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This Day In Market History: Collapse Of The Albanian Ponzi Schemes

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This Day In Market History: Collapse Of The Albanian Ponzi Schemes

Each day, Benzinga takes a look back at a notable market-related moment that happened on this date.

What Happened?

On this day 21 years ago, a series of huge ponzi schemes in Albania simultaneously collapsed.

Where Was The Market?

The S&P 500 was trading at 765.02 and the Dow Jones Industrial Average was at 6660.69.

What Else Was Going On In The World?

In 1997, Britain’s Princess Diana died in a car accident and the first documented case of bird flu jumping to a human was documented in China. In the U.S., a gallon of gas cost $1.22.

Collapse Of The Ponzis

Albania’s ponzi problem of the late 1990s included dozens of different firms promising thousands of investors ridiculous returns, such as 8 percent per month. Together, the nine largest firms defrauded 132,487 total creditors. VEFA, one of the largest operations, had more than 59,000 clients on its own. The wave of bankruptcies that began in 1997 took down 25 different firms with total liabilities of $1.2 billion.

More than two-thirds of Albania citizens were reportedly involved in some form of scheme during this period. The Albanian government even endorsed several of the popular funds from the largest firms. In January 1997, enraged citizens took to the streets to protest the government, which many suspected was involved in the deception. U.N. forces were eventually brought in to restore order.

Experts blamed the relatively new liberalized market economy for the large scale of the Albanian schemes, but Bernie Madoff was also running a much larger, similar scheme in the U.S. at the same time.

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Photo by Albinfo/Wikimedia. 

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