Over the course of the last nine years, Marie Springer, Ph.D., Adjunct Associate Professor in the Department of Public Management, has been hard at work unraveling the mystery surrounding Ponzi schemes. What are the characteristics of a Ponzi scheme? What makes people more likely to fall prey to a Ponzi scheme? And, is there an archetype for a Ponzi scheme perpetrator? In her forthcoming book The Politics of Ponzi Schemes: History, Theory and Policy, she’s answering those questions. “Through the book I’m hoping to provide readers with an education on how Ponzi schemes work and how they can protect themselves,” says Springer.

Calling her research a “labor of love,” Springer’s work on Ponzi schemes and other financial-market crimes came after having two careers, a work stint as a diamond setter in New York City’s diamond district, and her arrival at John Jay where she graduated with a master’s and doctorate degree, and now teaches. “I’ve always been interested in the role the economy and legislation play in financial market crimes,” says Springer. “How are the laws in place helping or hindering our civil servants from doing their jobs and stopping this kind of fraud from happening. And, on a human level, what is the impact of Ponzi schemes? That’s what my book helps shed light on.”

We spoke with Springer to learn more about her new book. As she delved into the topic of Ponzi schemes, we discovered surprising information about her research and honed in on some useful tips that everyone can use to protect themselves from this type of financial fraud.

How did your research in financial market crimes lead to the writing of your book The Politics of Ponzi Schemes: History, Theory and Policy?
My body of research centers around affinity fraud, financial market fraud, elder fraud, and other white-collar financial market crimes. I was working on my master’s degree when the Bernie Madoff Ponzi scheme was blown wide open during the financial crisis in 2008. It was revealed that this financial industry veteran, former NASDAQ Chairman, and money manager had convinced people to invest billions of dollars in the wealth management arm of his securities company—the whole thing was a fraud. The immediate reaction from many was to blame the fraud all on Bernie, but I wanted to see what other factors played a role in the perpetuation of the scheme and its downfall. I began to build data sets from the information I was gathering from public documents, testimonials given to Congress, and available information from federal agencies, such as the Securities and Exchange Commission (SEC). As my research grew, so did my data sets. I decided that I needed to put what I was finding into a book. This book on Ponzi schemes is the culmination of nine years of research and, hopefully, will be the first in a series. Doing this research this last decade has been really exciting for me and it’s something I love. When I get up each morning, the highlight of my day is reading up on a new scheme. Each one is like a very intricate puzzle for me, where I’m figuring out how they did this, how they’ve managed to get away with it for as long as they did and what led to its downfall.

Can you define what a Ponzi scheme is and how its characteristics differ from a pyramid scheme and other multi-level marketing schemes?
The defining characteristic of a Ponzi scheme is the fact that the money invested by later investors is used to pay earlier investors. In a Ponzi scheme, investors give their money to an investor, money manager, or firm to invest in something that will make them more money. Initial investors don’t suspect they’re involved in a Ponzi scheme because they receive a return on their investment, but what they don’t know is that the money they’re receiving is actually coming from later investors investing in the fraud.

In a pyramid scheme and multi-level marketing schemes the person initiating the scheme brings in members and oftentimes these members pay a membership fee in order to sell a product. Profits are made by bringing in additional members. Where a pyramid scheme and a multi-level marketing scheme differ is that in a pyramid scheme there is no actual product to sell, it’s just memberships. So, you bring in your pals and every time one of your pals gets a membership, you get a percentage of that fee, and the guy who recruited you also gets a percentage. It just trickles up.

Historically, who had the first Ponzi scheme in the U.S.; the longest Ponzi scheme; and the largest Ponzi scheme?
The first Ponzi scheme was by Charles Ponzi, a hundred years ago. His scheme, which lasted about six months, involved postal reply coupons and he got people to invest but he never bought a single one. The largest Ponzi scheme was Bernie Madoff. That was $19 billion. Initially, it was thought to be $65 billion but after the amount that was paid back to early investors was taken into account it was found that $19 billion was the amount lost by investors. And, the longest Ponzi scheme was run by Phillips Barry. It ran for over 30 years.

What are the warning signs or “red flags” that would let someone know they’re involved in a Ponzi scheme?
Anytime someone is guaranteeing you a profit, you should be suspicious. There is never a guaranteed profit when investing. If they are promising you a 100 percent return on your investment, that’s another red flag. Something to also look out for is the “exclusive quality.” They don’t want you to tell anyone else. The exclusiveness is more about trying to weed out people who are savvy enough to realize it’s a fraud. Another sign you may be involved in a Ponzi scheme is if the person you’re trusting your money to is using a lot of industry jargon that most people wouldn’t understand. Your investor should be able to explain what they’re doing with your money in layman’s terms.

How do Ponzi schemes affect not only the economy, but also everyday people?
Many Ponzi schemes actually impact people with pensions. The way many pensions work is that they invest the workers’ money in something that is supposed to bring back a return; there’s supposed to be a profit made in order to fit the bill for the pension, the people who run the pension, and pay out the pension. But if the person running the pension doesn’t realize they’ve invested in a Ponzi scheme, the whole pension could be lost, and all the people who paid into that pension plan lose their money. Imagine having to tell someone who has worked a job for 35 years and is ready to retire that all their money was lost to a Ponzi scheme—it’s devastating.

Do Ponzi scheme victims ever recover the money lost?
They can recover some of the money lost. This is where the U.S. Marshals come in. Part of their job is to figure out where the money went, what was bought with the money from the scheme. The U.S. Marshal will also sell off the Ponzi perpetrator’s property and then that money gets returned to investors.

While writing your book, was there anything that surprised you?
I was surprised by the number of Ponzi schemes that were committed by lawyers, accountants, and stockbrokers. These are people who take ethics exams and in all three cases they knew what was against the law and yet they did it anyway. They thought they were smarter and wouldn’t get caught. Also, some Ponzi schemes end in such a shocking way. In one of the most recent schemes, the Ponzi scheme perpetrator tried to run away from the FBI using an underwater vehicle. He led the FBI on a car chase, ran out of the car, got in an underwater vehicle, and went into a lake. The FBI waited for him to surface again and arrested him.

Are there any misconceptions about Ponzi schemes you’d like to dispel?
The biggest misconception is that Ponzi scheme perpetrators are only white men over the age of 50. But the truth is anyone can be a Ponzi scheme perpetrator. I try to really make that clear in the book—I have a whole section in my book devoted to women Ponzi schemers because that is something that hasn’t really been looked at in white-collar crime. Who might try and propose a Ponzi scheme to me is going to be completely different from who might try and propose a Ponzi scheme to you. Perpetrators pick people that will buy into what they are saying, and that’s almost always someone they know. In other words, the victim already trusts the perpetrator before they invest their money. It could be your nephew, a friend, someone in your community who perhaps goes to your church or synagogue. I call it the “just-like-I-am” syndrome where you assume that because someone is like you, they would never take advantage of others because you would never take advantage of others. But that’s exactly how Ponzi scheme perpetrators get their victims. A great many Ponzi schemes start out with the perpetrators preying on their friends and family, and then their friends and family tell their friends, “I know this guy, he’s got this really great deal.” So everyone gets in on the scheme and then all of a sudden, everybody gets ripped off.

Is there a particular group that is usually targeted by Ponzi schemers?
Generally, older people are targeted because they actually have money; they either got a payout when they retired, they have a lifetime of savings, or someone passed away and left them an inheritance. But really, anyone who has money can become a target of a Ponzi scheme. In the course of my research, I also learned that people who are immigrants or are recent refugees to this country are also targeted for Ponzi schemes in their communities. Oftentimes their cultural values are used to convince them to invest in a scheme. They are preyed upon by people in their own community, people that look like them and that they trust, and by and large that’s what a Ponzi scheme is all about.

What are some of the ways you can protect yourself from becoming a victim of a Ponzi scheme?
In the book I give readers detailed instructions on how to do their due diligence. Make sure your investor is properly registered with the SEC or the CFTC [Commodity Futures Trading Commission]. Look them up on Brokercheck. If you’re investing, you need to read the contract and understand what it says. Please, don’t just hand over your hard-earned money and say, “Invest this money for me. Make me more money. I trust you.” So many people have lost money because they gave it to an investor or advisor and never thought to question them or their methods. The most important thing, and empowering thing, anyone can do is educate themselves on the investment process. Learn about where your investment is going and how the profits are being made. That’s how you start to protect yourself.