For at least 13 years, big and small investors alike turned over their money to Paul Greenwood and Stephen Walsh, two New York money managers, in the belief that an "enhanced equity index" strategy was reaping them profits.
But prosecutors and regulators charge that the money instead filled the two men's "personal piggy bank" and was spent on multi-million dollar homes, horses, luxury cars and collectible items such as rare books and Steiff teddy bears worth as much as $80,000 (pound 56,600).
The pair, who were arrested and released on bail last week, are just the latest in a stream of alleged Ponzi schemes that have been uncovered since September.
While investigations into Bernard Madoff's alleged $50bn fraud and Sir Allen Stanford's banking empire have dominated the headlines, virtually every week has brought at least one new Ponzi scheme charge from the US Department of Justice, Securities and Exchange Commission or the Commodity Futures Trading Commission.
Ponzi schemes share the key characteristic of paying off early investors with money from newer arrivals.
In the past month alone, at least 12 complaints involving "Ponzis" or other similar scams, have been filed, including a CFTC complaint filed on Thursday alleging that a Texas man bilked 250 investors of $10.9m.
Ray White allegedly claimed he was trading foreign exchange currency contracts but regulators have accused him of spending money on a drag racing team, real estate and ice hockey tickets.
The sheer number of schemes under investigation and their geographic spread - literally from Alaska to Florida and with a whole raft of overseas investors as well - dwarf what was uncovered in any recent recession.
Historians say the last time the US has seen anything similar was during the 1920s, when Charles Ponzi's postage scam flourished.
The current wave also contrasts with the dotcom bust, when accounting frauds dominated the white-collar crime dockets.
While auditors and shareholders have become more sceptical of revenue claims, investors looking for returns proved vulnerable.
"Everybody was buying these things and if you didn't have one, you felt left out," said Howard Wachtel, author of a history of Wall Street.
The growth of hedge funds also made secrecy and high returns seem more common. "The big thing about hedge funds is secrecy. Somehow investors believed the whole concept of the black box,'' said Peter Henning, professor of law at Wayne State University Law School, adding that investors were particularly vulnerable to claims that they could "get rich slowly" through years of steady returns.
The widespread shift, especially in the US, towards retail equity investing also made ordinary investors targets for schemes they might once have rejected.
"A traditional Ponzi scheme has the seeds of its own destruction because it said we will pay you every month, so it had to grow geometrically to pay out.
"But the beauty of these recent cases is that very little money ever went out. It was all on paper," said Greg Bruch, a former SEC official now with Foley & Lardner, a law firm.
Regulators were hampered by political pressure to leave hedge funds alone and a lack of resources to inspect more than 11,000 registered investment advisers.
Ponzi schemes are actually not that hard to break up, once regulators have suspicions.
"All you have to say is 'show us the money' ... You make him tell you where the assets supposedly are and then you go directly to the banks and see if the assets are there," said Larry West, a former SEC enforcer now with Latham & Watkins, a law firm.
Some current regulatory targets were unable to meet redemptions requests from investors who were newly cautious in the wake of Mr Madoff's December arrest.
"It's not increased fraud. It is increased detection," said Andrew Gordon, who heads PwC's investigative practice in the UK. "We've been cleaning out the market."
Copyright The Financial Times Limited 2009
