A Ponzi scheme is a fraudulent financial-INVESTMENT proposition in which initial investors are promised extraordinarily high rates of return, usually to be realized after a short period of time. These very high rates of return attract a few initial investors who are paid with the funds of subsequent investors. Word quickly spreads that these investments do, indeed, pay off, and hoards of new “pigeons” flock to the scheming investment promoter. The scheme usually collapses either when new investment funds slow, making it impossible for the scheme operator to continue, or when the promoter disappears with large amounts of investors’ money. The scheme is named after Charles Ponzi, who, in 1919, created the Securities and Exchange Company (SEC), promising investors a 40-percent PROFIT on their investment in 90 days. At the time, prevailing INTEREST RATES were around 5 percent, making the Ponzi proposition very attractive to investors. Ponzi’s proposition was based on International Postal Reply Coupons, which were redeemable at fixed rates of exchange negotiated by the participating governments. However, EXCHANGE RATES for currency, fluctuate. Ponzi convinced investors he would take their funds, invest in International Postal Reply Coupons in countries where the currency had depreciated significantly, and then redeem the coupons in strongcurrency countries, making a significant profit. In early 1920, Ponzi’s prospectus was circulated around Boston, and a few investors put their money into the proposition. Within two months the inflow picked up and the SEC raised its rate to 100 percent on 90-day notes. So much money flowed into the company, reportedly wastebaskets had to be used to store the funds. Ponzi opened an additional office, used the funds to buy interests in other companies, and would occasionally appear in his chauffeur- driven limousine. Finally, in July 1920, the Boston Post ran an article stating the postal-coupon scheme was impossible: there were not enough coupons sold to justify what Ponzi claimed. Some investors panicked and demanded their money back, which the SEC provided. Ponzi convinced most investors that the postal-coupon story was a way to shield his real investment strategy, but he had a secret method to invest their funds for the huge returns he promised. While most investors were satisfied, the local district attorney was not impressed and ordered the SEC to stop taking new funds until the company’s books were audited. When the books were finally tallied, the SEC had a loss of $3 million. Ponzi, charged with mail FRAUD, conspiracy, and grand larceny, was convicted and spent three and a half years in jail. He then moved to Florida, was arrested for real-estate fraud, skipped bail, and was recaptured and sent back to Massachusetts’s jail for seven more years. He was then deported and later died in a charity ward in Rio de Janeiro. Ponzi schemes, also called pyramid schemes, continue to plague economies. In 1997 over 500,000 Albanians bought into a scheme set up by a charismatic woman, Maksude Kaderni, promising huge returns. When the scheme collapsed, the country was bankrupted, and Albanians who had mortgaged their homes and farms to invest in the promise of high returns were left heavily in debt. A similar scheme, known as MMM, also bilked unsophisticated Russians out of their savings.