Great frauds in history: John G. Bennett Jr’s Ponzi scheme

John G. Bennett Jr's classic Ponzi scheme cost his investors $135m and ended him ten years in jail.

John G. Bennett Jr was born in Olney, Philadelphia, in 1937, and worked for brief stints as an airline clerk, a chemistry teacher and a medical school student before becoming a successful drug counsellor. Within a couple of years he had set up seven drug treatment programmes and was appointed to a board advising the governor of Pennsylvania on drug policy. He then decided to use his contacts within Philadelphia’s non-profit community to become a consultant offering fund-raising advice, setting up the Center for New Era Philanthropy in 1982, followed by the Foundation for New Era Philanthropy seven years later.

What was the scam?

Bennett was a poor businessman and the Foundation for New Era Philanthropy quickly ran into cash-flow problems. He fraudulently shuffled money between various bank accounts in an effort to stay in business, then attracted funds by pretending he was working for an anonymous philanthropist who would double people’s donations, provided they briefly left their money with him. Initially, Bennett targeted individuals, and repaid the first wave of donations with money from a grant that his business had received. He quickly switched to targeting institutions and charities, including Harvard University, following the Ponzi strategy of using new money to repay existing investors.

What happened next?

As the scam progressed, Bennett constantly increased the minimum donation required, as well as lengthening the period before the money was returned. However, the need for more funds forced him to borrow money from Prudential Securities. At the same time, suspicions from an accounting professor at a college who had participated in the scheme prompted the authorities to investigate Bennett. Prudential called in its loan. In May 1995, Bennett finally confessed that the scheme was a scam and he got a ten-year jail sentence.

By the time New Era declared bankruptcy it had $551m in debts, against $80m of assets, making it one of the largest pre-Madoff scams. Excluding fictitious paper profits, initial investor losses were estimated at $135m. The bankruptcy trustees were eventually able to reduce this by around 60%, but only by forcing charities that had already been paid to return their profits, even if they had already been spent on charitable works. 

Recommended

Will energy prices go down in 2023?
Personal finance

Will energy prices go down in 2023?

The Energy Price Guarantee will now be extended, but how much will your gas and electricity cost you in 2023?
9 Dec 2022
What is an annuity?
Glossary

What is an annuity?

Annuities are growing in popularity as rates increase. But what is an annuity, and how do you get one?
9 Dec 2022
Profit from patience
Advertisement Feature

Profit from patience

Smart investors will reap the rewards by staying focused on the long-term, research from Alliance Trust shows.
9 Dec 2022
National Grid gets ready to pay households to cut energy use this weekend
Personal finance

National Grid gets ready to pay households to cut energy use this weekend

The cold weather and unfavourable wind conditions have raised concerns about electricity supplies, prompting the National Grid to consider paying hous…
9 Dec 2022

Most Popular

Is it cheaper to leave the heating on low all day?
Personal finance

Is it cheaper to leave the heating on low all day?

The weather is getting colder and energy bills are rising, but is it really cheaper to leave the heating on low all day or should you only turn it on …
1 Dec 2022
Radiator vs electric heater – which is cheaper?
Personal finance

Radiator vs electric heater – which is cheaper?

We compare the costs, pros and cons of radiators and electric heaters and see which one will help keep your energy bill as low as possible.
28 Nov 2022
The pros and cons of smart meters – should you switch?
Personal finance

The pros and cons of smart meters – should you switch?

A smart meter can help you keep tabs on your energy usage, but is it better than a regular meter? We take a look at smart meters vs regular meters.
2 Dec 2022