The Pitfalls of Ponzi Schemes

The Financial Conduct Board warns investors to avoid Ponzi-style investment plans; numerous con artists utilize this procedure to obtain your money.

The first to use the Ponzi scheme was Carl Ponzi himself. In 1920's Boston, Ponzi gathered $9.8 million from 10,550 investors, including 75% of the Boston Police force. Ponzi then conveyed $7.8 million to his investors as "profit" on their investments and spent the remainder of the cash. Ponzi's unique speculators were pleased with their "profits" that they cheerfully helped him discover more investments. The Ponzi scheme flourished until the media noticed; Carl Ponzi was captured by authority and ended up in bankruptcy court. Everyone lost their money and the bankruptcy trustee sued the people who earned from the Ponzi scheme so Carl Ponzi's debt could be paid to his beneficiaries.

How did Ponzi bait such a significant number of individuals into his plan? Investors got enticed by Ponzi's scheme since he ensured high profit over a brief timeframe – half the profit every 45 days. However, these profits were paid directly from the investor's own pocket and the contributions of other investors. The importance of the Ponzi scheme is that money is 'obtained from Peter to pay Paul.'

The current Ponzi schemes look like genuine investment opportunities. These schemes function well because:

• Investors receive "premium" checks (which are really the profit of their own money), and they support their loved ones to invest;
• Investors get account statements that show returns (which are not true);
•  Investors once in a while investigate the investment or check the foundation of the individual offering the investment.

The Ponzi administrator regularly persuades investors to put back their 'returns' into the Ponzi; sooner they will lose their original investment, adding to it the profits they may have earned. People are influenced by Ponzi schemes via word-of-mouth. As more individuals know about the obvious profitable investment, more investors need to get in on it. Early investors are paid out of cash from new investors, on occasion for a long time until the Ponzi disrupts. The Ponzi scheme ends when the number of investors drops. With lesser new investors, there is no new cash to pay the profits. If you lose your cash to a Ponzi scheme, there is a chance that you won't recover your cash.

Even if a Ponzi scheme can be hard to detect, the following tips will ensure the safety of your money from scammers:

Watch out for investment promotions that offer ensured high returns and low risk. If an investment has a high profit, you are risking a lot for your money.
• Check the investment registration and the individual or company offering it. Numerous Ponzi administrators are not authorized to sell securities, nor is the investment registered.