From Madoff to PlusToken: How Ponzi Schemes Repeatedly Harvest Trust?

When it comes to investment scams, one name always comes up—Ponzi scheme. This ancient and stubborn form of fraud has been playing out in financial markets for over 100 years, from Wall Street to blockchain. No matter how times change, it reappears in different faces, and the list of victims keeps growing.

How does a Ponzi scheme work? Starting with an Italian con artist

This sensational financial scam originated from an Italian-born con artist named Charles Ponzi. After immigrating to the United States in 1903, he experienced ups and downs, working as a painter, laborer, and more. He was imprisoned in Canada for forgery and detained in Atlanta for human trafficking. After a series of failures, Ponzi discovered the fastest way to make money—financial fraud.

In 1919, just after World War I ended, the global economy was in chaos. Ponzi seized this opportunity, claiming he could profit by buying European postal reply coupons and reselling them in the U.S. He meticulously designed a complex and enticing investment plan, promising investors a 50% return within 45 days.

How crazy was this plan? In just about a year, nearly 40,000 Boston residents joined, mostly ordinary people dreaming of wealth, each investing a few hundred dollars. These people generally lacked financial knowledge and believed wholeheartedly in Ponzi’s carefully crafted wealth-building dream.

In fact, the operation of a Ponzi scheme is simple: it doesn’t generate returns through real investments but uses the money from new investors to pay earlier investors. As long as new funds keep flowing in, this huge money game can continue spinning. But once new investors dry up, the entire system collapses instantly.

By August 1920, Ponzi’s scam finally unraveled. The Italian con artist was sentenced to five years in prison, and his name was forever etched into financial history. Since then, every similar scam has been labeled a “Ponzi scheme.”

The biggest Ponzi scheme in history: How Madoff defrauded for 20 years

If Ponzi pioneered this type of scam, then Bernie Madoff took it to the extreme.

Bernie Madoff was once a legendary figure in U.S. finance, former NASDAQ chairman. But this shining identity was his best disguise. Madoff infiltrated high-end Jewish clubs, leveraging the trust of friends, family, and business partners to continuously develop his “downline” at a snowballing rate.

He promised investors a steady annual return of about 10%, boasting that he could profit easily whether markets rose or fell. To ordinary investors, this sounded like a dream—high returns with no risk.

With this promise, Madoff successfully attracted $17.5 billion into his carefully crafted scam. Most shocking was that this scam lasted a full 20 years until the 2008 global financial crisis. When the market downturn caused many investors to demand withdrawals, a sudden $7 billion redemption request exposed the scam’s truth.

In 2009, Madoff was sentenced to 150 years in prison for fraud. The total amount involved was estimated at $64.8 billion—equivalent to the savings of dozens of thousands of American families wiped out overnight.

The Madoff case shocked the financial world because it revealed a terrifying fact: even in the most regulated and legitimate markets, Ponzi schemes can survive for 20 years without detection. This means that regulation, reputation, and trust—the cornerstones of the financial system—can all be exploited as cover by scammers.

Blockchain era Ponzi schemes: How PlusToken stole $2 billion

With the rise of blockchain technology, Ponzi schemes have donned a “high-tech” disguise. PlusToken is the most notorious case of this new era.

In June 2019, the PlusToken wallet Ponzi scheme was exposed. According to a report by blockchain analysis firm Chainalysis, the scammers in China and Southeast Asia defrauded about $2 billion worth of cryptocurrencies, with $185 million already sold and cashed out.

PlusToken’s scam method was classic: claiming to be a blockchain application, promising users monthly returns of 6%-18%, and claiming these profits came from crypto trading arbitrage. In reality, the entire project was a Ponzi disguised as a “blockchain” multi-level marketing organization.

The reason it could scam so many people in just over a year was mainly due to the public’s lack of understanding of blockchain. Many investors were confused by the concept of “blockchain” and didn’t realize they were participating in an old-fashioned Ponzi scheme. When PlusToken couldn’t process withdrawals and customer service stopped, victims finally woke up—they had lost all their money.

The secret of Ponzi schemes’ eternal recurrence

Why do Ponzi schemes keep coming back? The answer is simple: they prey on the most primitive human greed.

Every Ponzi scheme is essentially a psychological game. Scammers precisely calculate people’s desire for “low risk, high return,” and go all out to fulfill this illusion. Madoff promised a 10% annual return, and PlusToken promised monthly gains of 6%-18%—these figures are unreasonably high, but still less than the greed inside people’s hearts.

Moreover, Ponzi schemes are highly covert. They usually don’t reveal their true nature upfront but build trust by paying early investors on time. Once this trust is established, subsequent investors rush in, and funds flow continuously into the system, making the scam run more smoothly. Until a critical point—funds run out, the market crashes, or regulators intervene—the entire system collapses suddenly.

How to identify and avoid Ponzi schemes?

Since Ponzi schemes are so covert and persistent, how can ordinary investors protect themselves?

Be wary of “low risk, high return” promises. All investments carry risks. If an investment claims to generate daily profits of 1% or monthly returns of 30% without mentioning risks, be alert immediately. Legitimate investments always have risk and return proportionality.

Never trust “zero risk” investments. Madoff told clients “investment always wins, never loses,” but no real investment is immune to economic fluctuations. Projects promising 100% guaranteed returns or unchanging yields are scams.

Deeply understand the investment product. Ponzi schemes often design extremely complex and obscure strategies to create a sense of mystery. If you can’t understand how an investment works, don’t put your money in. Good projects should clearly explain their business model and profit mechanisms.

Verify the background and legality of the project. Check the registration information of the company through official business registration systems. If investors ask for detailed info and get no response, that’s a red flag.

Beware of “pyramid” referral models. If someone invites you to join an investment project by recruiting others and promises high commissions, it’s very likely a Ponzi variant—multi-level marketing.

Observe withdrawal difficulties. Ponzi schemes often set up obstacles to prevent withdrawals: high withdrawal fees, changing withdrawal rules at will, or delaying payments under various pretexts. These are signs the scam is about to collapse.

Research the project initiator. Founders of Ponzi schemes often portray themselves as “geniuses” or “heroes.” For example, Sergey Mavrodi, founder of MMM financial mutual aid, created a personal myth to deceive investors. Overly packaged personal branding and exaggerated achievements are suspicious.

Seek professional advice. When unsure about an investment, consult a financial or investment advisor. Listening to professionals is much safer than blindly following gut feelings.

Remember: “There are no free lunches”. This is the most fundamental and important investment principle. Scammers exploit human greed by painting a picture of huge returns. Stay alert, keep your greed in check, and uphold your bottom line—that’s the best way to protect yourself.

Conclusion

Ponzi schemes have existed for over a century, repeatedly appearing in different forms, packaging, and promises. From Charles Ponzi to Bernie Madoff, and to the scammers behind PlusToken, their methods are fundamentally the same—using later investors’ money to pay earlier investors, and using false promises to stimulate greed.

Perhaps Ponzi schemes will never truly disappear because they target the most vulnerable part of human nature. But as long as we remember the financial rule that “risk and return are proportional,” stay skeptical of unreasonable promises, and improve our financial literacy, we can greatly reduce the risk of being scammed. May you never become the next victim of a Ponzi scheme.