Ponzi Scheme

A Ponzi scheme is a fraudulent and illegal investment operation that promises quick, easy and significant returns on investments with little or no risk. The operator, at the pyramid’s top, acquires a group of investors that is initially provided with tremendous returns via funds secured from the second group of investors. The second group, in turn, is paid with funds obtained from a third group of investors and so on, until the number of potential investors is exhausted and the scheme collapses.

The operator may either appropriate a portion of the incoming investments as the scheme progresses or wait until the operation is about to collapse before absconding with the funds.

Types of Frauds

Ponzi Schemes- Warning Signs

  • Returns that are unrealistically high
  • The operation is advertised through someone with a shared affinity and capitalize on already existing trust within churches, colleagues, other tightly knit groups
  • High Investment Returns
    • Persons are required make an initial contribution of money with the promise of a significant ‘return’ or ‘pay out’ on that contribution at a later date, often times higher than what is currently paid by local banks or other financial institutions. [Note: At first, the promoter usually keeps his promise to earlier investors by paying them with money collected from latter investors.]
  • Some Ponzi schemes are disguised as gifting groups, savings clubs, investment clubs and multilevel marketing businesses.
    • You are pressured to make a fast decision, or you will miss out on the opportunity, or you are told that the opportunity is no longer available.
  • Overly consistent returns.
    • Investments tend to go up and down over time, especially those seeking high returns. Be suspect of an investment in a fund that continues to generate regular, positive returns regardless of overall market conditions.
  • Unregistered investments and Unlicensed Sellers.
    • Ponzi schemes typically involve investments that have not been registered with any regulator. Registration is important because it provides investors with access to key information about the company’s management, products, services and finances.
  • No genuine product or service is actually sold
  • Difficulty receiving payments.
    • Be very wary if you don’t receive a payment or have difficulty cashing out your investment.

DISCLAIMER

This is for information purposes only. This information should not be construed as legal advice, financial advice, tax advice, or subsititue for competent legal advice, financial advice, tax advice, or consultation.