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

The best 0% balance-transfer credit cards
Credit cards

The best 0% balance-transfer credit cards

These 0% balance transfer credit cards offer some of the best deals on the market today.
26 May 2023
Where do we go from here?
Investments

Where do we go from here?

A new series of interviews from MoneyWeek
26 May 2023
Best savings accounts – May 2023
Savings

Best savings accounts – May 2023

Interest rates have been creeping up - we look at the best savings accounts on the market right now.
26 May 2023
The best one-year fixed savings accounts - May 2023
Savings

The best one-year fixed savings accounts - May 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
26 May 2023

Most Popular

Nationwide to give £100 cash boost to customers
Personal finance

Nationwide to give £100 cash boost to customers

Nationwide Building Society is giving customers £100 as it reinvests profits. Dubbed the Nationwide Fairer Share scheme, we look at who is eligible.
22 May 2023
Share tips of the week – 26 May
Investments

Share tips of the week – 26 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
25 May 2023
Holiday rip-off: Millions of travellers hit with hidden costs by using debit card abroad
Personal finance

Holiday rip-off: Millions of travellers hit with hidden costs by using debit card abroad

A family of four on a week-long trip to France could pay an extra £212 in fees by using their everyday bank card compared to the lowest-cost option, a…
23 May 2023