Ponzi schemes are carried out through attractive promises of the gain of quick and easy money with negligible or no effort.
Work and time are the keys to building worthwhile wealth. Therefore, beware of inexpensive schemes promising to convert unknowns into overnight millionaires. Consciously lurking within these is a world of hidden dangers that could ruin your finances.
"Ponzi scheme" was coined for Charles Ponzi, who designed his famous scheme in 1919.
International postal reply coupons, which he had purchased very cheaply abroad, were sold in the U.S. at a much higher price regularly.
First, legal investigations of the company's profits raised eyebrows among its investors. Unable to meet the demand for repayment, which it had demanded so that it could pay others, the scheme eventually collapsed.
A Ponzi scheme is a type of investment fraud in which returns are paid to earlier investors with the money contributed by newer ones to give the appearance of success. Such schemes usually promise unsuspecting investors' high returns at low risk.
Ponzi schemes continue to this day. The US government watches closely, particularly as these schemes utilize cryptocurrency markets. In December of 2022, the Department of Justice charged individuals with several digital currency Ponzi schemes.
The infamous Bernie Madoff ran one of the largest scams on the planet, siphoning 64.8 billion dollars from investors; he went to prison for 150 years. In 2019, it seemed the cases were increasing: 60 alleged schemes were reported, involving 3.25 billion dollars in investor losses, proving vigilance is still necessary.
Although similar in many ways, Ponzi schemes differ in structure and operational ways from pyramid schemes.
"Both are reliant on bringing in new investors to pay those who got in earlier. However, a Ponzi scheme promises returns without direct recruitment responsibility on the part of the participants. The focus is on investment rather than on recruitment," says attorney Scott Silver of Securities Fraud Attorneys.
In contrast, pyramid schemes work by taking in recruits with an investment of some money. The returns accrue from those who join beneath them, not from any proceeds realized through investment.
Both types necessarily collapse when recruitment of others, or influx of extra money, is no longer possible.
According to the U.S. Securities and Exchange Commission, some warning signs of potential investment fraud include highly suspicious investment opportunities that promise unusually high returns with shallow risk. Suspiciously consistent returns that do not appear to be tied to the market's ups and downs are also a red flag. No investment can be completely safe from ups and downs.
A lack of transparency in unregistered investments is essentially a warning of bad weather to come, and as such, unlicensed sellers must be avoided at all costs. Secretive strategies should also raise some questions because transparency is key in every legitimate opportunity.
The moment you realize that you are one of the victims of this Ponzi scheme, it is time to act. First, you have to approach an attorney who has expertise in dealing with Ponzi schemes. A Ponzi scheme lawyer will advise you about the legal process and assess your case.
You may win back your money by pursuing civil litigation. Though there is no guarantee of getting paid, even then, your legal rights are worth knowing and a Ponzi scheme lawyer can help you with that.
Other serious criminal charges, such as fraud and conspiracy, can also be applied. Reporting them is also a good idea, as it helps curtail such fraudulent practices within the financial sectors.