Charles Ponzi perpetrated his infamous scheme almost a hundred years ago. But his method of using new investments to pay existing investors and finance a highflying lifestyle is alive and well: just as much money is lost in the United States today from Ponzi schemes as from shoplifting. Somehow, con artists are able to dazzle wealthy, educated individuals and sophisticated institutions and convince them to hand over huge sums of money. How? In The Ponzi Scheme Puzzle, renowned legal scholar Tamar Frankel explores these con artists' fascinating power of persuasion and deception, uncovering the subtle signals that mimic truth and honesty. After years of close study of hundreds of cases, Frankel explains the striking patterns that emerge and the common characteristics of the con artists and their victims. She offers clear yet comprehensive descriptions of the various designs of Ponzi schemers' attractive offers and flags the ways in which they mask their deception through specialized methods of advertising and selling. She then constructs lucid profiles of the con artists and their victims, exposing the core nature of the people at the heart of the schemes and showing how over time the lines between predator and prey are blurred. There are indeed many lessons to learn from these stories, and Frankel brings them to light through the insightful results of her research. She shows how peoples' attitudes are ambivalent and uncertain toward con artists, perhaps because their behavior is so seemingly honest, because they act like the social leaders with whom they are likely to mingle, or perhaps because their actions are thought to shake up a complacent society. Frankel concludes by offering a surprising solution on how to prevent charming, dangerous con artists from perpetuating the enduring, disastrous legacy of Charles Ponzi.

Tamar Frankel is Professor of Law at Boston University School of Law. She is the author of Trust and Honesty: America's Business Culture at a Crossroad.

PREFACE INTRODUCTION CHAPTER 1 CON ARTISTS AT WORK A. Three Stories of Ponzi Schemers 1. Charles Ponzi 2. Bernard Madoff 3. Gregory Bell B. The Basic Design 1. Drawing attention to the offer a. High Returns At No Risk b. Stories to Satisfy Investors' Curiosity c. Con Artists' Stories Are Exceptional and Creative. C. Gaining Trust and Concealing the Truth 1. Words Can Be Used to Signal Trust a. Words Can Denote Trustworthiness b. Signals to raise Trustworthiness c. It Depends On How You Say False Things. Specific Promises with Vague Roles d. The Way a Story Is Told Can Signal Truthfulness e. Refusing to Provide the Details of a Scheme Need Not Undermine Trust 2. Familiar Transaction Businesses and Forms Seem to Make Verification Superfluous 3. Hiding Fraud by Actions. Prompt Payments That Spell Trustworthiness, Low Risk, and Much More D. Hiding the Vulnerable Part of the Story: Secrecy and Costly Verification 1. Concealing the True Nature of the Ponzi Business 2. The Use of Justified Secrecy 3. Stories That Are Costly to Verify 4. Details That Hide the Truth by Drowning It a. Details Can Hide the Truth b. Complexity Helps Hide the Truth As Well E. Con Artists Deceptive Friendship, and Seeming Vulnerability by Age and Naivety 1. Deceptive Friendship and Love 2. Deceptive Weakness of Age and Seeming Naivety a. Old Age Can Deceive b. Naivety Can Deceive CHAPTER 2: SELLING THE STORIES A. Advertising 1. The Importance of Advertising 2. Where To Operate And How To Build a Reputation 3. Show Generosity 4. Entertain 5. Draw Attention by Engaging in Attention Drawing Conflicts B. Recruiting Helpers 1. Cooperation, Competition and Congregation Among Con Artists 2. Birds of a Feather Flock Together C. How Do Con Artists Approach Their Victims? 1. From Family and Friends to Institutions to Affinity Groups a. Introduction b. Affinity Groups: Ethnic and Religious Groups c. Religious Institutions d. Hybrid Institutions And Overtones 2. Technology Has a Growing Impact On The Growth Of Ponzi Schemes D. The Sales Force 1. Collecting and Distributing Information 2. Paid Sales Force 3. A Pure Sales Structure: Pyramid Schemes CHAPTER 3 CON ARTISTS' BEHAVIOR SEEMS A "NORMAL USUAL BEHAVIOR" A. Humans Have a Natural Ability To Pretend, Lie, And Influence Others 1. Humans And Even Primates Have Innate Abilities To Lie Convincingly 2. Signs Of Misleading Signals 3. Legitimate Lying 4. Exploiting The Weakness Of The Social System 5. The Slippery Slope: From Honesty To Fraud 6. Ponzi Schemes "Businesses" Mirror Respectability a. Legitimate Businesses: Banking and Financial institutions b. Stock Market Trading-Following The Trends c. Salespersons And Traders d. Entrepreneurs e. Con Artists Are Believable: They Believe in Their Activities And View Them As Businesses f. Longevity of the Businesses Breeds Respectability CHAPTER 4 A PROFILE OF THE CON ARTISTS AND THEIR VICTIMS A. The Dark Side Of Con Artists (And Some of Their Investors) 1. Con Artists Are Different From Most People 2. On Very Rare Occasions A Con Artist Might Resort To Murder 3. On Very Rare Occasions A Group Of Con Artists Can Be Deadly As Well 4. Con Artists Lack Empathy a. What Does Empathy Mean? b. Lacking Empathy Can Bring Repeat Frauds c. Lacking Empathy Can Render Con Artists More Effective d. People's Empathy Is Socially Important 5. How Do Con Artists Present Themselves? a. Protecting the Weak Ego: We Are Special! 6. Con artists' mechanisms of ego protection and justifications a. Denial b. Blaming The Government c. Blaming The Laws d. Blaming The Victims e. Blaming Others, But Avoiding A Show Of Weakness f. Our Actions Are Justified. Others Are Fraudulent, And We Must Protect Ourselves Against Them By Defrauding First; Besides, Everyone Does It g. Our Good Works Testify To The Legitimacy of Our Actions B. The Profile Of The Victims. What Kind of Persons Are the Sophisticated Victims? What Makes Some People More Vulnerable to Ponzi Schemes Than Others? 1. The Dark Side of Some Investors: Lacking Empathy Toward Other Investors And Shared Greed 2. Investors In Ponzi Schemes, Who Suspect Or Know The Nature Of The "Investment" Yet Invest. 3. The Element of Greed 4. What Drives the Victims? a. Gullibility b. Risk-Tolerance may cover tolerance to the risk of being caught for illegal activities c. An optimistic nature and outlook on life affects risk tolerance d. Social Status e. The role of education in risk tolerance is unclear f. A Reminder of the Stories in Chapter 1: The Ways Con Artists Make Their Offers 5. The Dark Side of Some Investors and Their Representatives: Lack of Empathy Towards Other Investors and Shared Greed a. Investors in Ponzi schemes, who suspect or know the nature of the "investment" yet invest in it, do not demonstrate empathy with their fellow investors b. How do sophisticated victims of Ponzi schemes view themselves? 6. How Do Some Victims React To the Discovery of Con Artists by the Government? a. The victims' attitude towards the government b. The nature of a Ponzi scheme justifies this view of some investors D. The Issue of Addiction. Ponzi Schemes Are Addictive For Con Artists And For Some of Their Victims. The Slippery Slope to Addiction and Illegality 1. What Is Addiction? 2. What Causes An Insatiable Craving For More, And A Loss Of Self-Control? 3. What Are Con Artists and Perhaps Their Victims Usually Addicted To? 4. Con Artists Are Repeat Offenders CHAPTER 5. HOW DOES THE PUBLIC VIEW THE CON ARTISTS AND THE VICTIMS? A. America Is Ambivalent About Its Con Artists 1. Con Artists That Defrauded Small Investors Are Viewed Somewhat Differently 2. When Con Artists Mimic The Power Elite, They Are Close To, And Live Like, The Very Wealthy And Politically Powerful 3. The "Barren and Destructive Creators" The Benefits of Creative Harm 4. Con Artists Can Be Corrupting Teachers B. How does the Public View the Vic…