21:41.440 all your money in one thing. You're just setting yourself 0:21:41.560 --> 0:21:44.040 up for for bankruptcy. And whether it's a Ponzi scheme 0:21:44.119 --> 0:21:46.440 or not. Because you do all real estate and you're 0:21:46.560 --> 0:21:49.200 just totally invested in real estate in two thousand and seven, 0:21:49.840 --> 0:21:52.600 you're in big trouble. I mean, even Donald Trump uh 0:21:53.560 --> 0:21:55.240 hit the lowest of the lows. At one point. We 0:21:55.280 --> 0:21:56.879