We all remember the story of Bernie Madoff. He is the confessed operator of the largest Ponzi scheme in world history.

Prosecutors estimated that his fraud was worth $64.8 billion based on the amounts in the accounts of Madoff's 4,800 clients as of Nov. 30, 2008.

A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from their investment, and they remain unaware that other investors are the source of the “profits."

In 2009, Bernie Madoff confessed to his crime and was sentenced to 150 years in prison.

There is an earlier version of Madoff’s story, one involving a young man named William F. Miller. It took place way back in 1899 and is told by Arthur Train, a former Assistant District Attorney for New York County, in his book “True Stories of Crime."

Mr. Miller had a great idea. He told friends he had “inside information” about the stock market, and he could invest their money so that they would earn 10% interest every week. The friends would give him $10 to invest, and every week after that he paid them $1 interest. What he didn’t tell them, of course, was that he was paying the interest out of money received from the latest investors.

At first Miller tramped around, delivering the dividends himself and soliciting more, but soon he hired an assistant. Business kept increasing, and soon he hired four more employees and rented the whole top floor of a house. He began to call himself “The Franklin Syndicate” and advertised that “the way to wealth is as plain as the road to the market.”

Every Monday morning Miller’s house was crowded with depositors who drew their interest, added to it, deposited it again, and went on their way rejoicing. Nobody was going to have to work anymore. Soon Miller rented the whole house and hired 50 clerks. Fridays the public stormed the house, since the money must be deposited on that day to draw interest for the following week. By November of that year the excess of receipts over disbursements for the month was $430,000.

Miller had a lawyer named Robert Ammon who advised him to incorporate and to put money into a Wells Fargo Certificate of Deposit. Unfortunately, however, the Boston Post began to investigate how it was possible to earn such enormous profits. Miller responded that the Post was a “yellow paper, had never amounted to anything, and never would.”

A grand jury started investigating, and eventually Miller was indicted, convicted and sent to prison for 10 years. Ammon, the lawyer, was convicted in 1903 of receiving stolen property (from Miller) and was sent to Sing Sing for four years. Most of the money was never recovered.

The name “Ponzi scheme” comes from Charles Ponzi, who reportedly made $250,000 a day doing the same thing as Miller and Madoff. The Boston Post also uncovered Ponzi’s scheme, and in 1920 he was convicted and sentenced to 14 years in prison.

As Arthur Train puts it in his book, “surely the history of civilization is a history of credulity.”

James H. Manahan is a Harvard Law School graduate and was named one of Minnesota’s Top Ten Attorneys. He now handles family law, wills and probate in the Lake County area, and does mediation everywhere. He can be reached at jamesmanahan36@gmail.com or jamesmanahan.com.