Introduction to Ponzi Scheme:
The fraudulent scheme in which Ponzi organizers pay to early investors from the fees paid by the new investors is called Ponzi scheme. Ponzi scheme organizers convince the investors to invest their money and guarantee more returns with less or zero risks. But the truth is, the Ponzi-scheme-organizers have a plan to pay off the funds to early investors to make the scheme look real and convincing. The main thing needed in a Ponzi scheme is continuous flow of money for survival. The moment the money flow stops, the Ponzi organizers take away the money or the Ponzi scheme collapses.
Characteristics:
The characteristics of Ponzi schemes are mentioned below.
- In this scheme, when new joiners arrive, the Ponzi organizers ask them to pay some money. Then old members of this scheme receive the money given by new joiners as profits and some part of that money is given to the business owner who has this scheme.
- Another characteristic is that the Ponzi organizers promise huge returns on investment.
- There is no clarity on how the business with this scheme would run.
- Ponzi schemes are not legitimate and registered.
- In this scheme, the investors have the desire to earn more and more money from their respective investments.
- The people who have invested earlier in this scheme will get more returns but the same cannot be predicted for the new investors.
- It doesn’t permit the capitalists to view the documents with reference to their investments.
- It does not have paperwork, legal procedure and has inaccurate and wrong account statements.
Red flags of Ponzi scams:
Red flags are mentioned below for the people to identify Ponzi scams.
- Offering more returns with little or without any risk is an indication of fraud.
- Many investments rise and fall by time. If you come across any investment that gives more returns despite the fluctuations of market conditions, please become alerted.
- If the Ponzi-scheme-investment offering is not having any paperwork and containing wrong account statements then it is a red flag.
- The involvement of firms that aren’t registered and licensed denotes a red flag.
- Please make sure to get a clear understanding about investment in Ponzi schemes. If you get even a small bit of doubt, then don’t waste your money in investing for this scheme.
- The person trying to recruit you into this type of scheme may mention that he has invested and received great dividends.
- If someone known to you tries to recruit you into a Ponzi scam then do not accept the offer.
What should you do if you are scammed in a Ponzi scam?
Below are the things that you should do if you have been scammed in a Ponzi scam.
- If you have given your bank account details to the fraudsters then notify your concerned bank right away so that they will take immediate action.
- Just disconnect with the fraudsters and stop sending money.
- Please keep any written emails or messages that you receive from Ponzi scam which in turn will act as strong evidence to the legal authorities.
- Remember to report about this scam to the cops.
Protecting from Ponzi scams:
In order to protect themselves from Ponzi scams, people must follow the below-mentioned steps.
- You may want to invest in something and might get an investment offering that looks attractive and sounds real. Then it may be a fake investment offer.
- No investment offer exists without risk. If you encounter any offer that assures you more returns in a shorter time period without risk, please ignore it. For example, if B gets an offer on a Ponzi scam which gives a guarantee of lots of returns on investment then B must not accept it.
- The Ponzi cheaters do not describe their investment offers clearly. In fact, they make use of words that tempt you into investing.
- Even though cheaters may put high pressure on you to invest in Ponzi scams, do not fall for that. For example, A may be pressured by the cheater to invest in this scam but A should not be affected by that and invest money.
- Ponzi scammers may try to make their business seem legally recognized. They may have great job titles, attractive brochures and fake good looking websites. They might even conduct meetings in costly venues to look impressive. If you doubt anything about the company, then determine the company’s status and contact details by researching it.
- It is crucial to enquire about the firm and the scheme. If they try to dodge these questions please be highly cautious.
- Please enquire with the board of directors of the scheme and ask them to arrange your meeting with at least one of them.
- Before investing in this scheme, please perform a thorough research and a background checking on Ponzi scam organizers.
- Educate yourself about the warning signs of Ponzi scams.
Functioning of Ponzi Scams:
Ponzi frauds function in the following manner.
- Promoters of this scheme make people agree to invest their money by assuring enormous returns.
- As soon as they receive money from the new investors, they use it to pay to the earlier investors.
- The investors have the impression that they are getting the promised profits and hence do not suspect any false activity.
- As a result, investors get their friends and relatives and encourage them to put their money into this scheme.
- In the initial stage, the scheme seems to work and the cash they receive is utilized to pay before investors and this cycle goes on.
- The scheme would be a success if and only if new investors give the payment of funds, investors don’t claim for the return of their payments and if investors (old and new) believe that they will get their initial investment funds back.
Conclusion:
People should educate regarding the Ponzi fraud and its warning signs. These warning signs of Ponzi frauds will make the people aware of the possible situations under which the frauds can occur. It is also essential for the people to know about the working of Ponzi frauds in order to help them in making decisions on investing in this type of fraud.
