The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims

The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims

The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims

The Ponzi Scheme Puzzle: A History and Analysis of Con Artists and Victims

Synopsis

Charles Ponzi perpetrated his infamous scheme almost a hundred years ago. But his method of using new investments to pay existing investors and finance a highflying lifestyle is alive and well: just as much money is lost in the United States today from Ponzi schemes as from shoplifting. Somehow, con artists are able to dazzle wealthy, educated individuals and sophisticated institutions and convince them to hand over huge sums of money. How?

In The Ponzi Scheme Puzzle, renowned legal scholar Tamar Frankel explores these con artists' fascinating power of persuasion and deception, uncovering the subtle signals that mimic truth and honesty. After years of close study of hundreds of cases, Frankel explains the striking patterns that emerge and the common characteristics of the con artists and their victims. She offers clear yet comprehensive descriptions of the various designs of Ponzi schemers' attractive offers and flags the ways in which they mask their deception through specialized methods of advertising and selling. She then constructs lucid profiles of the con artists and their victims, exposing the core nature of the people at the heart of the schemes and showing how over time the lines between predator and prey are blurred. There are indeed many lessons to learn from these stories, and Frankel brings them to light through the insightful results of her research. She shows how peoples' attitudes are ambivalent and uncertain toward con artists, perhaps because their behavior is so seemingly honest, because they act like the social leaders with whom they are likely to mingle, or perhaps because their actions are thought to shake up a complacent society. Frankel concludes by offering a surprising solution on how to prevent charming, dangerous con artists from perpetuating the enduring, disastrous legacy of Charles Ponzi.

Excerpt

In 2001, I had the good fortune to meet Professor Diego Gambetta of Nuffield College at Oxford University. Having heard of my interest in and work on trust in the financial area, he suggested that I study the mimics of trustworthiness: con artists. I did, and entered the world of the cons and their victims. The journey was fascinating, as I discovered the intricate relationship between con artists and their “marks,” and uncovered the games they play and the price they pay. On the way, puzzles piled up. How can con artists be so successful? How are their marks so blind? Why is this type of fraud so prevalent around the globe?

I sought the answers to these questions by drawing on the facts as the courts described them, and sometimes as the parties alleged them. There have been hundreds of U.S. court cases over the years. In addition, there is The Rise of Mr. Ponzi, the autobiography of Charles Ponzi, which tells us much about him and about con artists in general. There are studies about the unique characteristics of con artists, how they cooperate, and what underlies their true nature. These materials helped uncover patterns of facts and behaviors. As varied as the stories of con artists are, and as diverse as the victims’ behavior . . .

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