Ponzi schemes have been around for a long time, and there just doesn’t seem to be any end in sight to them. The scheme is named after Charles Ponzi who became rich and famous in 1920, making, at his peak, close to a quarter of a million dollars a day. What Charles Ponzi did was promise investors an amazing return – 50% in a month and a half – and he did it by taking the money from his later investors, and giving it to his early investors. In effect, there were no profits ever made, he simply gave investors back some of their own money or some of the money he acquired from subsequent investors. You’d think that investors would catch on and that in today’s sophisticated world Ponzi schemes wouldn’t take place – unfortunately, that’s not the case. In December of 2008, Bernie Madoff admitted that his investments were “all one big lie” with investor losses of around $50 to 65 billion. Where’s Bernie today? He’s in jail serving a 150-year sentence.
Just this week Ponzi schemes again made the news. This time the headline was “Ex Heisman Trophy Winner Ty Detmer Loses Life Savings in Alleged Ponzi Scheme.” The scheme targeted ex-athletes and Heisman winners Ty Detmer, Earl Campbell, and Chris Weinke among others. Detmer’s losses totaled about $2 million – which accounted for most of his life savings – with the total lost to all investors amounting to about $50 million. To make matters worse, Kurt Barton, the accused schemer, was one of Detmer’s friends who he met through his church. Detmer even worked for him and his company, Triton Financial, earning an estimated $30,000 to $40,000 as a finder’s fee for referring clients – and two of his referred clients were his brother and brother-in-law.
Looking back at Ch. 1, the first of the ten principles of personal finance is The Best Protection is Knowledge – and in this case, that certainly is true. You should never invest in something you don’t understand. Moreover, knowledge allows you to protect yourself from the danger of an incompetent investment advisor or worse. We also take another look at this principle in Ch. 11 when we look at Ki-Jana Carter in the chapter opening – for him – knowledge – the solid grounding in investing went a long way toward securing his financial future.
- Why do you think Triton Financial had such an easy job convincing investors to give them their money?
- Have you ever received something that may look like a Ponzi scheme over the Internet? If so, describe it.