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Watch Out for the “Ponzi”

By Rabbi Eli Teitelbaum

Mr. Smith (not his real name) was a well-to-do lawyer with an excellent reputation for honesty, very personable, charismatic and well trusted in the community. He was a supporter of many community organizations, on the board of directors of many well-known corporations, a guest of honor at some prestigious organizational dinners and lecturer at important seminars.

He claimed to have invested heavily in real estate, making a fast buck flipping large apartment buildings. He also had made quite a bit of money in the stock market, buying and selling the right stocks at the right time. Anyone who had invested with him received a good return on his money, and word soon got around that he was a hot shot and had the Midas touch. People begged him to take their money and invest it in some of his real estate ventures. He was very straightforward with them and always warned them that, while the chances of making a quick buck were very good, every investment has its risks- even though he hastened to assure them that the risk was very small indeed. People were so convinced that they’d double or triple their money that they barely listened to his warnings, which he gave them in a simple, matter of fact way. Everyone knew that the stock market had its risks, but with Mr. Smith’s great record, they felt the risk was minimal and they were willing to chance it.

It wasn’t until the real estate market suddenly took a turn for the worse and the stock market tumbled, that Mr. Smith realized he was in deep trouble and couldn’t make good on his promises. Too ashamed to tell even his wife about the sudden turn of events, he kept it to himself. Luckily, people still had the greatest trust in him and kept on bringing him money to invest. While he was very careful to tell them that he couldn’t guarantee any big returns, he certainly didn’t inform them of the terrible crisis he was facing. Instead of investing the new money, he used it to pay off his previous investors, whose money he had lost. Not only did he pay them back, but he also would give them a handsome profit so that people should continue having confidence in him and bring him more money. This technique is known as robbing Peter to pay Paul. To the uninitiated, it still seemed that he was making big profits. He was hoping for a miracle. He certainly had no intention of stealing anyone’s money, and hoped and trusted that business would pick up and he would once again give back his fortune, so that he could repay his investors. Much of the money belonged to widows or represented people’s life savings. Some were retirement funds on which people relied on for their later years.

But, try as he did, not only did things not get better, they went from bad to worse. He tried as best as he could to conceal everything from his family and friends, but inside the matter was eating him up alive. He realized he couldn’t tell a single person of the terrible straits he was now in, since it would just make things worse.

When he woke up one morning with strong pains in his chest, he quickly called an ambulance that rushed him to the hospital. After some tests, the doctor told him that his blood pressure was much too high and that he was probably stressed out because of his heavy workload. The doctor gave him medication to bring down his blood pressure and advised him to take life a bit easier, slow down, do more exercise and watch his diet. He had gained far too much weight in recent months. Little did the doctor know that he was just eating his troubles away. He was now suffering from deep depression, but dared not tell even his closest friends his real problem. While his wife and friends noticed his change of mood-he wasn’t as cheerful as before-they blamed it on overwork. They tried to convince him to keep shorter hours and relax more. Little did they realize the real source of his personality change.

It was only when checks from his account started coming back unpaid and he stopped making good on the payments he owed, that people became suspicious. At first he told them that it was a bank oversight or that someone had bounced a large check to him. It was excuse after excuse, until he ran out of excuses. He stopped answering the telephone and told his wife to say he wasn’t home and would return the call later. But when later came and went and nobody heard from him, it was cause for great concern. Rumors began circulating around the neighborhood that he was in deep financial trouble, but he denied them all. By now his family realized that something was amiss, but didn’t have the faintest idea of what to do to help.
He was sinking deep into the quicksand, and the more he tried to pull himself out, the deeper he sank, and he was taking lots of people along with him. While originally he had absolutely no intention of ever cheating anyone or taking a penny that didn’t belong to him, he realized that things had gotten out of control. He even contemplated suicide! He just couldn’t face his many friends and neighbors who had invested their life savings with him.

When the banks finally noticed what was happening and decided to close his accounts, there was no way he could cover things up. Nosy reporters were beginning to ask questions and soon the news hit the headlines of the local papers, spreading to the others with great speed.

People read it with incredulous surprise. It just couldn’t be true, they said. There must be some mistake.
People were ruined, devastated, and their hopes shattered. Their life-savings were wiped out. Some had even borrowed lots of money and had no idea how they would pay it back. The domino effect was devastating. Some would have to sell their homes, which they had built with lots of sweat, blood and tears. The shock waves would continue on for years to come. Some wounds would never fully heal.

Lawyers were hired to see what they could salvage, but the prospects of seeing any of their money back was as likely as discovering oil in one’s back yard.

Would the public learn a lesson from this horrendous disaster? Perhaps some would, but for the most part, time would soon erase these bitter memories and the story would soon unfortunately repeat itself. There will always be people who are too anxious to believe promises that are too good to be true. When? Where? Who? Just make sure it’s not you!

Note: While the above Ponzi started out as a legitimate business investment, the original “Ponzi Scheme” is named after an Italian immigrant named Charles Ponzi (1899), who cheated people out of their hard earned money by playing the “make believe” investment game. He did jail time for grand larceny, and then got himself deported back to Italy in 1934. Since then, there have been many others who have played his game and cheated thousands of people out of their hard earned money. One can still spot such swindles in pie in the sky advertisements placed in some Yiddish papers that unfortunately and disgracefully print them. For shame!

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