Born March 3, 1882, died January 18, 1949, Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi was a was a businessman and con artist in the U.S. and Canada better known as Charles Ponzi. His name is now a code word used to describe the questionable business schemes of Charles Ponzi. Anyone who considers social networking and deals in public trust should be aware of practices that can direct even worthy endeavors toward becoming a ponzi scheme.
The primary nature of a ponzi scheme is collecting money from people while promising return that will come from money to be collected from other people, who will receive return from money to be collected from other people…. etc. Two realities make this illegal unsustainable and fraudulent. One reality is that the “other” people that money is to be collected from eventually run out and everyone still expecting a return has lost their investment with no way to recover it. The second reality is that there is no real business of substance that is creating income for investors outside of new money from new investors.
Entering a legitimate profit/nonprofit partnership is not a ponzi scheme if there is a real business venture earning actual income. Even if the profit from sales or services is layered and shared by many participants in the business, it is not considered a ponzi scheme. Profits are always shared unequally among stakeholders in any business. CEO’s, VP’s, managers and even customers (by way of rebates, discounts, referral rewards, etc) can share in company profits. There is always a “pyramid” structure that pays out profits by some set of salary, employment or commission standard. If the standards for rewarding stakeholders in a real business operation are transparent and each party agrees as part of their participation, it is a contractual arrangement that can benefit all. Some will always receive more than others depending on the agreed upon structure at the time of employment, sale or investment.
But Charles Ponzi has brought to light more subtle forms of betrayal than the blatant illegal sealing of funds under false pretenses. The success of his practices reveal the nature of social connections and human nature that made it possible for him to steal 20 million dollars from people by 1920 after arriving in the United States from Italy in 1903 with just $2.51 in his pocket. Although he died in poverty after spending many years in prison, he taught us much about how to use people for personal gain.
Ponzi was an expert in getting people to act from a spirit of greed and the feeling of being treated “special”, better than others. He used the power of claiming to have “secrets”, allowing certain people into the “in crowd”, promising something for nothing, and inspiring others to take great risks. He was able to leverage good will, trust, fear, statistics and immediate rewards to gain a fortune. Those used were often the most trusting or most desperate. These same pressures can be used in even legal sales, services and investment opportunities. They are no more noble in real business than they are in a ponzi scheme.
When working with nonprofit organizations, the opportunity and approval for abuse can be even greater since it is “for a good cause”. Also, supporters of a good cause are often more trusting and abuse of funds may not be discovered as quickly because many donors/participants are involved and may not be seeking personal reward. This makes the need for high standards and ethical principles even more critical when joining nonprofit and for profit endeavors.