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Consider Ponzi’s scheme which promised investors a 50% return on their money in just 45 days. The potential profits were so irresistible that for a time Ponzi was attracting a million dollars a week into his office. And that’s in 1920 dollars. That’s especially impressive considering that his clients included thousands of small investors including local police officers, retirees and small business owners.
Aside from the boldness of Ponzi’s 50% guarantee, the recent banking scandal in Machala, Ecuador sounds much like a South American version of the old Ponzi’s operation. There, 71 year-old José Cabrera promised investors a return of 10% interest a month. The provincial notary claimed 6,500 investors, mostly military personnel, but also high ranking officers and other officials, including a judge and the former commander of Ecuador’s Joint Chiefs of Staff. In Ecuador, the provincial notary helps facilitate real estate transactions but is prohibited from acting as a banker. This detail failed to prevent $800-$900 million from finding its way into Cabrera’s alleged pyramid operation over a 10-year period.
In Boston back in 1920, people stood in long lines for the chance to hand their money over to Charles Ponzi. Sometimes it came in so fast that tellers had to rake the cash into waste baskets and stuff it into drawers. In Ecuador, residents of Machala begged for the Cabrera to take their money, some shedding tears as they pleaded for a piece of the action.
The Ecuadorian scheme fell apart in October after Cabrera died suddenly. His death triggered panic among his investors who were counting on Cabrera’s magic to deliver their outsized returns. Sensing the game was over, locals ransacked his office, among them police officers who were seen leaving the scene with their flack jackets stuffed with money. There was also panic among Cabrera’s military investors, some of whom “borrowed” military planes so that they could jet down to Machala to join the frenzied search for cash.
Even though Cabrera was 71, many investors wondered if he had faked his death. Just to be sure they dug up his grave. The biggest skeptics scraped off bits of skin to present to the coroner’s office for DNA testing. That was far more due diligence than investors performed on Cabrera while he was alive.
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