This week TD Bank agreed to pay $1.2 billion to settle a case involving a $7 billion Ponzi scheme involving Allen Stanford. The Canadian bank denied any wrongdoing but said it chose to settle to “avoid the distraction and uncertainty of continuing a long legal proceeding.” Ponzi schemes are when the orchestrator pays out old investors with funds from new investors, and Straight Arrow News has some of the most notorious ones in history in this week’s Five For Friday.
#5: Charles Ponzi
Charles Ponzi was far from the first to be involved in a scam that robbed Peter to pay Paul, but his was so infamous they put his name on the fraud. In 1920, Ponzi lured investors by offering 50% interest in just 90 days — which he eventually sweetened to 45 days — by buying and selling international postal reply coupons. In the truest definition of a Ponzi scheme, he paid off early investors with money from new investors who wanted to get in on the fortune. Ponzi made $15 million in just eight months, worth roughly $232 million in 2023. His rags-to-riches story garnered media attention in Boston, which first brought him new clients and eventually scrutiny, which brought the scam to a halt. In the end, Ponzi went to prison, was paroled, committed more fraud, went back to prison and was eventually deported to his native Italy.
#4: Lou Pearlman
Lou Pearlman didn’t just launch massive boy bands like *NSYNC and The Backstreet Boys, swindling money from the superstars: Pearlman also ran a decades-long Ponzi scheme that started in the 1980s. He would get people to invest in businesses listed under his Trans Continental International company, but the businesses only existed on paper. Pearlman also used the success of his boy bands to sell investors on a fraudulent savings program. He created fake financial statements to make the whole operation seem legitimate. He made $300 million with the scam but was eventually caught and sentenced to 25 years in prison. Pearlman died in 2016, eight years after his sentencing.
#3: Scott Rothstein
Scott Rothstein used his expertise as an attorney for his scheme. He would sell structured settlement agreements to his clients, claiming the recipient couldn’t wait to collect the annuity over time. It’s similar to lottery winning payouts and is a legitimate business structure. Rothstein’s investors would pay a lump sum to the winner in these cases with the promise of earning their money back plus the difference in annuity payments over time. The problem was Rothstein’s cases never actually existed. The scheme fell apart after he ran out of money to pay his investors. Rothstein was eventually convicted and sentenced to 50 years in prison for running the $1.2 billion Ponzi scheme. TD Bank was also implicated in Rothstein’s fraud, paying $52.5 million due to alleged involvement.
#2: Allen Stanford
Allen Stanford’s $7 billion dollar scam involved certificates of deposit pitching fantastic, safe returns sold out of his bank in Antigua. They claimed the returns were better than anywhere else, which ended up being too good to be true. Stanford claimed the CDs were backed by actual assets but the SEC said it was a front to fund his lavish lifestyle, including funding high profile cricket tournaments. He’s now serving 110 years in prison while governments try to make his investors whole. That’s where TD Bank’s $1.2 billion settlement comes in.
#1: Bernie Madoff
Bernie Madoff’s $20 billion Ponzi scheme is one for the history books, along with documentaries, movies and TV series. Madoff took in $20 billion in principle from investors, promising huge returns. But he apparently just dumped the funds into an account to use as he pleased while forging documents to show clients $65 billion in returns. Madoff’s scheme fell apart when the stock market crashed in 2008 and he could no longer pay out his investors. He was sentenced to 150 years in prison after his sons turned him in. Madoff died in 2021.