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DEFINITION of 'Ponzimonium'

Ponzimonium is an outbreak of Ponzi schemes that take authorities a while to snuff out. The term is a combination of "Ponzi," named after Charles Ponzi, for which the particular type of fraud was made famous, and "pandemonium." After Bernard Madoff's $65 billion Ponzi scheme was revealed at the end of 2008, many new, but smaller-scale, Ponzi schemers were exposed. Ponzimonium refers to the tremendous growth rate in the number of people under investigation by the Securities Exchange Commission (SEC) for suspected similar fraudulent behaviors.

BREAKING DOWN 'Ponzimonium'

A Ponzi scheme involves paying past investors with money from new investors. Past investors are none-the-wiser in a Ponzi scheme if they are paid. The scheme can run for a long time just as long as markets go up and as long as no one catches on to the fraud. New investors, drawn in by high returns, give money to the schemer to "invest"; these new funds are merely funneled to existing investors, who are pleased with their "returns" on investment. The music stops when the Ponzi schemer is unable to raise enough money from new investors to pay off the old investors, or when someone blows the whistle on him. The original master of the scheme, Italian immigrant Charles Ponzi, operated his scheme for only a year or so in the Boston area until the local newspaper ran a story about his questionable investment returns in 1920, but by then he had swindled at least $20 million, an enormous sum at the time. 14 years in prison was his punishment for his mail fraud conviction.

"Pandemonium," the center place or capital of Hell, comes from John Milton's Paradise Lost. The Cambridge dictionary's definition: "situation in which there is a lot of noise and confusion because people are excited, angry or frightened." Bernie Madoff caused Ponzimonium to erupt after his yearslong investment fraud was thrust into public view in the midst of the 2008 financial crisis. The dictionary definition is an accurate description of what transpired with the Madoff case and those of other Ponzi punks.

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