and then cash them in for $600 worth of stamps in the United States. Of course. what was really happening is that Ponzi was paying the earlier investors with the money he took in from later investors. People actually believed he was conducting a legal business.

 How many people? An estimated 40,000 people entrusted millions of dollars (in 1920) in Ponzi’s scheme.

 A final audit of his books concluded that he had taken in enough funds to buy approximately 180 million postal coupons, of which they could only actually confirm the purchase of two.

 Well, a variation of this theme is occurring now in the art world. Investors in art are now more plentiful because of the stock market decline that started in March of 2000, and investors needed a place to invest their money. Easy prey for a predator.

 Back to the art scam where an art gallery takes a piece of art (fake or real) and sells it to a customer as an investment, promising a very high return. The agreement is to keep the piece on display at the gallery, and sell it to another buyer.

 Note how closely this imitates the international postal coupon and the stamps. The coupon is the investor’s purchase now, and the stamps are resale of the art piece to some other investor. Often, the investors do not care about the particular piece of art, or about any other piece of art. They might not even like art. What they want is an investment — just as Ponzi’s victims

did not care about coupons or stamps, they just wanted an investment.

 Depending upon how this art scheme is structured, in addition to being a newer Ponzi scheme, it could well be a security and the sale would be in violation of state and federal securities laws.

 This investment is not a stock or a bond, and it may not appear to be a security at first blush, but it can be a security. “The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.”

 Applying this test, the gallery is offering an opportunity for the buyer to contribute money and to share in the profit of the art enterprise in which the piece of art is displayed, maintained, and managed by the gallery.

 The piece gains utility only when it is displayed, maintained, and managed by the gallery as a component part of the operation of the gallery itself. The buyer of the piece does nothing. He just waits until the gallery has shown it to enough people that one of those people to whom it is presented buys the piece, and the profits are divided between the gallery and the original purchaser. That is the way it must operate if the original purchaser is to achieve his paramount aim of a return on his investment.

 The law is very strict. Simply making an offer of a security is enough to violate the securities laws. Once this has happened, the original purchaser has several civil remedies he may pursue.

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