A "Ponzi” scheme, as that term is generally used, refers to an investment scheme in which returns to investors are not financed through the success of the underlying business venture, but are taken from principal sums of newly attracted investments. Typically, investors are promised large returns for their investments. Initial investors are actually paid the promised returns, which attract additional investors. Affidavit of Ron N. Bagley in Support of Trustee's Amended Motion for Summary Judgment ¶ 20 (February 24, 1984).
See Cunningham v. Brown, 265 U.S. 1, 44 S.Ct. 424, 68 L.Ed. 873 (1924);
United States v. Rasheed, 663 F.2d 843 (9th Cir.1981),
cert. denied 454 U.S. 1157, 102 S.Ct. 1031, 71 L.Ed.2d 315 (1982);
Rosenberg v. Collins, 624 F.2d 659 (5th Cir.1980);
United States v. Cook, 573 F.2d 281 (5th Cir.1978);
In re Tedlock Cattle Company, 552 F.2d 1351 (9th Cir.1977);
Matter of Freudmann, 495 F.2d 816 (2d Cir.1974);
In re Diversified Broker’s Company, Inc., 487 F.2d 355 (8th Cir.1973);
Conroy v. Shott, 363 F.2d 90 (6th Cir.1966);
Boyle v. Gray, 28 F.2d 7 (1st Cir.1928),
cert. denied, 278 U.S. 653, 49 S.Ct. 178, 73 L.Ed. 563 (1929);
Gallagher v. Hannigan, 5 F.2d 171 (1st Cir.),
cert. denied, 269 U.S. 573, 46 S.Ct. 101, 70 L.Ed. 419 (1925);
Guy v. Abdulla, 57 F.R.D. 14 (N.D.Ohio 1972);
In re Moore, 39 B.R. 571 (Bkrtcy.M.D.Fla.1984);
In re Coastal Equities Inc., supra, note 5;
People v. Luongo, 47 N.Y.2d 418, 418 N.Y.S.2d 365, 391 N.E.2d 1341 (Ct.App.1979).
See also, A. Leff, Swindling and Selling 70-72 (1976). In the pantheon of crime, Charles Ponzi, the eponymous architect of the “Ponzi” scheme, enjoys a place of prominence. Ponzi began in December, 1919, with $150.00 in capital, borrowing money on his promissory notes. Ponzi represented that he could take advantage of the differences in currency exchange rates following World War I by purchasing international postal reply coupons in foreign countries with weak currencies and redeeming them in countries with strong currencies at 100 percent prof*995it. Ponzi offered to share this profit with investors, who were promised a 50 percent return on 45 day notes. Ponzi actually made no investments of any kind, and all of the money he had at any time was the result of the loans made by investors. Ponzi issued notes in excess of 14 million dollars, and made payments of about 9 million dollars to his investors. On August 1, 1920, a Boston newspaper exposed Ponzi as a charlatan, and there was a wild scramble by investors to present their notes for payment. On August 9, 1920, an involuntary petition in bankruptcy was filed against Ponzi. At the time the petition was filed, Ponzi’s outstanding liabilities were $6,948,267.88, and his total assets were $2,195,-685.56. Ponzi refused to disclose to the referee the nature of his business, and whenever questioned on the point invoked his fifth amendment privilege against self-incrimination. But from a careful examination of Ponzi’s books and records, accountants established that he had never engaged in a regular business, that no source of profit existed, and that he was insolvent from the inception of his venture. Ponzi was sentenced to prison, from which he was paroled after three and one-half years. He was re-arrested in Florida and sentenced to jail for a real estate fraud in which investors were promised 200 percent profit in sixty days. After serving seven years imprisonment, he was deported to Italy, where Mussolini gave him a job in the finance ministry. Ponzi left Italy for South America, and ultimately died penniless in a charity ward in Rio de Janeiro.
See Cunningham v. Brown, supra, 265 U.S. at 7-9, 44 S.Ct. at 425-426;
In re Ponzi, 268 F. 997 (D.Mass.1920); J. Nash, Bloodletters and Badmen 448-51 (1973); Train, "Mr. Ponzi and His Scheme,” Harvard Magazine, May-June 1984, at 12-16; “Take My Money," Time, January 31, 1949, at 21.