- Ponzi Scheme -
Estimated time to read: 2 Minutes
The Ponzi scheme was named after Charles Ponzi, who made an estimated $5.13 million with his scam. Another man, Bernard Madoff made $64 billion and inspired the movie “The Wolf of Wall Street”.
So - What is a Ponzi Scheme?
A Ponzi scheme is a special kind of fraud. It is based on a fake investment in which an schemer or more than one schemer gets other people to give them money.
In Ponzi schemes, the schemer basically says:”I have found a great way to make money very quickly. The more you give to me, the more I can invest in this specific and complex thing and the more I can earn for all of us.”
But a Ponzi scheme doesn’t really make money. Instead, all the system’s money comes from investors.
As soon as a Ponzi system has too many investors, the system will always crash(at some point- remember: Madoff made it to $64BILLION). This is because investors are all expecting more money than they have invested, and they will become impatient.
These schemes always stop one of three ways:
- The schemer flees with the money they got. That’s what the schemers are trying to do.
- The schemer is running out of money; he won’t be able to promise money back immediately. This is called liquidity, leaving investors in a state of panic and demanding their money back, often at once.
- The authorities inform themselves about the program and stop it.
Ponzi schemes can be run anywhere, even online, and are still running now.
Protect yourself - spot signs of the Ponzi Scheme
Ponzi schemes often use impressive words for advertising, that are actually vague. For example:
- Hedge Futures Trading (taking good risks)
- High-yield investment programs (gives you back a ton of money)
- Offshore Investment (makes money very easy in other countries)
They try to impress you with complex economic stuff.
- They have a very unclear business model and say that it is “secret”. They will make it as untransparent as possible.
- Aggressive sales techniques that use “testimonies” telling you how much they have earned(and how fast).
- You will be asked to spread the word and bring in more investors.
- No ‘bad’ investment years, always consistent returns.
- Promised guaranteed returns.
- If you ask questions they will grow aggressive quickly.
- Payment takes a lot of time.