Lust For Cash Makes Investors Fall For Ponzi Schemes: CNN

The tale of Zachary Horwitz made headlines this week after he was sentenced to 20 years for bilking investors out of $650 million by peddling bogus licensing deals with HBO and Netflix, Allison Morrow reported for CNN Business.

Photo Insert: For years, struggling actor Zachary Horwitz used his investors' money to fund a lavish Hollywood lifestyle — until his scam unraveled.

Ironically, it is just the kind of juicy swindler story you might binge watch on those, Allison Morrow platforms: Horwitz, a 35-year-old actor who had bit roles in a handful of low-budget films over the past decade, pleaded guilty last fall to committing federal securities fraud and running an illegal operation known as a Ponzi scheme. For years, Horwitz used his investors' money to fund a lavish Hollywood lifestyle — until his scam unraveled.

A Ponzi scheme is a type of financial fraud that uses money from new investors to pay off earlier ones. The term comes from the 1920 swindler Charles Ponzi, but in recent years has become synonymous with the crimes of Bernie Madoff, the mastermind behind the largest financial fraud in history, who died in prison last year.

Although Ponzi schemes have a long history, they are far from a bygone threat, experts say. In fact, they remain a major risk to investors in an era of soaring stock markets and wild surges in newfangled assets like NFTs and cryptocurrency.

"Fraudsters really feed on times of uncertainty, financial distress, upheaval, times of change, and those are really the times that we've been living in the past few years," says Kathy Bazoian Phelps, a lawyer who runs a blog about Ponzi schemes.

"And of course, there's a lot of money out there people are looking to invest. Horwitz's case appears to check the major boxes for a Ponzi scheme: They're typically perpetrated by (a) men who (b) promise steadily high returns with minimal risk and (c) often prey on friends and family to get the scam off the ground. Early investors in a Ponzi scheme get rewarded with mindbogglingly large dividends — Horwitz allegedly promised returns between 25% and 45% — that propel them to tell others about the golden opportunity, which keeps new money flowing into the scam. Once the pool of new investment dries up, of course, the fraud falls apart."

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