From Charles Ponzi to Evaly’s Rassel: 100 years of Ponzi schemes

The business model that controversial e-commerce platform Evaly followed and deceived people with has been known to the world for hundreds of years.

Known as Ponzi scheme, the model's history is rife with incidents of financial scams and fraudulence. When the dust settles on these Ponzi schemes, the ones left cheated are those who invested in the ventures, usually customers.

In literature, the first ever story of a life-destroying Ponzi scheme is described in Charles Dickens' novel series "Little Dorrit" published between 1855 and 1857.

The popular term for the fraud is named after Italian immigrant Carlos (Charles) Ponzi, who established a succession of multi-million dollar Ponzi schemes in the 1920s, first in Boston and then in Florida of United States.

Ponzi ran a bizarre plan to buy and resell international postal-reply coupons which, according to the US Postal Service, actually could not be redeemed for cash.

He had gathered almost USD15 million from around 30,000 investors in just eight months. The business was 'successful' at first but his scheme finally got exposed.

Ponzi was sentenced to 14 years in prison, deported from the US, and spent the remainder of his life trying in vain to retrieve his investors' losses.

What transpired for Evaly's customers and merchants thus does not come as a shock for those well-versed in these chapters of commercial deceit.

Most Ponzi schemes advertise high rates of return for investors to lure them and their cash in. The money raised from new investors then goes into the pockets of the scheme's founders and previous investors.

This cycle continues as long as money is coming in but in the end, no actual profit or enough profit is gained from any investment.

And when investors come calling to withdraw or cash in their investments, these schemes collapse as the scammers now owe more money in return than they hold in investments.

Evaly's journey followed a very similar route. The e-commerce site grew as customers paid beforehand to get products at unbelievably low rates, but the delivery dates only got postposed further. Not only the customers, but also the sellers, who gave Evaly the products on credit, did not get what they were promised.

At its peak, Evaly spent heavily on ads, sponsors, big shot brand ambassadors and even bought start-ups, while struggling to manage more funds from investors.

Then everything collapsed.

In June this year, a central bank inquiry found that Evaly owed over Tk500 crore to its customers and suppliers, and that the company had failed to explain any plans to repay them.

Following a complaint brought by one of their millions of deceived customers, Evaly founder and Managing Director Mohammad Rassel and his wife and Evaly Chairman Shahima Nasrin were arrested on Thursday.

And no one came to its rescue. 

Evaly, however, set the trend for how a Ponzi scheme can be run in the digital sphere. Its criminal trail was followed by other copycat e-commerce sites such as e-orange, Dhamaka Shopping and many others. 

With two owners of e-orange now behind bars and complaints piling up against Dhamaka, it seems the unenviable ending to this game is prison time.

Here are a few other historical Ponzi schemes that robbed people of millions and ruined many a life.

Ioan Stoica- USD 1-5 Billion

Caritas was a Romanian Ponzi scheme that promoted itself as a "self-help game" created by Ioan Stocia.

The scam was originally highly effective, duping about three million poor Romanians into making deposits by promising an 800 % return after three months.

Caritas was only in operation for two years. In 1993, it was believed that the scheme held a third of the country's money.

Stoica was sentenced to seven years behind bars for fraud in 1994, but his sentence was eventually reduced to one-and-a-half years.

Tom Petters- USD 3.6 Billion

'Petters Group Worldwide' advertised itself as a consumer products distributor, but in reality, it was faking purchase orders and financial records to entice billions of dollars in investment money.

A PWI employee admitted to assisting in a Ponzi scheme in September 2008, supplying police with a tape of Petters confessing that PWI's orders were fraudulent.

Petters was sentenced to 50 years' imprisonment for mail fraud, wire fraud, and money laundering in April 2010.

Allen Stanford- USD 7 billion

The 'Stanford Financial Group' was a Caribbean-based company founded by Allen Stanford which sold certificates of deposits in US and promised higher returns than its competitors.

Stanford used the money to fund his lifestyle and finally got caught in 2009.

In 2012, he was sentenced to 110 years in prison.

Sergei Mavrodi- USD 10 billion

The MMM scam is another talked about Ponzi schemes from Russia which started in February 1994. MMM promised a 1,000% annual return from its first round of shares which sold for USD 0.65 each. But the shares reached a price of USD 81 a year later.

Around 10 million Russians fell victim to the scam. Authorities finally caught Mavrodi for tax evasion in 2003 and sentenced him to only four years in prison.

Bernie Madoff- USD 65 billion

The 'Madoff Investment Scandal', perpetrated by Bernie Madoff, is the world's largest and longest running Ponzi scheme starting in the '70s. Through his own hedge fund, the Wall Street veteran would take advantage of investors by promising double-digit profits. However, he was merely placing investor funds into a bank account and withdrawing them whenever clients wanted to take back their investments.

During the 2008 Financial Crisis, his luck ran out when he was unable to meet the massive redemption requests from his clients.

Madoff was sentenced to 150 years behind bars in 2009, and he stayed there until his death in April 2021.

From all these stories, one thing is clear - if something sounds too good to be true, it probably isn't. So, invest wisely and keep safe from being scammed.