WEBVTT - How Ponzi Schemes Work 0:00:00.280 --> 0:00:02.840 Brought to you by the reinvented two thousand twelve camera. 0:00:03.160 --> 0:00:07.560 It's ready. Are you welcome to Stuff you should know? 0:00:08.200 --> 0:00:16.439 From house Stuff Works dot com? Hey, and welcome to 0:00:16.480 --> 0:00:20.840 the podcast. I'm Josh Clark. Chuck say Hi, Hi, welcome people. 0:00:21.040 --> 0:00:23.919 This is stuff you should know. Indeed, Chuck's got his 0:00:24.400 --> 0:00:27.040 little jug of vodka. I got my Fresca and we 0:00:27.040 --> 0:00:31.280 were ready to go. All right, Chuck, No, I don't wire, Chuck, Chuck, 0:00:31.320 --> 0:00:34.440 do you know how we have these weblogs? Now, there's 0:00:34.479 --> 0:00:38.680 like a stuff you should know? Weblog, a k a blog. Yeah, sure, yeah, 0:00:38.720 --> 0:00:40.640 if you wouldn't be all hit or whatever. I do 0:00:40.720 --> 0:00:42.360 know how we have that because I write on it 0:00:42.440 --> 0:00:44.880 every day. I know. I was just starting a conversation, 0:00:45.000 --> 0:00:47.400 Chuck lay off. Well, yes, sorry, Um remember that post 0:00:47.440 --> 0:00:49.280 I put up yesterday that you said, like you read 0:00:49.320 --> 0:00:51.840 three times and still couldn't make heads or tails of that? Yeah, 0:00:51.880 --> 0:00:53.840 I didn't get it. Well, there's a there's a part 0:00:53.840 --> 0:00:56.400 of it, uh, kind of the crux of the whole thing. 0:00:57.000 --> 0:00:59.040 I don't know if that's the case or not, but anyway, 0:00:59.080 --> 0:01:01.360 there's an aspect of it. And it was about these, um, 0:01:01.400 --> 0:01:05.000 these two artists and um well, one of them just 0:01:05.040 --> 0:01:09.800 goes by the name Arakawa, right, and his partner, and 0:01:09.840 --> 0:01:12.040 I don't think just artistic partner. I think I think 0:01:12.040 --> 0:01:17.600 that their life partners. Maybe her name is Madeline Gins, right, 0:01:18.600 --> 0:01:23.000 And they have been quite successful at creating this architecture 0:01:23.560 --> 0:01:28.200 UM that's intended to achieve immortality. Right. Well, the way 0:01:28.240 --> 0:01:31.520 these two have done it is um by through surprising, 0:01:31.720 --> 0:01:38.120 disturbing architectural choices. Right. Basically, their theory is that if 0:01:38.160 --> 0:01:41.280 you create or if you live in an uncomfortable dwelling, 0:01:42.080 --> 0:01:47.560 UM discomfort or comfort least the laziness and sedentariness, and 0:01:47.560 --> 0:01:52.080 then that's ultimately what kills you. Holly unproven, but they 0:01:52.120 --> 0:01:54.880 designed their architecture based on that theory, so they keep 0:01:54.920 --> 0:01:59.280 you uncomfortable. And uh, it's unfamiliar. I think I know this. 0:01:59.400 --> 0:02:01.400 I think we actually have an article on this. Like 0:02:01.440 --> 0:02:05.480 the floors are undulating, undulating floors and uh yeah, I've 0:02:05.480 --> 0:02:09.160 heard of that. They also like um kind of moonscape floors, 0:02:10.040 --> 0:02:13.639 um angled like ceilings that just it doesn't sound like 0:02:13.680 --> 0:02:16.560 a very pleasant place to live. Pretty interesting, this one 0:02:16.600 --> 0:02:18.520 guy and these things go for there there. Just to 0:02:18.600 --> 0:02:21.239 build them, they cost millions of dollars, but they have 0:02:21.360 --> 0:02:24.320 built several most of them are lost in in Tokyo. 0:02:24.919 --> 0:02:26.840 And this one guy who lives in one with his 0:02:26.880 --> 0:02:29.680 family so that he's lost like twenty pounds and doesn't 0:02:29.680 --> 0:02:33.560 have hay fever any longer since he moved in there. Yeah. Um, 0:02:33.720 --> 0:02:38.359 but there their their whole firm is basically in jeopardy 0:02:38.400 --> 0:02:41.800 because they were heavily invested with one Bernard made Off, 0:02:41.880 --> 0:02:45.880 who you may may have heard. This guy's reach extends everywhere. 0:02:45.919 --> 0:02:49.720 We're talking Kevin Bacon, right, and there's a six degrees 0:02:49.800 --> 0:02:53.680 joke in there somewhere. Um, I imagine Kiras Sedgewick, since 0:02:53.760 --> 0:02:58.240 Kevin Bacon is in there, Jaja Gabor Spielberg, Spielberg, And 0:02:58.280 --> 0:03:00.520 that's just like the tip of the iceberg, right. I mean, 0:03:00.600 --> 0:03:03.840 thousands and thousands of people were invested with this guy 0:03:03.960 --> 0:03:07.600 and it turned out he was a Ponzi schemer. That's right. 0:03:07.960 --> 0:03:10.480 It's a Ponzi scheme. Yeah, Chuck likes to say it 0:03:10.600 --> 0:03:14.119 like that in a tribute to the Italian immigrant Mr 0:03:14.200 --> 0:03:19.760 Charles Ponzi, who was running around in the twenties. And actually, yeah, 0:03:20.080 --> 0:03:23.280 you want to talk a little bit about Mr Ponzi, Yeah, 0:03:23.320 --> 0:03:24.799 I didn't know this until I read the article. Is 0:03:24.840 --> 0:03:26.919 pretty interesting, and you know, Ponce's all over the news, 0:03:26.960 --> 0:03:28.960 so it's kind of cool to get some background. Yeah. Oh, 0:03:29.000 --> 0:03:30.720 and also we should probably say thanks to all the 0:03:30.720 --> 0:03:33.280 people who wrote in and requested that we do this podcast. 0:03:33.680 --> 0:03:36.240 This one's for you. Right. Bernie Madoff made off excuse 0:03:36.280 --> 0:03:38.520 me himself, wrote in Yeah he did. He's like, hey, 0:03:38.520 --> 0:03:41.680 can you tell everybody what I did? So, Yeah, in 0:03:41.680 --> 0:03:45.880 the nineties, Charles Poncey. What he did was at the 0:03:45.920 --> 0:03:48.360 time there was if you want to send mail overseas, 0:03:49.000 --> 0:03:52.200 you would include what was called an international reply cupon 0:03:52.360 --> 0:03:55.080 well if you wanted to reply, right. But it's basically 0:03:55.080 --> 0:03:57.880 sort of like, uh, when you get something from you know, 0:03:57.960 --> 0:04:00.800 magazine and the postage is prepaid to short in the card, 0:04:00.880 --> 0:04:03.800 you know, right, it's it's prepaid so that you get 0:04:03.840 --> 0:04:06.560 that back to say, hey, these people got that exactly right, 0:04:06.960 --> 0:04:09.480 So this is what you did back then. Uh. He 0:04:09.560 --> 0:04:11.760 had an idea. He said, Hey, if I go over 0:04:12.280 --> 0:04:15.040 and buy these in a different country where they're cheaper, 0:04:15.400 --> 0:04:17.920 I can come back and sell them in the United States, right, 0:04:17.960 --> 0:04:20.800 And he could do this because these things were internationally recognized. 0:04:20.839 --> 0:04:23.360 There was same in any country. But apparently they went 0:04:23.400 --> 0:04:25.640 for different prices in different countries, so it's not a 0:04:25.640 --> 0:04:28.760 bad business model, right right, I would say so. Uh, 0:04:28.800 --> 0:04:30.520 And things went pretty well at first. He got a 0:04:30.520 --> 0:04:33.400 lot of investors and made some pretty good money. But 0:04:33.560 --> 0:04:35.600 the return that he promised, which what was it again, 0:04:36.000 --> 0:04:39.119 it was a ridiculous promise. It was I think return 0:04:39.200 --> 0:04:42.919 in forty to ninety days. So yeah, that should have 0:04:42.920 --> 0:04:44.880 been a red flag right then we'll talk about that later. 0:04:45.160 --> 0:04:48.279 But yeah, that didn't go as well as he thought. Um, 0:04:48.320 --> 0:04:50.360 but he kept getting investors and he just kind of 0:04:50.440 --> 0:04:52.599 kept this all quiet. So what he would do is 0:04:52.680 --> 0:04:55.840 he would payback some to the initial investors based on 0:04:55.880 --> 0:04:59.080 the money that the current investors were giving him, and 0:04:59.160 --> 0:05:01.880 just kind of kept going in a cyclical way until 0:05:02.520 --> 0:05:04.200 he had a lot of He started, you know, taking 0:05:04.200 --> 0:05:07.320 a little money for himself and uh ended up having 0:05:07.360 --> 0:05:09.679 you know, millions of bucks office in the nineteen twenties 0:05:09.720 --> 0:05:13.120 before it finally crumbled. Um as a big scan. Well, 0:05:13.160 --> 0:05:17.040 the reason he was found out was because somebody apparently 0:05:17.080 --> 0:05:20.520 calculated that um, there would have had to have been 0:05:20.560 --> 0:05:23.720 about a hundred and sixty million of these things extant 0:05:23.880 --> 0:05:25.640 for him to be making the money he was making, 0:05:26.000 --> 0:05:28.239 and the problem is that there was only twenty seven thousand. 0:05:29.160 --> 0:05:31.080 That's that's kind of what found him out. But what 0:05:31.200 --> 0:05:32.960 I got from this, what I got from reading about 0:05:32.960 --> 0:05:37.039 Ponzi schemes, is that, Um, Charles Ponzi didn't appear to 0:05:37.040 --> 0:05:41.000 be a huckster from the outset like he This is 0:05:41.000 --> 0:05:45.599 actually a legitimate business that he was trying to run. Sure, 0:05:45.640 --> 0:05:49.279 I think it was an act of desperation. Um, And well, 0:05:49.640 --> 0:05:52.880 we should probably talk about exactly how Ponzi schemes work. Right, 0:05:53.080 --> 0:05:56.040 they're pretty straightforward and simple. But I can't imagine that 0:05:56.080 --> 0:05:58.280 as they just get bigger and bigger, you start to 0:05:58.640 --> 0:06:01.320 eat a lot of rolaids. Right. I bet that that 0:06:01.400 --> 0:06:03.880 was the original Ponzi scheme, and I'm sure he was 0:06:03.960 --> 0:06:07.960 nervous as that was going if scheme scheme very nice. 0:06:08.880 --> 0:06:11.320 So do you want to give some detailed explanation on 0:06:11.400 --> 0:06:15.640 how Ponzi schemes work? Yeah, it's actually pretty simple. What 0:06:15.680 --> 0:06:19.520 you do is you, um, you come up with an 0:06:20.000 --> 0:06:23.880 investment a shell sort of, and you get people to 0:06:24.000 --> 0:06:28.120 invest in You're in whatever you're saying you're gonna invest in. 0:06:28.120 --> 0:06:30.800 In this case and in the original Ponzi scheme, it 0:06:30.920 --> 0:06:34.159 was these reply coupons, but nowadays it's usually like a 0:06:34.240 --> 0:06:37.320 stock thing. So you get these folks to invest, and 0:06:37.360 --> 0:06:41.839 you take their money and essentially, uh use that first 0:06:41.960 --> 0:06:45.039 rung of people to attract other people to invest. And 0:06:45.040 --> 0:06:47.120 once you start getting other investors, you can pay back 0:06:47.360 --> 0:06:50.400 those initial folks and they can go on record and say, oh, yeah, 0:06:50.440 --> 0:06:52.800 you know I made a great return. That's right. And 0:06:52.839 --> 0:06:56.640 then that more investors right and more wrongs, and you 0:06:56.760 --> 0:06:58.640 just kind of it's sort of like robbing Peter to 0:06:58.680 --> 0:07:02.320 pay Paul the entire your time, right, but you're pocketing 0:07:02.440 --> 0:07:05.080 like Ponzi did some for himself. Right. At a certain point, 0:07:05.080 --> 0:07:07.160 you can start skimming off the top, right. And but 0:07:07.200 --> 0:07:09.360 it's not like it take the money and run proposition. 0:07:09.400 --> 0:07:11.800 It's to take the money, stick around and pay people 0:07:11.800 --> 0:07:14.200 off as much as you can. The problem is is 0:07:14.280 --> 0:07:18.120 to like, people don't divest very easily. When they get 0:07:18.160 --> 0:07:21.640 a better and unbelievable return on something, they want to 0:07:21.680 --> 0:07:23.320 keep investing. Sure, So if you're like, no, no, you 0:07:23.320 --> 0:07:26.360 can't invest anymore, Uh, the people are gonna start to 0:07:26.360 --> 0:07:28.880 get suspicious. So you've got your first wrong, You've got 0:07:28.920 --> 0:07:30.600 your second wrong. And then so on and so on 0:07:30.680 --> 0:07:32.840 and so on. But to sustain it, you have to 0:07:32.920 --> 0:07:35.000 keep adding more and more wrongs. But the more wrongs 0:07:35.040 --> 0:07:37.960 you add, more difficult it is to pay everybody back. 0:07:38.560 --> 0:07:42.760 So it's inevitable. But as some people will know they're 0:07:42.800 --> 0:07:45.880 investing in a Ponzi scheme, some of those first wrong people. Yeah, 0:07:45.880 --> 0:07:49.680 and yeah, from what I understand, people can actually make 0:07:49.720 --> 0:07:51.880 money off Ponzi schemes. You get in early enough, and 0:07:51.880 --> 0:07:53.760 you're smart enough to get out while they getting is 0:07:53.760 --> 0:07:56.040 good because those are the people are gonna get paid first, 0:07:56.120 --> 0:07:58.280 so they can vouch and say this is a really 0:07:58.280 --> 0:08:01.520 great deal, right exactly. So yeah, so the whole that 0:08:01.640 --> 0:08:03.480 that's pretty much a Ponzi scheme. And if it sounds 0:08:03.480 --> 0:08:05.560 a lot like a pyramid scheme, do you you would 0:08:05.600 --> 0:08:09.200 be right. Uh, it's virtually the same structure. The one 0:08:09.240 --> 0:08:11.920 big difference is is that in a Ponzi scheme, you're 0:08:11.960 --> 0:08:14.640 not asked to do anything. You're just an investor. They 0:08:14.720 --> 0:08:17.760 just want your money. Uh. In a pyramid scheme, generally 0:08:17.800 --> 0:08:20.160 you have to do something like you are buying in 0:08:20.760 --> 0:08:24.560 uh to sell something? Sorry, well no, actually, um on 0:08:24.720 --> 0:08:27.920 Amway site, they have uh like on an f a 0:08:28.000 --> 0:08:30.600 Q section. It's like, is am Way a pyramid scheme? 0:08:31.080 --> 0:08:34.920 And they're like, we're a pyramid model. Schemes the wrong 0:08:34.960 --> 0:08:38.440 word to use, And actually the pyramid model has worked 0:08:38.480 --> 0:08:44.880 for legitimate businesses Amway, Mary kay Avon, Um pamper Chef. 0:08:45.640 --> 0:08:48.160 So yeah, so I mean it can work and it 0:08:48.240 --> 0:08:51.320 doesn't necessarily have to be illegal. That that that's the 0:08:51.320 --> 0:08:56.760 other distinction between Ponzi schemes and um pyramids models is 0:08:56.800 --> 0:09:00.839 that Ponzi schemes are always fraud completely faults because it's 0:09:00.840 --> 0:09:04.800 an investment, but the money's never invested. So it's so simple. 0:09:04.840 --> 0:09:07.400 When I read this, I was just like, it's the 0:09:07.400 --> 0:09:09.600 beauty is in its simplicity, Just like, give me a 0:09:09.600 --> 0:09:12.880 bunch of money and I will keep it and get 0:09:12.920 --> 0:09:14.439 more people to give me money. I'll give you a 0:09:14.520 --> 0:09:16.760 little bit, and it's just amazing how that works. Can 0:09:16.800 --> 0:09:19.880 you imagine being such an edgy, savvy investor that you 0:09:19.960 --> 0:09:24.160 actually knowingly invest in ponzi schemes? Who does that? I 0:09:24.160 --> 0:09:26.640 don't know. I bet there's some names on the on 0:09:26.679 --> 0:09:29.840 the Maid off list. Yeah, I bet, I bet um, 0:09:29.880 --> 0:09:31.800 But no, he did everything alone. We'll get to him 0:09:31.840 --> 0:09:35.280 in a minute. Allegedly, not more, he confessed, buddy, Well, 0:09:35.320 --> 0:09:37.800 we're certain things are still alleged at this point. All right, 0:09:37.840 --> 0:09:39.680 well let's go with it. You're such a c o 0:09:39.800 --> 0:09:43.600 a dude. But I appreciate the oh because that includes me. Um. 0:09:44.480 --> 0:09:46.560 So Ponzi wasn't the guy who came up with a scheme. 0:09:47.360 --> 0:09:50.720 He he did it so well that they named it 0:09:50.720 --> 0:09:53.760 after him. But the earliest one we know about goes 0:09:53.800 --> 0:09:57.640 back to UH eighteen eighty early eighteen eighties in Boston 0:09:58.040 --> 0:10:00.880 with a woman named Sarah Howe. I don't think I 0:10:00.920 --> 0:10:04.480 know about this one, okay, So she actually actively and 0:10:04.559 --> 0:10:09.200 purposefully built a Ponzi scheme, although you know what, with 0:10:09.280 --> 0:10:11.520 it being forty years before Charles Ponzi showed up, she 0:10:11.559 --> 0:10:13.560 probably didn't call it that to herself. What was her name, 0:10:14.120 --> 0:10:18.160 Sarah how scheme? Yes, if she were, if she did 0:10:18.160 --> 0:10:20.760 have enough foresight to know that it would eventually be 0:10:20.840 --> 0:10:22.960 called a Ponzi scheme, how would it sound in her 0:10:23.000 --> 0:10:25.200 head when she said, this is the kind of scheme 0:10:25.200 --> 0:10:31.880 that I'm carrying out. It's a um Anyway, Miss Howe 0:10:32.240 --> 0:10:36.240 basically put together a m a group of thousands of 0:10:36.240 --> 0:10:42.760 women investors, and UH invested in women's um women's liberty bonds, 0:10:42.800 --> 0:10:46.079 I think is what they were called. Uh, that's supposedly 0:10:46.160 --> 0:10:49.000 what the investment was for, but no, it wasn't. She 0:10:49.160 --> 0:10:52.320 just basically carried out a Ponzi scheme UM and she 0:10:52.440 --> 0:10:54.960 managed to rake in about half a million bucks before 0:10:55.040 --> 0:10:59.720 she was caught. Uh. And then another guy shortly after 0:11:00.200 --> 0:11:03.520 the turn of the century. His name was William Franklin Miller, 0:11:03.960 --> 0:11:07.520 and he also builked investors for about another half a million. 0:11:08.200 --> 0:11:10.800 And this is, you know, substantial enough to be remembered 0:11:10.800 --> 0:11:15.360 a hundred years plus later. But Ponzi was the first one, right, 0:11:15.880 --> 0:11:18.319 Ponsi was the first big one, I should say. Uh. 0:11:18.320 --> 0:11:20.440 And then you don't really hear about anybody in in 0:11:20.480 --> 0:11:22.680 the world of Ponzi schemes. I mean, I'm sure you can, 0:11:22.800 --> 0:11:28.520 but nobody huge doing it right now. Well until Lou Pearlman. 0:11:28.600 --> 0:11:30.040 Is that where you're going? I was going to go 0:11:30.080 --> 0:11:32.679 to the Balkans first bolicity, Mr Pearlman. Okay, Yeah, this 0:11:32.720 --> 0:11:35.160 is one of my favorites because his associations are kind 0:11:35.160 --> 0:11:37.680 of funny. H Lou Pearlman, who I think you have 0:11:37.760 --> 0:11:40.360 to say his name like Lou Pearlman. That's how I 0:11:40.440 --> 0:11:42.080 got that impression as well. And he kind of looks 0:11:42.120 --> 0:11:45.600 like that kind of guy too. He was. He kind 0:11:45.600 --> 0:11:47.640 of funded the boy band craze in the nineties. And 0:11:47.640 --> 0:11:50.640 I remember the Backstreet Boys because of the tattoo you 0:11:50.679 --> 0:11:53.520 have on your neck, and uh, in Sync was the 0:11:53.520 --> 0:11:55.560 other one. I don't know if you have a tattoo 0:11:55.600 --> 0:11:58.320 of instinctly, okay, I was covering all my bases. Uh. 0:11:58.679 --> 0:12:01.040 So he funded these bands. Uh, And it turned out 0:12:01.160 --> 0:12:04.840 in two thousand six that he was running a big 0:12:04.880 --> 0:12:07.560 Ponzi scheme. He had been for like twenty years and 0:12:07.600 --> 0:12:09.560 a lot, you know, in Sync and the Backstreet Boys 0:12:09.559 --> 0:12:11.560 were kind of funded on this Ponzi schemes. I don't 0:12:11.559 --> 0:12:13.440 think funded kind of at all. I think they were 0:12:13.440 --> 0:12:16.480 fully fully funded. Yeah, and this this guy created the 0:12:16.480 --> 0:12:19.000 back Street Boys and in Sync and funded him with 0:12:19.040 --> 0:12:22.959 illegal money. So those yahoo's kind of oh Ponzi with 0:12:23.000 --> 0:12:27.680 their careers, yes they do. Yeah, well, their careers past tense, 0:12:28.000 --> 0:12:31.000 right sure? Um timber Lakes done well for himself? Was 0:12:31.000 --> 0:12:33.840 he in one of us? H J T I don't 0:12:33.840 --> 0:12:37.520 know who that is. Um. Right back to Albania, Yes, 0:12:37.679 --> 0:12:41.760 Albania basically a whole bunch of people were working this 0:12:41.800 --> 0:12:44.720 big ponzi scheme, which from what I understand also uh 0:12:45.120 --> 0:12:47.800 can extend the life of a ponzi scheme. Uh. Lou 0:12:47.920 --> 0:12:51.800 Perlman is an unusual animal, uh, and that he could 0:12:51.840 --> 0:12:55.439 carry it out single handedly for twenty years. Um. But 0:12:55.520 --> 0:12:59.079 in Albania, for a while a group of ponzi schemers 0:12:59.400 --> 0:13:04.240 UM had had one set up that builked these investors 0:13:04.240 --> 0:13:08.600 out of two billion dollars before it collapsed, which is 0:13:08.800 --> 0:13:12.120 in Albania, that is thirty of their gross domestic product. 0:13:12.600 --> 0:13:16.200 That's huge, Like how to cripple a country? Yeah yeah, 0:13:16.240 --> 0:13:21.280 and yeah, so yeah, I think Albania is probably second world. Um. So, 0:13:21.320 --> 0:13:23.880 I think a hit like that is just ginormous. And 0:13:23.920 --> 0:13:25.760 that was a big problem when it happened. It was 0:13:25.840 --> 0:13:28.040 because when people found out, they started riding in the 0:13:28.080 --> 0:13:31.600 streets and fires broke out and people died. Yeah yeah, 0:13:31.640 --> 0:13:35.240 So that's the Albania, the old Albania ponzi scheme. And 0:13:35.280 --> 0:13:38.480 we should note that Lou Pearlman he went to jail 0:13:38.640 --> 0:13:42.280 or received a sentence of twenty five years for conning 0:13:42.320 --> 0:13:46.520 three hundred million dollars, and apparently every million he paid back, 0:13:46.640 --> 0:13:49.319 they cut a month off of sentence, which seems really fair. 0:13:49.600 --> 0:13:53.079 I think so. But Pearlman million dollars sounds like a lot. 0:13:53.200 --> 0:13:55.719 It ain't it was. And then two thousand and eight 0:13:55.760 --> 0:14:00.640 came along the big daddy dude, this guy Bernard made Off, 0:14:01.000 --> 0:14:04.560 one of the founders of Nastak. Yeah, which is one 0:14:04.640 --> 0:14:07.080 reason why it works so well, because he was beyond 0:14:07.160 --> 0:14:13.439 legit He was beyond legit um. Although he his One 0:14:13.440 --> 0:14:15.800 of the other reasons he was so successful was that 0:14:15.840 --> 0:14:19.360 he was smart. First of all, like Sarah, how he 0:14:19.480 --> 0:14:23.720 used affinity fraud. An affinity fraud is where you are bilking. 0:14:24.720 --> 0:14:28.160 You're you're using the inclusiveness of a of a group 0:14:28.720 --> 0:14:33.200 to um against themselves, right, So he uh used his 0:14:33.280 --> 0:14:37.280 membership in a a uber wealthy, very exclusive Jewish country 0:14:37.280 --> 0:14:41.680 club down in Florida to prey on investors at first um. 0:14:41.800 --> 0:14:44.320 And you know, the affinity fraud happens a lot like 0:14:44.480 --> 0:14:47.400 and usually it happens with religious groups. Somebody comes in, 0:14:47.440 --> 0:14:49.120 it's like, hey, I'm a Lutheran two and I've got 0:14:49.120 --> 0:14:52.040 this great investment. Since he's a Lutheran, you know, he 0:14:52.080 --> 0:14:54.600 seems up standing, you trust him, and then that's that. 0:14:55.360 --> 0:14:59.040 But made Off very much used affinity fraud, at least 0:14:59.040 --> 0:15:02.440 at first, and then news of his amazing returns got out. 0:15:02.800 --> 0:15:04.400 But as I was saying, the reason he was so 0:15:04.440 --> 0:15:07.160 successful is he he didn't pull a Ponzi and say 0:15:07.320 --> 0:15:10.000 I'll get you fifty percent return in forty five days. 0:15:10.160 --> 0:15:15.200 You know, Uh, he offered reasonable. I think eleven percent 0:15:15.440 --> 0:15:18.560 was the average returns over the long haul, right, That 0:15:18.600 --> 0:15:20.840 was the key. It was very believable, well to an extent. 0:15:20.960 --> 0:15:23.480 Have you ever looked at our prospectus, the t RO 0:15:23.640 --> 0:15:28.240 price prospectus or prospectus. Yeah, have you ever noticed, like 0:15:28.280 --> 0:15:30.080 if you look at it like one year, three years, 0:15:30.120 --> 0:15:33.280 five years, ten years, and it'll be up at one 0:15:33.360 --> 0:15:36.640 year down, three years down, five years up. He was 0:15:36.680 --> 0:15:40.840 offering like a straight even kill eleven percent return. You 0:15:40.880 --> 0:15:43.400 couldn't lose, right, So that actually should have been a 0:15:43.440 --> 0:15:47.880 red flag, but it wasn't. Um And in two thousand one, Barons, 0:15:47.920 --> 0:15:53.040 the Financial rag they published a an article on him, 0:15:53.360 --> 0:15:59.840 specifically saying made Off can't be offering these returns. Mathematically speaking, 0:16:00.360 --> 0:16:04.160 this isn't possible. No one listened, But chief among the 0:16:04.160 --> 0:16:07.360 people who weren't listening was the SEC. Yeah, and they've 0:16:07.400 --> 0:16:09.560 been under a lot of fire lately. Because they did 0:16:09.600 --> 0:16:12.200 not listen. They did not investigate, even when it was 0:16:12.280 --> 0:16:15.200 kind of handed to them, like hey, several times, actually 0:16:15.960 --> 0:16:18.480 here there were like two or three formal complaints h 0:16:18.560 --> 0:16:21.000 to them and they never followed up. Well. One reason why, 0:16:21.080 --> 0:16:23.400 and this is even another reason why he was successful, 0:16:23.440 --> 0:16:26.720 is he was also running a legit business alongside it, 0:16:27.400 --> 0:16:29.920 so he could sort of defer, you know, when he 0:16:29.960 --> 0:16:31.640 needed to pay people back and things were getting tight, 0:16:31.640 --> 0:16:33.160 he could pull a little money out of his legit 0:16:33.200 --> 0:16:36.160 business and do that, and apparently did so promptly if 0:16:36.200 --> 0:16:39.960 somebody wanted to um withdrawal. Yeah, they got to check 0:16:40.040 --> 0:16:42.760 like that, no questions asked, Like when Kevin Bacon was like, 0:16:43.280 --> 0:16:45.720 we're heading to Barbados and I need a million dollars 0:16:45.760 --> 0:16:48.160 because I'm gonna buy a hut on the beach. Right, 0:16:48.360 --> 0:16:50.600 I'm trying to hide my wife from her shame for 0:16:50.640 --> 0:16:55.160 being in the closer right. Yeah. Um so yeah, made 0:16:55.160 --> 0:16:57.120 Off was very, very successful, to the tune of what 0:16:57.160 --> 0:17:00.840 twenty to fifty billion dollars he made off. I know 0:17:00.920 --> 0:17:02.800 he's got the perfect name for it. I should have 0:17:02.840 --> 0:17:04.439 been like, wait, what's your last name? Though I'm not 0:17:04.520 --> 0:17:07.040 investing that. Every headline has already used that, so that's 0:17:07.040 --> 0:17:09.600 probably stale by now. Yeah, thanks for that, Chuck. So 0:17:09.640 --> 0:17:11.320 what what can you do? Chuck? How do you stay 0:17:11.359 --> 0:17:13.560 out of a Ponzi scheme unless you're a very savvy 0:17:13.600 --> 0:17:17.920 investor who's totally unconscionable. Well, uh, there's a few things 0:17:17.920 --> 0:17:20.840 you can look for, um. And and it also should 0:17:20.880 --> 0:17:23.199 be noted that a ponzi scheme is pretty much a 0:17:23.280 --> 0:17:27.040 one way street to collapse. There's really no way to 0:17:27.080 --> 0:17:29.359 pull it off in the long run sustainable unless I 0:17:29.359 --> 0:17:31.120 think a lot of people might start these and think, well, 0:17:31.119 --> 0:17:33.159 I can get out at a certain point, pay everyone 0:17:33.200 --> 0:17:35.840 back and make a lot of money. Um. But yeah, 0:17:35.880 --> 0:17:38.159 it's it's not a good working model in the end. Well, 0:17:38.200 --> 0:17:40.480 apparently the point to a ponzi schemers to keep it 0:17:40.480 --> 0:17:43.440 going until they die. Yeah, which is considered a big 0:17:43.520 --> 0:17:46.960 success because you live like a billionaire and then uh, 0:17:47.040 --> 0:17:49.159 at the end, you know you die or you know, 0:17:49.200 --> 0:17:53.320 you off yourself. Speaking of that, did you know that 0:17:53.480 --> 0:17:56.919 um after he was found out made off with spending 0:17:56.920 --> 0:18:03.720 a hundred and sixty grand a month on personal security? Ah? Yeah, 0:18:04.040 --> 0:18:06.000 do you know how many in Manhattan? Do you know 0:18:06.000 --> 0:18:09.760 how many bodyguards that buys you. That's like delta force money. 0:18:09.920 --> 0:18:14.160 Yeah yeah, uh so, yeah, some things you can look for. Um. 0:18:14.200 --> 0:18:17.240 The obvious, of course is if it sounds too good 0:18:17.280 --> 0:18:19.520 to be true, it is. That's the oldest adage in 0:18:19.520 --> 0:18:22.359 the book, and it's true across the board. Uh So, 0:18:22.480 --> 0:18:26.840 someone's making you promises on big returns, then you should 0:18:26.840 --> 0:18:29.840 probably turn around and walk away. Don't let anyone pressure 0:18:29.840 --> 0:18:32.240 you into doing well. Pressure that's another point too, is 0:18:32.280 --> 0:18:34.600 I mean, it's usually going to be a high pressure pitch, 0:18:34.720 --> 0:18:37.240 like you have a very limited time window maybe for 0:18:37.280 --> 0:18:39.960 as long as the person standing there, um, and you're 0:18:39.960 --> 0:18:42.040 made to feel like a jackass if you don't take 0:18:42.080 --> 0:18:45.879 them up on it. Um. But yeah, yeah, pressure is 0:18:45.920 --> 0:18:49.240 definitely one one of the factors. And even one like 0:18:49.280 --> 0:18:53.600 you said that uh like made off scam where he 0:18:53.640 --> 0:18:56.359 would not promise huge returns, that might make it a 0:18:56.359 --> 0:19:00.040 little more believable. But everything, like you said, fluctuates, So 0:19:00.480 --> 0:19:02.879 if it's a consistent even if it's a consistent like 0:19:03.000 --> 0:19:07.000 five growth for years, then that should be a red 0:19:07.000 --> 0:19:10.200 flag right there. And also you should um ask questions 0:19:10.480 --> 0:19:13.359 and and demand answers as well, because I mean, if 0:19:13.359 --> 0:19:15.800 you're just if you have a friend who has a 0:19:15.840 --> 0:19:18.439 friend that has this great investment and you cut him 0:19:18.440 --> 0:19:20.480 a check and it turns out to be a Ponzi scheme. Well, 0:19:20.960 --> 0:19:23.040 t s for you. That was a stupid thing to do. 0:19:23.600 --> 0:19:25.959 You should know what your money is being invested in. 0:19:26.040 --> 0:19:28.960 You should know who's investing it. You should and even 0:19:29.000 --> 0:19:31.440 if it's legitimate, you should be asking these questions if 0:19:31.440 --> 0:19:34.320 it's through any of the major brokerages, by out how 0:19:34.359 --> 0:19:36.960 many fees there are. Just just that's a good habit 0:19:37.000 --> 0:19:40.600 no matter what. Uh. And the other thing is um 0:19:40.680 --> 0:19:43.880 even if you're involved in a Ponzi scheme, even if 0:19:43.880 --> 0:19:46.800 you get sucked in, uh, you should never it should 0:19:46.800 --> 0:19:49.840 never break you and leave you bankrupt. Excellent point, Chuck, 0:19:49.920 --> 0:19:52.560 because this is probably the most impotant important point. Well, now, 0:19:52.600 --> 0:19:54.919 I say diversification is a key to a good portfolio, 0:19:55.000 --> 0:19:57.879 and this is definitely true here. You should not invest 0:19:57.920 --> 0:20:00.760 all your money in one thing. You just setting yourself 0:20:00.840 --> 0:20:03.480 up for bankruptcy. And whether it's a Ponzi scheme or not. 0:20:03.880 --> 0:20:06.320 Because you do all real estate and you're just totally 0:20:06.320 --> 0:20:09.280 invested in real estate in two thousand and seven, you're 0:20:09.280 --> 0:20:13.000 in big trouble. I mean, even Donald Trump, Uh, hit 0:20:13.040 --> 0:20:15.000 the lowest of the lows at one point we all forget. 0:20:15.040 --> 0:20:17.240 I think he's lost a lot of his old edge 0:20:17.280 --> 0:20:20.000 that he used to have. He's made some bad decisions 0:20:20.240 --> 0:20:22.800 like the TV show. Sure no one needs to see that, 0:20:22.840 --> 0:20:25.639 you know. And if you if you do find yourself 0:20:25.640 --> 0:20:27.960 in a Ponzi scheme and you're not the type to 0:20:28.119 --> 0:20:29.919 take the law into your own hands with like a 0:20:29.960 --> 0:20:32.760 tire iron or anything like that, you could always contact 0:20:32.800 --> 0:20:34.919 the SEC. I don't know that they'll do anything, and 0:20:34.960 --> 0:20:38.080 they probably won't, but it's worth a shot anyway, right right, Oh, 0:20:38.080 --> 0:20:40.480 and we should just as a sidebar here, I know 0:20:40.600 --> 0:20:45.080 that Madeoff did confess, but they are. There's a SEC 0:20:45.240 --> 0:20:47.280 is still coming under fire because he's claiming that he 0:20:47.320 --> 0:20:50.840 acted alone and didn't have any help with this, which 0:20:50.880 --> 0:20:54.000 is really really hard to believe, just because paperwork alone 0:20:54.080 --> 0:20:59.120 for scheme this size would be huge. And uh, some 0:20:59.160 --> 0:21:01.359 people think out there that he probably had his family 0:21:01.400 --> 0:21:04.080 involved and then did everything he could to cover for 0:21:04.119 --> 0:21:06.760 them and take the hits right yet to come out. Well. Also, 0:21:06.840 --> 0:21:09.439 even if they weren't involved, their salary came directly from 0:21:09.480 --> 0:21:12.480 the bilking of other people, even if they somehow we're 0:21:12.560 --> 0:21:14.959