The Ponzi Retirement Plan

Being a victim of a Ponzi scheme is a terrible blow. However, life doesn’t seem to work out very well for the Ponzi scheme operators either after they get caught and go to prison. There must be some way to come out ahead with one of these schemes. Here’s my best shot.

Start by setting up an investment company with some confusing-sounding plan that purports to make 20% return each year. Maybe the marketing would include stuff about sector-rotating bottom-up technical analysis wave theory. A potentially tricky bit is that investor funds would have to be protected by either the Canadian CIPF (Canadian Investor Protection Fund) or the American SIPC (Securities Investor Protection Corporation).

Next, find some reasonably healthy 70-year old and make him the following offer. If he pretends to be the person who owns and runs this investment company he’ll get a pile of money. Then find investors who agree to sink $10,000 into the fund for the long term. You would be one of these investors. No money could be taken out for at least 20 years.

Send out statements showing the assets growing by around 20% each year. This should draw in more investors in the first few years. The statements would be completely false. The money would be invested reasonably safely at lower returns, and the old guy pretending to run the company would be spending some of it.

Suppose that the old guy dies at age 90 after 20 years. At this point the fraud gets found out. There isn’t anyone left to throw in jail because he seemed to have run the show alone. The tearful investors would cry in front of television cameras about dashed retirement dreams.

All the investors would just get back their initial investment plus some modest returns and less the money the old guy spent. This might be only, say, $30,000 when their account statements indicated they had, say, $400,000. Next the investors, including you, go the CIPF or the SIPC to recover the remaining money. Of course the money never really existed. But that doesn’t matter.

I say all this in the hope that such a scheme couldn’t work. However, a letter from the Ponzi Victims Coalition states that some of Bernard Madoff’s victims will be compensated by the SIPC.

This (highly illegal) scheme illustrates why Ponzi victims shouldn’t be fully compensated for their perceived losses. It may make sense to give them back their initial investments and possibly any assets that are proven to have actually existed before being stolen, but it doesn’t make sense to give them assets that were purely fantasy on paper.