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1910 police mugshot of Charles Ponzi

A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

The scheme is named after Charles Ponzi,^[1] who became notorious for using the technique in 1920.^[2] Ponzi did not invent the scheme (for example, Charles Dickens's 1857 novel Little Dorrit described such a scheme),^[3] but his operation took in so much money that it was the first to become known throughout the United States. Ponzi's original scheme was based on the arbitrage of international reply coupons for postage stamps; however, he soon diverted investors' money to make payments to earlier investors and himself.

Characteristics[link]

Typically extraordinary returns are promised on the investment, and vague verbal constructions such as "hedge futures trading," "high-yield investment programs", "offshore investment" might be used. The promoter sells shares to investors by taking advantage of a lack of investor knowledge or competence, or using claims of a proprietary investment strategy which must be kept secret to ensure a competitive edge.

Initially the promoter will pay out high returns to attract more investors, and to lure current investors into putting in additional money. Other investors begin to participate, leading to a cascade effect. The "return" to the initial investors is paid out of the investments of new entrants, and not out of profits.

Often the high returns lead investors to leave their money in the scheme, leading the promoter not to have to pay out very much to investors; they simply have to send statements to investors showing them how much they earned. This maintains the deception that the scheme is a fund with high returns.

Promoters also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time, in exchange for higher returns. The promoter sees new cash flows as investors are told they could not transfer money from the first plan to the second. If a few investors do wish to withdraw their money in accordance with the terms allowed, the requests are usually promptly processed, which gives the illusion to all other investors that the fund is solvent.

Unraveling of a Ponzi scheme[link]

When a Ponzi scheme is not stopped by the authorities, it sooner or later falls apart for one of the following reasons:

1. The promoter vanishes, taking all the remaining investment money (minus payouts to investors already made).
2. Since the scheme requires a continual stream of investments to fund higher returns, once investment slows down, the scheme collapses as the promoter starts having problems paying the promised returns (the higher the returns, the greater the risk of the Ponzi scheme collapsing). Such liquidity crises often trigger panics, as more people start asking for their money, similar to a bank run.
3. External market forces, such as a sharp decline in the economy (for example, the Madoff investment scandal during the market downturn of 2008), cause many investors to withdraw part or all of their funds.

Similar schemes[link]

• A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:
  • In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. (In fact, failure to recruit typically means no investment return.)
  • A Ponzi scheme claims to rely on some esoteric investment approach and often attracts well-to-do investors; whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
  • A pyramid scheme typically collapses much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to reinvest their money, with a relatively small number of new participants.
• An economic bubble: A bubble is similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant (until inevitable collapse). A bubble involves ever-rising prices in an open market (for example stock, housing, or tulip bulbs) where prices rise because buyers bid more because prices are rising. Bubbles are often said to be based on the "greater fool" theory. As with the Ponzi scheme, the price exceeds the intrinsic value of the item, but unlike the Ponzi scheme, there is no person misrepresenting the intrinsic value.

See also[link]

• List of Ponzi schemes
• Bucket shop (stock market)
• Double Shah
• Get-rich-quick scheme
• Matrix scheme
• White-collar crime

References[link]

Further reading[link]

External links[link]

• Ponzi Schemes FAQ Information and advice from the US Securities and Exchange Commission
• What is a Ponzi scheme? Ponzi scheme definition with distinctions, history, and other information
• Ponzi scheme Illustration of a Ponzi scheme
• The Ponzi Scheme and Tax Loss Describing tax recovery methods
• Ponzi Schems Ponzi Schemes on Khan Academy.

Nigel Farage MEP
Leader of the United Kingdom Independence Party
Incumbent
Assumed office 5 November 2010
Preceded by	Jeffrey Titford
In office 27 September 2006 – 27 November 2009
Preceded by	Roger Knapman
Succeeded by	Lord Pearson of Rannoch
Member of the European Parliament for South East England
Incumbent
Assumed office 15 July 1999
Personal details
Born	(1964-04-03) 3 April 1964 (age 48) Kent, England, United Kingdom
Nationality	British
Political party	UK Independence Party
Spouse(s)	Gráinne Hayes (1988-1997, divorced) Kirsten Mehr (1999-present)
Children	4
Alma mater	Dulwich College
Religion	Church of England
Website	Nigel Farage MEP

Nigel Paul Farage ( /ˈfærɑːʒ/, FARR-ahzh;^[1] born 3 April 1964, Farnborough, Kent), is a British politician and is the Leader of the UK Independence Party (UKIP),^[2] a position he also held from September 2006 to November 2009. He is a Member of the European Parliament for South East England and co-chairs the Eurosceptic Europe of Freedom and Democracy group.

Farage is a founding member of the UKIP, having left the Conservative Party in 1992 after they signed the Maastricht Treaty. Having unsuccessfully campaigned in European and Westminster parliamentary elections for UKIP since 1994, he gained a seat as an MEP for South East England in the 1999 European Parliament Election — the first year the regional list system was used — and was re-elected in 2004 and 2009. Farage describes himself as a libertarian and rejects the notion that he is a conservative.

In September 2006, Farage became the UKIP Leader and led the party through the 2009 European Parliament Election in which it received the second highest share of the popular vote, defeating Labour and the Liberal Democrats with over two million votes. However he stepped down in November 2009 to concentrate on contesting the Speaker John Bercow's seat of Buckingham in the 2010 general election.

At the 2010 General Election, Farage failed to unseat John Bercow and received only the third highest share of the vote in the constituency. Shortly after the polls opened on 6 May 2010, Nigel Farage was injured in an aircraft crash in Northamptonshire. The two-seated PZL-104 Wilga 35A had been towing a pro-UKIP banner when it flipped over and crashed shortly after takeoff. Both Farage and the pilot were hospitalised with non-life-threatening injuries.^[3]

In November 2010, Farage successfully stood in the 2010 UKIP leadership contest,^[4] following the resignation of its leader, Lord Pearson of Rannoch. Farage was also ranked 41st (out of 100) in The Daily Telegraph's Top 100 most influential right-wingers poll in October 2009, citing his media savvy and his success with UKIP in the European Elections.^[5] Farage was ranked 58th in the 2010 list compiled by Iain Dale and Brian Brivati for the Daily Telegraph.

Background[link]

Farage was educated at Dulwich College before joining a commodity brokerage firm in London. He ran his own brokerage business from the early 1990s until 2002. In his early 20s Farage was diagnosed with testicular cancer but made a full recovery.^[6]

Farage has been married twice. He married Gráinne Hayes in 1988, with whom he had two children: Samuel (1989) and Thomas (1991). In 1999 he married Kirsten Mehr, a German national, by whom he has two more children, Victoria (born 2000) and Isabelle (born 2005).^[7]

Farage has also penned his own memoirs, entitled "Fighting Bull." It outlines the founding of UKIP and his personal and political life so far.

Political career[link]

Conservative Party[link]

Active in the Conservative Party from his school days, Farage left the party in 1992 when John Major's government signed the Treaty on European Union at Maastricht.

UKIP and the European Parliament[link]

Farage became a founding member of UKIP in 1993.

He was elected to the European Parliament in 1999 and re-elected in 2004 and 2009. Farage is presently the leader of the thirteen-member UKIP contingent in the European Parliament, and co-leader of the multinational eurosceptic group, Europe of Freedom and Democracy.

UKIP party leadership[link]

On 12 September 2006, Farage was elected leader of UKIP with 45% of the vote, 20% ahead of his nearest rival.^[8] He pledged to bring discipline to the party and to maximise UKIP's representation in local, parliamentary and other elections.^{[citation needed]} In a PM programme interview on BBC Radio 4 that day he pledged to end the public perception of UKIP as a single-issue party and to work with allied politicians in the Better Off Out campaign, committing himself not to stand against the MPs who have signed up to that campaign (ten in all at this moment).

At his maiden speech to the UKIP conference on 8 October 2006, he told delegates that the party was "at the centre-ground of British public opinion" and the "real voice of opposition". Farage said: "We've got three social democratic parties in Britain — Labour, Lib Dem and Conservative are virtually indistinguishable from each other on nearly all the main issues" and "you can't put a cigarette paper between them and that is why there are nine million people who don't vote now in general elections that did back in 1992."^[9]

At 10pm on 19 October 2006, Farage took part in a three-hour live interview and phone-in with James Whale on national radio station talkSPORT. Four days later, Whale announced on his show his intention to stand as UKIP's candidate in the 2008 London Mayoral Election. Farage said that Whale "not only has guts, but an understanding of what real people think". However Whale later decided not to stand and UKIP was represented by Gerard Batten.^[10] He stood again for UKIP leadership in 2010 after his successor Lord Pearson stood down.^[4] On the 5th November 2010 it was announced Farage had won the leadership contest.^[11]

Westminster elections[link]

Farage had unsuccessfully contested UK parliamentary elections for UKIP five times, both before and after his election as an MEP in 1999. Under the 2002 European Union decision to forbid MEPs from holding a dual mandate, if he was ever elected to the House of Commons, he would have to resign his seat as an MEP.

When he contested the Bromley & Chislehurst constituency in a May 2006 by-election, organised after the sitting MP representing it, eurosceptic Conservative Eric Forth, died, Farage came third, winning 8% of the vote, beating the Labour Party candidate. This was the second-best by-election result recorded by UKIP out of 25 results, and the first time since the Liverpool Walton by-election in 1991 that a party in government had been pushed into fourth place in a parliamentary by-election on mainland Britain.

2010 UK General election[link]

On 4 September 2009 Farage resigned as leader of UKIP to concentrate on his campaign to become Member of Parliament for Buckingham at Westminster in the 2010 general election.^[12] He later told Times journalist Camilla Long that UKIP internal fights took up too much time.^[13]

He stood against Buckingham MP John Bercow, the newly elected Speaker of the House of Commons, despite a convention that the speaker, as a political neutral, is not normally challenged in his or her bid for re-election by any of the major parties.^[14]

On 6 May, on the morning the polls opened in the election, just before eight o'clock Farage was involved in a light aircraft crash, suffering injuries described as non-life-threatening. A spokesperson told the BBC that "it was unlikely Mr Farage would be discharged from hospital today [6 May]^[15] Although his injuries were originally described as minor, his sternum and ribs were broken, and his lung punctured.^[16] The Air Accident Investigation Branch (AAIB) report said that the aeroplane was towing a banner, which caught in the tailplane, forcing the nose down.^[17]

Farage came third with 8,401 votes. Bercow was re-elected, and in second place with 10,331 votes was John Stevens, a former Conservative MEP who campaigned as an independent accompanied by "Flipper the Dolphin" (a reference to MPs flipping second homes).^[18]

On 1 December 2010, the pilot of the aircraft involved in the accident was charged with threatening to kill Farage. He was also charged with threatening to kill an AAIB official involved in the investigation into the accident.^[19] In April 2011, Justin Adams was found guilty of making death threats. The judge said the defendant was "clearly extremely disturbed" at the time the offences happened adding "He is a man who does need help. If I can find a way of giving him help I will."^[20]

Alternative Vote referendum, May 2011[link]

Farage declared himself personally in favour of the Alternative Vote system of May 2011, saying first-past-the-post is a "nightmare" for UKIP. However, the party's stance has to be decided by its central policy making committee.^[21]

May 2012 London Mayor & Local elections[link]

In a "bizarre cock-up," UKIP forgot to put their party name on their candidate's ballot paper for the London mayoral election, 2012^[22], Laurence Webb appearing as "A fresh choice for London." Farage admitted the mistake describing it as an internal error.^[22]
Interviewed by the following Sunday by Andrew Neil and asked about "the game plan", Farage welcomed the "average 13% vote" across the country, and stated that the party was preparing for County council in 2013, European elections in 2014 and a general election in 2015.^[23] The party was no longer just a protest vote, it would have a full manifesto with policies including selective schools, help to small businesses by "getting rid of excessive labour practices" and an energy policy not based on wind turbines.^[23] UKIP was here to stay ..frankly the Tory Eurosceptics were in the wrong party and would be better off joining UKIP. Asked what would happen to UKIP if the Tories made a Manifesto commitment to a European referendum, Farage said they had already failed to honour a "cast iron" commitment for a referendum on the Lisbon treaty.^[23]

Challenging Farange's viewpoint, Neil said UKIP aspired to come top of the European elections but whilst UKIP wanted to join the big time, they were still seen as "unprofessional, amateur and even unacceptable" after their press officer called Baroness Warsi "a bitch".^[23] Farage regretted "the wrong choice of words" but further described Warsi as "the lowest grade chairman the Tory party has ever had."^[23] Neil then mocked the so called internal error which had made Farage "a joke".^[23] "The blunt truth is" UKIP "didn't win any more seats, the performance in London was terrible and they were still a one man band."^[23] Farage conceded London was a failure but they had won council seats elsewhere. He invited Tories who couldn't stand Cameron to help him.^[23]

Controversies and whistleblowing[link]

Copyright infringement[link]

In 1999 the BBC spent four months filming a documentary about his European elections campaign but didn't show it. Farage, then head of UKIP's South East office, asked for a video and got friends to make illegal copies which were sold for £5 through the UKIP magazine. Surrey Trading Standards investigated and Farage has admitted the offence.^[24]

Expenses disclosure[link]

In May 2009, The Guardian reported that Farage had said in a speech to the Foreign Press Association that over ten years as a member of the European Parliament he received £2 million of taxpayers' money in staff, travel, and other expenses on top of his £64,000 a year salary.^[25]

The former Europe Minister, Denis MacShane, said that this showed that Farage was "happy to line his pockets with gold". Farage called this a "misrepresentation",^[26] pointing out that the money had been used to promote UKIP's message and staff salaries, not his own salary, but he welcomed the focus on the issue of MEP expenses, claiming that "[o]ver a five year term each and every one of Britain's 78 MEPs gets about £1 million. It is used to employ administrative staff, run their offices and to travel back and forth between their home, Brussels and Strasbourg."^[27]

Jacques Barrot[link]

On 18 November 2004, Farage announced in the European Parliament that Jacques Barrot, the French Commissioner designate, had been barred from elected office in France for 2 years, after being convicted in 2000 of embezzling £2 million from government funds and diverting it into the coffers of his party. He claimed that French President Jacques Chirac had granted Barrot amnesty. Although initial BBC reports claimed that, under French law, it was illegal even to mention the conviction,^[28] the prohibition in question only applies to French officials in the course of their duties.^[29] The president of the Parliament, Josep Borrell, enjoined him to retract his comments under threat of "legal consequences".^[30] However, the following day it was confirmed that Barrot had received an 8 month suspended jail sentence in the case, and that this had been quickly expunged by the amnesty decided by Chirac and his parliamentary majority. The Commission's president, Jose Manuel Barroso admitted that he had not known of Barrot's criminal record when appointing him as a Commission vice-president.^{[citation needed]} The Socialist and Liberal groups in the European Parliament then joined UKIP in demanding the resignation of Barrot for failing to disclose the conviction during his confirmation hearings.

José Manuel Barroso[link]

During the spring of 2005, Farage requested that the European Commission disclose where the individual Commissioners had spent their holidays. The Commission did not provide the information requested, on the basis that the Commissioners had a right of privacy. The German newspaper Die Welt reported that the President of the European Commission, José Manuel Barroso had spent a week on the yacht of the Greek shipping billionaire Spiro Latsis. It emerged soon afterwards that this had occurred a month before the Commission under Barroso's predecessor Romano Prodi approved 10.3 million euro of Greek state aid for Latsis' shipping company.^[31] It also became known that Peter Mandelson, then a member of the Commission, had accepted a trip to Jamaica from an unrevealed source.

Farage persuaded around 75 MEPs from across the political divide to back a motion of no confidence in Barroso, which would be sufficient to compel Barroso to appear before the European Parliament to be questioned on the issue.^[32] The motion was successfully tabled on 12 May 2005, and Barroso appeared before Parliament^[33] at a debate on 26 May 2005. The motion was heavily defeated. A Conservative MEP, Roger Helmer, was expelled from his group, the European People's Party - European Democrats (EPP-ED) in the middle of the debate by that group's leader Hans-Gert Poettering as a result of his support for Farage's motion.

Joseph Daul[link]

In January 2007, the French farmers' leader Joseph Daul was elected the new leader of the European People's Party–European Democrats (EPP-ED), the European Parliamentary grouping which then included the British Conservatives. The UK Independence Party almost immediately revealed that Daul had been under judicial investigation in France since 2004 as part of an inquiry into the alleged misuse of public funds worth €16 million (£10.6 million) by French farming unions."^[34] It was not suggested that Daul had personally benefited, but was accused of "complicity and concealment of the abuse of public funds." Daul accused Farage of publicising the investigation for political reasons and threatened to sue Farage, but did not do so though the court dropped all charges against him.

Prince Charles[link]

Prince Charles gave a speech to the European Parliament on 14 February 2008, in which he called for EU leadership in the war against climate change. During the standing ovation that followed, Farage was the only MEP to remain seated and went on to describe the Prince's advisers as "naïve and foolish at best."^[35] Farage continued: "How can somebody like Prince Charles be allowed to come to the European Parliament at this time to announce he thinks it should have more powers? It would have been better for the country he wants to rule one day if he had stayed home and tried to persuade Gordon Brown to give the people the promised referendum on the Treaty of Lisbon." The leader of the UK Labour Party's MEPs, Gary Titley, accused Farage of anti-Royalism. Titley said: "I was embarrassed and disgusted when the Leader of the UK Independence Party, Nigel Farage, remained firmly seated during the lengthy standing ovation Prince Charles received. I had not realised Mr Farage's blind adherence to right wing politics involved disloyalty and discourtesy to the Royal Family. He should be thoroughly ashamed of himself and should apologise to the British people he represents."^[35]

Herman Van Rompuy[link]

After the speech of Herman Van Rompuy on 24 February 2010 in the European parliament, Farage—to protests from other MEPs—addressed the first long-term President of the European Council saying that he has the "charisma of a damp rag and the appearance of low grade bank clerk".^[36] Farage questioned the legitimacy of Van Rompuy's appointment asking "Who are you? I'd never heard of you, nobody in Europe had ever heard of you", he also asserted that Van Rompuy's "intention is to be the quiet assassin of European democracy and of European nation states."^[36] In the same speech he also referred to Belgium, the home of Van Rompuy, as "pretty much a non-country".^[37] Van Rompuy commented afterwards, "There was one contribution that I can only hold in contempt, but I'm not going to comment further."^[36] After refusing to apologise for behaviour that was, in the words of the President of the European Parliament, Jerzy Buzek, "inappropriate, unparliamentary and insulting to the dignity of the House", Farage was reprimanded and had his right to ten days' allowance (expenses) rescinded.^{[38] [39]}

The President of the European Parliament, Jerzy Buzek, said after his meeting with Farage:

I defend absolutely Mr Farage's right to disagree about the policy or institutions of the Union, but not to personally insult our guests in the European Parliament or the country from which they may come. [. . .] I myself fought for free speech as the absolute cornerstone of a democratic society. But with freedom comes responsibility - in this case, to respect the dignity of others and of our institutions. I am disappointed by Mr Farage's behaviour, which sits ill with the great parliamentary tradition of his own country. I cannot accept this sort of behaviour in the European Parliament. I invited him to apologise, but he declined to do so. I have therefore - as an expression of the seriousness of the matter - rescinded his right to ten days' daily allowance as a Member.^[39]

Questioned by Camilla Long, Farage declared of his speech "it wasn't abusive, it was right."^[13]

European economic governance[link]

He spoke of the EU being "German-dominated" in a speech at the European-Parliament on 18 November 2011.^[40]

Views on the euro[link]

From taking office as a UKIP MEP in 1999, Farage has often voiced opposition to the "euro project". His argument is that "a one size fits all interest rate" cannot work for countries with structurally different economies, often using the example of Greece and Germany to emphasise contrast. He predicted the need for 'bailouts' before European Commission and European Central Bank officials admitted that these steps would be necessary. Specifically, Farage predicted that Greece, Ireland, Portugal and Spain would all require such assistance. To date, Spain is the only predicted country that has not asked for a 'bailout'. Although Spain and Italy have both had indirect assistance from the ECB, whereby secondary government bonds are bought by the central bank, they are prohibited from purchasing new bonds. Farage warns: "You can ignore the markets if you want to, but in time the markets will not ignore you". Farage also reinforces Germany's argument that Italy "should never have joined the euro".

Farage predicts that if the situation continues it will lead to violence due to the people's inability to "determine their own futures through the ballot box" as it will become the only "logical" tool to enable them to escape from their "economic prison" i.e. the Eurozone. He proclaims "I can only hope and pray that the euro project is destroyed by the markets before that really happens."

Farage strongly opposes the use of 'bailouts' and claims that "buying your own debt with tax payers money" will not solve the problem and that, "if we do, the next debt crisis won't be a country", "it will be the European Central Bank itself".^[41][42]

Electoral performance[link]

Nigel Farage has contested several elections under the United Kingdom Independence Party banner:

• Itchen, Test and Avon, European Parliament Election 1994 - 12,423 votes, representing 5.2% of total votes cast
• Eastleigh by-election, 1994 - 952, 1.4%
• Salisbury, 1997 general election - 3,332, 5.7%
• European Parliament election, 1999 - elected member for South East England from party list
• Bexhill and Battle, 2001 general election - 3,474, 7.8%
• European Parliament election, 2004 - elected member for South East England from party list
• South Thanet, 2005 general election - 2,079, 5.0%
• Bromley and Chislehurst by-election, 2006 - 2,307, 8.0%
• European Parliament election, 2009 - elected member for South East England from party list.
• Buckingham, 2010 general election - 8,410, 17.4%

Footnotes[link]

References[link]

• 2002 Amnesty law
• Penal Code, articles L133-9, L133-10, L133-11

External links[link]

Wikimedia Commons has media related to: Nigel Farage

Wikiquote has a collection of quotations related to: Nigel Farage

• Nigel Farage MEP Official website
• Nigel Farage on Twitter
• Nigel Farage Profile at European Parliament website
• UKIP MEPs Official website of the UK Independence Party in the European Parliament
• Europe of Freedom and Democracy Political group in the European Parliament