Deja Vu

I'm currently reading a book that discusses a multi-million-dollar Ponzi scheme and describes some of its victims. They included politicians, the president of a major transportation company, and a number of other presumably savvy businessmen.

These two (apparently true) stories are good examples.

One businessman was talked into investing in a mine belonging to an ex-senator. Although the mine existed and was very profitable, the senator had not authorized the sale, and no documents evidencing ownership changed hands. The businessman regularly visited the brokerage firm to talk about his investment, and he often passed the ex-senator, who would be sitting in the lobby. However, the businessman had been told not to speak to the ex-senator because he did not want his involvement known, and the businessman obeyed. In reality, the ex-senator was there for other reasons and apparently had no idea what was happening.

Another man was taking a trip to Europe and gave the brokerage firm partner $50,000 to invest for him. When he returned from his trip, he stopped in at the firm and asked if he had made any money. The partner promptly wrote him a check for $250,000. After looking at it, the man returned the check and asked the partner to "set that hen again." Of course, he never saw a cent.

So were these men Bernie Madoff's victims? While their stories are similar, Madoff wasn't the crook in these examples.

Or were they victims of the 1920 fraud by the infamous Charles Ponzi? Again, they could have been, but they weren't.

The book is The Autobiography of Mark Twain, and the pyramid scheme was operated by Ferdinand Ward in 1884 (pre-dating the man for whom these frauds came to be known as Ponzi schemes). Ward was the active partner in the brokerage firm of Grant and Ward, where the Grant in the name stood for the former President Ulysses S. Grant and his son (both of whom were naive but apparently innocent). President Grant was himself a victim, losing all of his money and--for a while--his reputation.

As with most things, some good came out of the tragedy. For years Mark Twain had been urging Grant to write his autobiography, but he refused. After losing everything, it was the only way Grant could make enough money for his family to live on. So without Ward's betrayal, the world probably would not have the benefit of Grant's memoirs.

Still, why can't we learn from the past? Over 100 years ago, George Santayana said, "Those who cannot remember the past are condemned to repeat it." But many of Madoff's victims were sophisticated investors who were surely familiar with Charles Ponzi's history and perhaps even with the Ferdinand Ward scheme. So I'm changing the saying to, "Those who choose to ignore the past are condemned to repeat it."

As long as this world is composed of sinful human beings, there will be Ponzi schemes and there will be victims.

Hopefully you won't be among them.