10/14/2005

Mountain Plains Ponzi Scheme

I listened to Richard L. Vail from Mesa State College tell the story about a man named Ponzi in the 1920's. I wish that he would have had more time to complete the story because it didn't seem like the story had any point. It was a story about a man who scammed a bunch of people out of nine million dollars, by telling them that he had an investment opportunity overseas. Basically, He said if you give me one hundred dollars now, in ninety days I will give you back one hundred and fifty. At first many people were very skeptical, but as time went on, he convinced many people to give him their money. He told them that he was taking advantage of an overseas arbitrage situation. He claimed that he could buy stamps and coupons in Italy for a fraction of the cost in the U.S. and then turn around and sell them for a large profit. The model was actually a plausible business model but he never did implement the strategy; he just took the money and shuffled it between investors. To make a long story short Ponzi got caught, bankrupted himself and two banks and then went to jail. The moral of story is arbitration can be a viable business opportunity but make sure that it is legal.

3 comments:

Dan said...

Sara, if the story doesn't have a point, then why bother telling us about it? After reading your post, I now think just the opposite of your story and think that there was a point . So next time listen a little better. Zing

Chloe said...

I think the story had a point, and I think the purpose of his story was to teach us about arbitrage and the fact that investments can be dangerous. However, the way he presented the information was difficult to follow. He spent so much time talking about the details of the story that he ran out of time to really go into detail about how it applies.

Dr. Tufte said...

-2 on Sara's post for poor capitalization and inappropriate use of the word "arbitration".

I went to this presentation as well, and I also thought it could have had more of a point - Chloe's discussion of the weakness of the presentation is right on the money.

Having said that, it was an interesting historical discussion. I'm getting from Sara's tone that she was not familiar with this case. That is shocking (especially in Utah). Ponzi is the most famous case of a pyramid scheme (a form of business fraud that is more common in Utah than elsewhere). A Ponzi scheme is where you promise investor's a high rate of return and fulfill that promise by using the money from new investor's, rather than actually investing it.

What surprised me about this - knowing something of Ponzi - is that there actually was a legal (if possibly unethical) arbitrage opportunity here. He could have avoided jail (and kept his money) if he had done what he said he was going to.