As banks and investors around the world continue to declare billions of dollars in losses in an alleged fraud perpetrated by Bernard Madoff, here's an historical note about the method that the 70-year-old Wall Street shyster allegedly used, the so-called Ponzi scheme, and how it came about.

U.S. authorities last week accused of Madoff of masterminding a massive fraud, similar to the one invented in the 1920s by Italian immigrant Charles Ponzi, who duped thousands of New England residents into investing in a speculative postage stamp scheme.

Ponzi thought he could take advantage of the differences between U.S. and foreign currencies used to buy and sell international mail coupons. He told investors he could provide a 40 percent return in just 90 days, and was immediately deluged with contributions. Ponzi reportedly collected $1 million from eager investors during one, three-hour period in 1921, which was a lot of money back then.

Though a few early investors were paid off to make the scheme look legitimate, a subsequent investigation found that Ponzi had only purchased about $30 worth of the mail coupons. Nobody made any real money.

Today's Ponzi schemes use a similar strategy. They coax funds from new investors that is not used for actual capital outlay, but for paying off money owed to earlier investors.

The fraudsters behind such pyramid schemes go to great lengths to make their efforts look like a legitimate multilevel marketing program. But despite their claims to have bonafide products or services to sell, the crooks simply use money coming in from new recruits to pay off early stage investors. Eventually funds run short and the whole scheme collapses.

The $50 billion allegedly lost by the Madoff investors makes theirs one the biggest Wall Street frauds in history. When former energy trading giant Enron filed for bankruptcy in 2001, it had more than $63 billion in Ponzi-like assets.

Madoff, whose actions defrauded charities, families and children, faces up to 20 years in prison. The investors aren't entirely blameless. The whole scheme was very hush-hush and the 12to15 percent annual returns, which lasted year after year, could hardly be justified. But with profits that good, who was willing to blow the whistle?

It was indeed the crime of the century.