10 May 2016
A Round Rock, Texas man was sentenced last week to more than 13 years in a federal prison after being convicted of bilking dozens of investors out of more than $4 million, a Ponzi scheme, they called it. The defendant, William Risinger, pleaded guilty in January to one count each of wire fraud money laundering. The charges included stealing money from people who invested in the man’s oil, gas and mineral ventures, that turned out to be fraudulent.
The articles recounting the sentencing are interesting, not so much for what they say, but more for what a number of them don’t say. They tell us that Risinger was charged with running a “Ponzi scheme.” They say that investors were lied to about the number of shares that would be sold, as well as the participation of the principal in the investment. They also say Risinger took some of the money and used it for personal purposes. But for the most part, that’s all the articles say as far as the underlying crime is concerned. A number of the reports omit completely the activity that brings the activity within the definition of a Ponzi scheme.
Ponzi schemes have been around for at least 150 years. They are similar to many other fraudulent investment practices – they include misrepresenting facts to investors, and misapplying investment funds – but not every investment fraud has the right to call itself a Ponzi scheme. Here’s how the term came into being.
From the time Ponzi schemes were invented, and for about 75 years thereafter, they had no name. Then along came Charles Ponzi, who stole so much money that his name became synonymous with a particular kind of investor fraud. What Charles Ponzi did was to hide the fact that his venture was a sham, and he did that in a very specific way. Ponzi brought investors in over time, not all at once. Because of this, he had money to pay to the earlier investors, those funds consisting of the investment funds from the newer investors. So not only was he able to hide the fact that he was defrauding investors, the payments tended to convince potential investors that investments with Ponzi were paying off. And that is one of the ways in which they say that Risinger defrauded his investors. Of course, the scheme only lasts as long as new investors keep pouring money into the venture.
Well, it’s been quite a while since Charles Ponzi was around, but people never seem to tire of investment opportunities that look to good to be true.
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