Skip to main content
dean jobb

Dean Jobb is the author of Empire of Deception, the true story of 1920s Chicago swindler Leo Koretz and his escape to a life of luxury and excess in Nova Scotia.

More than five years after the collapse of what is likely the largest Ponzi scheme in Canadian history, Juliet Raza finds it hard to explain why she trusted two con men and their promises of huge profits.

"They looked like such nice people," the 83-year-old, who lost $80,000 to Calgary promoters Gary Sorenson and Milowe Brost, told CBC News. "I didn't think people could do a thing like this – you know, rob old people."

Mr. Sorenson and Mr. Brost could – and did. They were sentenced to 12 years in prison this week for defrauding $200-million from about 2,400 investors. Many victims lost life savings, and investigators suspect that as much as $400-million may have disappeared in the swindle, which ran from 1999 to 2008.

The con men used the same formula as Bernie Madoff, the Wall Street investment guru who stole billions before the financial meltdown of 2008 exposed his massive fraud. They robbed Peter to pay Paul, and pocketed the rest.

Mr. Sorenson and Mr. Brost fronted Strategic Metals Corp. and other impressive-sounding companies, but had few assets – one gold property they touted was a worthless tract in British Columbia. Profits paid to investors came from new money flowing in as more people were conned into investing.

The scam is named for Charles Ponzi, who sparked a stock-buying frenzy in 1920s Boston by promising to double investors' money in just three months. Almost a century later, on any given day, as many as a half-dozen Ponzi schemers are exposed, convicted or sentenced somewhere in the world. Annual losses from their financial frauds are estimated to total $35-billion.

Why do people continue to fall for such a notorious scam? Much of the credit goes to the skill of the con man, a born actor with the charisma to sell anything. "Warnings against fraud and lists of red flags," American law professor Tamar Frankel notes in her book The Ponzi Scheme Puzzle, "offer little protection against treacherous charmers."

Exhibit A is Leo Koretz, a 1920s swindler who claimed to control a remote area of Panama rich in oil and timber. Koretz, posing as a generous millionaire who was delighted to share his good fortune, convinced hundreds of Chicagoans to invest $30-million (about $400-million in today's dollars) in his Bayano River Syndicate. "Everybody had confidence in him," noted one investor, "and never worried about the details."

Like all successful con men, Mr. Koretz wasn't just selling dreams of easy wealth. He was selling himself. David Maurer, author of The Big Con, a definitive study of swindlers and their methods, concluded that a good con man "must be able to make anyone like him, confide in him, trust him." All that's needed is a receptive audience.

One of the first Ponzi schemers was William Franklin Miller, a New York bookkeeper who claimed he could beat the stock market. In 1899, he stole millions from investors who believed he could pay them 10-per-cent interest every week, more than quintupling their investment in a year.

Next came Ponzi, with a dubious plan to buy postal coupons overseas, redeem them in the United States and profit from fluctuating exchange rates. Thousands of investors handed over more than $8-million in less than a year before the house of cards collapsed.

By the time Ponzi flamed out in 1920, Koretz had been perfecting the formula for 15 years. He paid annual returns of an astounding 60 per cent and not even news of Ponzi's fraud could shake the faith of his loyal investors. They nicknamed him "Our Ponzi," never suspecting – until 1923, when the Bayano swindle was exposed – that the joke was on them.

Paying dividends from capital became the template for a century of swindles. Like their predecessors, Mr. Sorenson and Mr. Brost reeled in victims with promises of high returns from "low-risk" investments in gold – 34 per cent annually, transforming a $100,000 stake into $1-million in just eight years.

It was too good to be true, and it's easy to dismiss their victims as greedy, or to fault them for succumbing to the sales hype. But the harsh judgments of hindsight overlook the con man's ability to make the impossible seem possible. The best defence against being burned by a fraud artist, says Frankel, is a healthy skepticism combined with an understanding of the powerful attraction of those peddling dreams of easy wealth.

No matter how seductive the sales pitch, every Ponzi scheme has a fatal flaw. It is doomed to implode when the stream of new money dries up, as it inevitably will.

Ponzi schemers can only delay the day of reckoning. In the meantime, they live the high life on the money extracted from their trusting victims. Luckily for them, there's still no shortage of investors who are susceptible to their charms – and eager to help keep the party going for as long as possible.

Report an error

Editorial code of conduct

Tickers mentioned in this story