Pyramids

There is a scam so famous it bears a man's name. And it still works, a hundred years later.

Boston, nineteen twenty. Charles Ponzi promises a fifty per cent gain in forty-five days.

His story: buy cheap postal coupons abroad, and exchange them for more in the United States.

In truth, almost no coupons are bought. The first clients are paid with the money of the next ones.

And it works, for a while. The first winners tell of their luck, and the queue outside his offices grows.

But the maths is relentless. To pay fifty per cent each round, the money coming in must grow by half each round.

After ten rounds, you need nearly fifty-eight times the starting stake. No city has enough new clients.

In August nineteen twenty, after a few months, it all collapsed. Ponzi's name became a word.

The scheme is always the same: paying the old with the new people's money. No investment, just a pipe.

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It can only grow or die. As soon as new money slows, or too many clients want out, it collapses.

December two thousand eight, in New York. Bernard Madoff, a former Nasdaq chairman, confessed to his sons that his fund was a pyramid.

On his clients' statements: sixty-five billion dollars. A number that only existed on paper.

He promised nothing huge: about one per cent a month, almost never losing. That regularity was what reassured.

And it was precisely the signal. No real investment rises so straight, crisis after crisis.

An analyst, Harry Markopolos, had warned the American regulator several times from two thousand. With no result.

What brought the pyramid down was the two thousand eight crisis. Clients wanted to withdraw their money, all at the same time.

Madoff was sentenced to one hundred and fifty years in prison. Years of proceedings recovered a large part of the sums actually paid in.

A few weeks later, in February two thousand nine, Allen Stanford fell in turn. His bank sold certificates of deposit at rates too good to be true.

About seven billion dollars, placed in products presented as safe. Behind them, invented or inflated assets.

Three men, three eras, the same ingredients: a return too good or too regular, a vague explanation, and the trust of a circle.

The twist: the victims were not all naive. There were banks, foundations, experienced investors.

Three questions protect better than intelligence. Where does the return come from? Who holds the money? Is the seller authorised?

And if an investment never loses while everything else falls, it is not a feat. It is a warning.