QUIZ: Ponzi Schemes
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How much do you know about modern-day Ponzi schemes? Take our quiz and find out.
Posted 23 August 2010
Which of the following is not a warning sign indicating a Ponzi scheme?
- High investment returns with no risk
- Overly consistent returns
- Overly simple investment strategies
- Unregistered investments
The website of the Securities and Exchange Commission offers a seven-point list of things to watch out for that may indicate a Ponzi scheme, and "overly simple investment strategies" does not appear on that list. In fact, one of the things to watch out for is a secretive or complex investment strategy. According to the site, "Avoiding investments you don't understand or for which you can't get complete information is a good rule of thumb."
Convicted fraudster Steven Hoffenberg was the chairman of Towers Financial Corporation and the owner of what newspaper?
- Los Angeles Times
- New York Post
- Newark Star-Ledger
- Washington Post
Steven Hoffenberg was not only the former chairman of the Towers Financial Corporation bill collection agency, he was also at one point the owner of the New York Post. One might think that daily exposure to screaming tabloid headlines would have been enough to discourage him from engaging in any illegal activity, but his position at Towers proved too tempting for him not to abuse. He cheated investors out of $475 million in a scheme involving the bill collection agency, causing its eventual collapse in 1993. At the time, the Securities and Exchange Commission characterized it as "one of the largest Ponzi schemes in history."
What group of people did Reed E. Slatkin claim were pressuring him to run a Ponzi scheme in September 2003?
- Hassidic Jews
- Jehova's Witnesses
- Mormons
- Scientologists
Reed E. Slatkin was a Santa Barbara money manager and Scientologist whose Ponzi scheme netted almost $600 million, making it one of the largest on record. Slatkin claimed at his trial that he should earn a reduced sentence because Church of Scientology leaders had strong-armed him into continuing the swindle in order to profit from it. Despite Slatkin's claim that he had acted out of "duress and diminished capacity," the judge didn't buy it, and he was sentenced to 14 years in prison.
What commodity did James Lewis Jr. claim to be leasing in order to get investors for his Ponzi scheme?
- Agricultural vehicles
- Dental instruments
- Medical equipment
- Office furniture
James Lewis Jr. ran a Ponzi scheme that netted over $300 million from the investors he defrauded. Over the course of 20 years, Lewis claimed to be earning returns of up to 40% by leasing medical equipment, a deal so irresistible that approximately 1600 investors eventually wanted a piece of it. However, he was simply paying old investors with the money he received from new ones, and the situation eventually collapsed. In May 2006, Lewis pleaded guilty to only two of the fourteen charges facing him, but he still received a stiff 30-year prison sentence, and he was ordered to pay $156 million in restitution.
According to the libertarian Cato Institute, what government program works in the same way as a Ponzi scheme?
- Medicare
- Social Security
- Unemployment
- Welfare
The Cato Institute is a libertarian think tank founded in 1977. In May 1999, their website featured an article likening Social Security to a Ponzi scheme, as it makes no investment, but simply takes money from new investors to pay earlier ones. The Cato Institute claims that Social Security will collapse when the number of retirees becomes greater than the number of new investors paying into the system.
What celebrity allegedly lost $10 million in the Ponzi scheme perpetrated by Bernie Madoff?
- Charo
- Edie Sedgwick
- Elizabeth Taylor
- Zsa Zsa Gabor
During his decades-long deception, Bernie Madoff defrauded several celebrities, including Kevin Bacon, Steven Spielberg and John Malkovich. He also scammed actress, beauty queen and socialite Zsa Zsa Gabor out of a reported $10 million, most likely through investments made with a third party. Her husband, Frederic von Anhalt, described their situation in dire terms. "We might be forced to sell our Bel Air home, cars, artwork and even our jewelry because of this sick man."
In August 2010, what did Eliyahu Weinstein's attorney propose as part of his client's bail package?
- Community service
- Group therapy
- Home confinement
- One week on a chain gang
Eliyahu Weinstein, a New Jersey used car salesman, was arrested for running a real estate Ponzi scheme worth $200 million. Weinstein would sell investors properties that he didn't own, and some that didn't even exist. Sometimes he sold the same one multiple times, and he would often characterize a property as rife with rental income, when in reality it actually had no tenants. It all added up to a possible life sentence, particularly since he traveled regularly to Israel and was considered a significant flight risk. His attorney, however, is proposing a $5 million bail package that would see Weinstein confined to his own house and fitted with an electronic monitoring device.
Illinois banker William Huber told clients that he was managing $40 million in investor funds. How much was he really managing?
- Nothing
- $1 million
- $3 million
- $6 million
William Huber was an investment banker from Decatur, Illinois who managed three investment funds to spectacular effect. At least, that's how he made it look. He reported to both his clients and the Securities and Exchange Commission that he was managing $40 million worth of investor funds, when in reality he was only managing $3 million. All told, he cheated 300 clients out of a total of $15 million, and federal court documents show that he did it in classic Ponzi scheme fashion. "Clients who requested redemptions based on the falsely inflated position of their investments were paid with funds invested by other clients," the documents said.
In May 2010, Kevin Halverson of Bothell, Washington pleaded guilty to operating a Ponzi scheme that involved tickets to what sporting event?
- PGA Championship
- Super Bowl
- World Cup
- World Series
In May 2010, Kevin Halverson pleaded guilty to operating a Ponzi scheme involving Super Bowl tickets. He told 50 investors that he planned to buy the tickets and then sell them at inflated prices, getting everyone a big profit in the end. However, Halverson used almost all of the money he was given to pay off people who had invested in the same scheme earlier on. In the end, he was ordered to pay over $7 million dollars and sentenced to four years in prison.
What Eastern European country was overthrown in 1997 by its citizens when the Ponzi schemes that had overtaken its economy collapsed?
- Albania
- Croatia
- Romania
- Serbia
When the Soviet Union fell, its former nations transitioned from state-controlled economies to free market economies. Albania's transition was a difficult one, and its extremely basic financial system created an opening for lending companies that issued credit based on remittances. These companies took the money and invested it on their own, with no loans issued. The scam was so widespread and so many investors had taken part that at one point the companies' liabilities amounted to fully half of Albania's gross domestic product. The schemes fell apart when the companies ran out of Albanians to bilk, and when that happened angry mobs took to the streets, causing rioting, anarchy and ultimately the fall of the government.
Your score:
- Con man
You engage in shady activity but you're smart enough to keep it quiet.
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Visit the MADOFF BEHIND BARS website - Convicted fraudster
You had a good racket going for a while but eventually it caught up with you.
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Visit the MADOFF BEHIND BARS website - Ruined investor
You put all your money in a scheme that was too good to be true.
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Visit the MADOFF BEHIND BARS website
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