- What: Discussion: Don Dunn speaks about Ponzi schemes
- When: Wednesday, Feb. 23, 2011, 10 a.m.
- Where: Collier County Public Library - South Regional Library
- Cost: Free
- Age limit: All ages
Don Dunn knows a few things about slight-of-hand, economic and otherwise.
He’s a respected author on financial schemes. His 1975 book on Boston swindler Charles Ponzi was reissued in paperback four years ago in the wake of the Bernie Madoff scandal; critics at newspapers including the San Francisco Examiner and Washington Post have praised it. An editor at BusinessWeek magazine for 25 years, Dunn is also the only journalist to have interviewed Ponzi’s former wife, Rose.
He’s also a magician. If you stroll into the magic shop at Tin City where he helps out a few nights a week, you may meet him. He’s the one clad in a black top hat and willing to wow you with a card trick — either the old-fashioned kind from a weathered deck or the newfangled sort on his iPad.
From an expert on big-dollar bilkers to a kindly magic man may seem like a bit of a jump, but it’s not so large, Dunn explains.
“I’ve always been interested in con men,” said Dunn, who has been practicing magic since he was 12. “That’s basically what magicians are.”
But at 10 a.m. on Wednesday, at South Regional Library and again at 2 p.m. March 30 at the Marco Island Library, Dunn will break the first rule of being a good magician: He will reveal all. As part of a free program through the Collier County Public Library, Dunn will share the story of legendary financial cheat Ponzi, including how he and successors such as Madoff hoodwinked their investors.
He’ll also offer advice about how not to be a victim.
The first tip, Dunn counsels, is not to believe your friends when they tell you’ve they’ve found a wonderful way to make money.
“A Ponzi scheme depends on the word getting around,” Dunn said.
Not that your friends will necessarily be forthcoming. That’s another clue that a Ponzi scheme may be underway: If you’re told that an investment is incredible, but that you must keep it quiet, your Ponzi siren should be screaming.
Also, if the way the money is made is too complicated to explain or understand, make sure your pocket hasn’t already been picked. There are a million ways to pull a Ponzi, Dunn explains, but typically, victims aren’t being sold an actual product, but an opportunity to take part in a fabulous investment.
In 1919, the 38-year-old Ponzi hocked his 19-year-old wife’s jewelry and took the resulting $300 to open an office and print up coupons of investment. Then, he spun an elaborate tale about Italian postage stamps and foreign exchange rates to encourage his investors to fork over their money.
Just hearing Dunn try to explain this murky investment strategy it is enough to make you start thinking about more exciting things, like your weekly shopping list or the next time you need to mulch your yard.
But that’s the point.
“Not only is it hard to follow, but people don’t care,” Dunn said.
And they don’t care because the initial investment they brought to their Ponzi perpetrator seems to grow so quickly and so steadily. They’re promised a 50 percent profit rate, and it happens: A $10 investment brought in week one becomes $15 in week two and $22.50 in week three. It’s like magic.
But like magic, it’s all a trick. There’s no actual investment paying such returns. Behind the scenes, instead of an illusionist with smoke and mirrors, the Ponzi schemer is simply gaining new investors and accumulating more cash to show to his earlier investors as proof of a profit.
Or rather, he’s having someone else do it for him. If it’s difficult to meet or speak to the person who’s in charge of all this amazing investing, beware: Few people actually ever met Ponzi, Dunn says, and the same was true of Madoff.
In 1920, six months after he began, Ponzi had accumulated $9 million through his plotting, although he owed $15 million to investors. This was when things began to fall apart. Ponzi had put money in local banks, but other investors were taking their money out to invest with Ponzi. This angered the Boston financial establishment and they were agitating for action.
Also, something didn’t seem right. His successes were highly public, but if Ponzi could make a 50 percent profit, why was he squirreling away his money in banks that only paid 4 percent?
Soon, his accounts were frozen, and it was revealed that he had only $4 million. He was tried, convicted, served jail time and was finally deported. Rose quietly divorced him; Dunn interviewed her decades later and believes her when she told him she wasn’t left with a dime.
Neither was Ponzi: He died at 66 in Brazil, with just $75 to his name. His name, however, has become infamous, synonymous with scam artists and all the sorrow they bring.
So here’s Dunn’s final tip to avoid being a victim: Just don’t let yourself be one.
“It’s so easy to do, and people are greedy,” Dunn said. “It seems like a very easy way to make a lot of money in a short time.”
Avoid being taken
1. Do not trust your “friends.” Ponzi schemes are rarely advertised (“We don’t want to let too many people in on this!”), so you hear about them only from other “investors.” And their opportunity to profit depends on new money — your money — coming into the pot. Some friends, of course, are well meaning, but casual acquaintances may be simply interested in swelling the pool of funds quickly.
2. If the investment has an unusually high rate of return when banks and the U.S. government pay less than 5 percent and even sophisticated hedge-fund investors make in the neighborhood of 10 percent — and especially if you’re urged to “get in quick” in a deal that sounds too good to be true — it’s probably not.
3. Think you’re protected by asking a Ponzi scheme operator (or even the “friend” who calls your attention to the “surefire money-making proposition”) for records and documentation on the venture? Odds are you’ll be given printouts and graphs that look meaningful, but are so much double talk and fine print you won’t bother to study them. The usual, and wrong, conclusion is that “if they have all these details, it must be real.”
4. Never believe “it’s a no-risk investment.” And don’t plan to put money in now, and take out principal and interest right away, under the belief that if it’s a Ponzi scheme, you’ll get out before it collapses. You’ll never know how many other investors are in the scheme already and how close the operator is to skipping out with his or her ill-gotten gains. Remember, the public at large only learns of a Ponzi scheme after it’s exposed — and then it’s too late for the investors.
If you go
What: Don Dunn speaks about Ponzi schemes, Bernie Madoff and offers advice about how to avoid being a victim
When: 10 a.m. on Wednesday, at South Regional Library in East Naples, 8065 Lely Cultural Parkway, 252-7542; and at 2 p.m. March 30 at the Marco Island Library, 210 S. Heathwood Drive, Marco Island, 394-3272
Admission: Free, but registration is required online at www.public.collier-lib.org.
Something else: For more information on library programs, visit www.collier-friends.org