Dominic Thomas
June 2023  •  8 min read

Ponzi – only in America right?

If you have been around for a while, then you have probably heard the term ‘Ponzi scheme’.  It was coined after Charles Ponzi over 100 years ago. In essence, it’s a con. One where the investment genius pretends that investment returns are high, to a very-willing-to-believe-it public. The scheme takes in new money from investors and uses part of it to pay the original investors, but too much, which suggests high returns and of course all those drawing money are ardent advocates. It’s a bit like the State Pension scheme (oops, didn’t mean to say that surely?).

Anyway, someone pretending to be your friend whilst actually thieving from you is a long-established human condition, yet a smart suit and decent offices will often convey the impression of something of substance (dare I mention cryptocurrency?).

The largest Ponzi crime to date is that of Bernie Madoff, who managed to fool well known investors around the world, including one who shares a name with a warm bedtime drink. The realisation of duplicity is sadly for many too much to bear and many take their own lives having lost a fortune. Netflix have a docudrama mini-series about Madoff which is reasonably informative. His fraud is the current record breaker, estimated to be in the region of $50bn-$65bn.

Ponzi schemes don’t simply happen in America; they are everywhere where money resides. Two men were recently charged in UK courts. First there was Jonathan Allard, from Wandsworth, who had a rather splendid address in Canary Wharf. He took £3.7m from 43 investors who were lured by returns that appeared to be between 9% and 12% a year between 2013 and 2017. He is now serving a 7-year prison sentence, sadly most of the stolen money was spent on ‘fast living’.

Then there is Anthony Constantinou who makes Allard look positively cheap. He was convicted of a £70m fraud and sounds like a generally terrible example of humanity.  His crimes occurred between 2013 and 2015 by his company Capital World Markets (CWM). He is described by those that know him as a ‘Wolf of Wall Street’ type character; sleazy and grotesque in his misguided sense of machismo, the sort of traits that get some people to the top of politics. Like most similar characters, he was unable to face his wrongdoing and is currently on the run.  His scheme promised ludicrously high returns of 5% a month. If you spot him, do inform Scotland Yard.

Whilst not Ponzi schemes, there have been examples of financial advisers taking money from client investments as ‘ad hoc fees’ or simply not investing it, fabricating investment statements so that investors are unaware of the fraud. Recently the Director of Nexus IFA in Portsmouth had her FCA permissions removed, and the company subsequently placed into administration for alleviating clients of around £2m into her personal bank account.  This was discovered by Nucleus, an excellent platform that we have used for years, who noted ad hoc adviser fees of £1,895,040 from a single investor. Large ad hoc fees were also taken from four clients with holdings at 7IM (another good platform company). Ad hoc fees are not the regular ongoing fees, but one-off, agreed fees with clients for specific work. The case is ongoing.

Whilst I don’t believe that any system is totally fool-proof, one of the advantages and reasons that we provide access to our own secure portal and those of providers is so that details can be cross-checked, not simply by us, but by you too.  Sadly, we live in a world where the pressures of living and/or a background of dysfunction can and will lead some people to steal.

If you are concerned about a friend who may have been subject to a scam or fraud, please get in touch. One of my roles is to stop any get-rich-quick and too-good-to-be-true rubbish from reaching you.