Ponzi scams cost Britons over £450 million. And in some extreme cases, notorious con artists have stolen tens of billions from innocent investors. Below we shed light on how they operate, share some of the world’s most infamous cases, and explain how you may be able to recover your money if you’ve been impacted by a Ponzi scheme.
How do Ponzi schemes work?
A Ponzi scam is a type of investment fraud that usually works like this: an individual or business invest money after they’re promised high returns with little to no risk. Once they’ve invested, the scammer takes their money and uses it to pay an earlier investor.
As some people get paid, it can seem like the scam is working, which often leads to more people investing. However, in a Ponzi scheme, money can only keep flowing if new people continue joining. So, when new investments slows or too many investors demand their money back, the scheme falls apart, and most investors lose their money.
Charles Ponzi – the original Ponzi con artist
Although Charles Ponzi didn’t invent the scam, his scheme became so infamous that his name is now synonymous with it.
Equating to approximately $225 million in today’s money, Ponzi swindled an estimated $15 million in just eight months. He did it by convincing investors they could earn 50% returns by investing in international postal reply coupons. The scheme ran for over a year before it collapsed, costing his investors a total of roughly $20 million.
History’s biggest Ponzi schemes
Let’s look at some of the largest and most notable Ponzi schemes of all time.
Bernie Madoff – £15.4 billion
Bernard Madoff was convicted in 2008 after running the biggest Ponzi scheme ever. He promoted his scam as an investment strategy called the “split-strike conversion”.
The “strategy” involved trading in blue-chip stocks and options. Madoff sold the dream by falsifying records to show clients they were earning profits. But it was all a sham, with investments being used to pay new investors.
Madoff later admitted his firm had $50 billion worth of liabilities owed to 4,800 clients – although the government later revealed the fraud was estimated to be $64.8 billion.
He was sentenced to 150 years and died in prison in 2021.
R.Allen Stanford – £5.4 billion
Texas tycoon R. Allen Stanford’s 20-year scheme scammed almost 30,000 victims in more than 100 countries. The scam involved the selling of high-yield certificates of deposit (CDs) issued by his Stanford International Bank in Antigua. He then funnelled funds into personal interests, such as real estate, yachts, and cricket sponsorships.
After the scheme claimed roughly £5.4 billion, it came to an end in 2009 when Stanford was sentenced to 110 years in prison.
DC Solar – £770 million
This infamous Ponzi scam began with Californian mechanic Jeff Carpoff, who pitched portable solar generators to investors, which he named the “Solar Eclipse”.
Many big names like Sherwin-Williams and the US government bought in. But when the generators failed and the orders piled up, Carpoff turned the business into a Ponzi scheme, using money from new investors and exploiting federal green-energy tax credits to pay earlier ones.
Exposed in 2018, the scam cost investors and taxpayers nearly $1 billion. Carpoff was convicted in 2021 and received a 30-year prison sentence.
Gerald Payne/Greater Ministries International – £345 million
In the 1990s, Gerald Payne and his Greater Ministries International church bribed US church leaders to be part of his Ponzi scheme. Together, they persuaded nearly 20,000 investors to pour millions into the scheme.
The scam, coined “Double Your Blessings”, targeted Christian communities, promising potential investors they could double their investments in 17 months or less. It collapsed in the late 1990s, and Payne and other Church leaders were convicted. Payne was sentenced to 27 years in prison.
London Capital & Finance – £237 million
London Capital & Finance (LCF) was an investment firm which collapsed in 2019. The reason? It was found guilty of operating a huge Ponzi scheme, raising over £237 million and defrauding over 11,600 investors.
People from all over the country invested money into mini bonds, which are an investment that typically offer high returns. These people were made to believe they were investing in small and medium-sized businesses in the UK. In reality, though, directors of the firm were using the funds to buy property, supercars, pay for luxury travel, and make donations to the Conservative party.
CEO Michael Thomson was sentenced to 10 months in prison in May 2023 and suspended for 2 years. Judge rulings will determine compensations due at a later stage.
Other notable Ponzi schemes
Sometimes, it’s not just the money lost that makes the news. Many Ponzi schemes have also involved celebrities, including the man behind ‘NYSNC and Backstreet Boys.
Lou Pearlman – £231 million
Lou Pearlman is known for putting together platinum-selling boy bands NSYNC and the Backstreet Boys. But Pearlman has also built a reputation for orchestrating a colossal Ponzi scheme, which swindled investors and banks out of more than $1 billion.
His scheme worked by tricking people into investing in fake companies, claiming they were successful and backed by the profits of his boy band empire.
Investors were promised safe returns, but, in classic Ponzi style, Pearlman used profits from new investors to pay older ones. Eventually, when new investment slowed and the truth emerged in the mid-00s, the scheme collapsed—costing investors an estimated $300 million.
In 2008, he was convicted of conspiracy and money laundering charges and sentenced to 25 years in federal prison. He died at the age of 62 in 2016.
Reed Slatkin – £456 million
Reed Slatkin is best known as the man who invented internet service provider EarthLink in the mid-90s. But long before its inception, the former investment manager was responsible for a massive Ponzi scam that defrauded investors of more than $500 million across 15 years.
Slatkin used his position in the Church of Scientology to recruit investors and funnelled millions of dollars into his scheme.
In 2023, he pleaded guilty to mail fraud, wire fraud, money laundering, and obstruction of justice. In September 2003, he was sentenced to 14 years in federal prison.
Russell Erxleben – £1.54 million
Russell Erxleben was a kicker who started his American football career at the University of Texas. Later, he went to play in the NFL for the New Orleans Saints and even earnt a place in the All-American first team for three years.
Off the pitch, though, things started to decline after he left the game. In 1991, he filed for bankruptcy and left his debtors $1.3 million poorer after a series of failed attempts at business.
Within a couple of years, he was hatching another scam, this time the Austin Forex International Ponzi scheme, which defrauded investors of nearly $2 million. Erxleben was sentenced to 90 months in federal prison in 2014.
Think you’ve been involved in a Ponzi scheme?
If you’ve lost money to a Ponzi scam, we may be able to help. As an SRA-regulated firm, our experienced solicitors are trained to recover losses caused by all types of investment fraud. We’ll manage your case from start to finish, and ensure we build a claim that gives you the best possible chance of reclaiming your lost funds. It’s this proven process that’s helped us recover over £50,000,000.
Get in touch to start your recovery.