Protecting your money from Ponzi scams

Ponzi scams, alsoknown as pyramid schemes, are named after the Italian fraudster: Charles Ponzi.

Just what is a Ponzi scam?
A Ponzi scam is an investment scam in which the fraudster uses the capital investment from new investors to pay returns to older investors. It is clearly fraud and the courts tend to hand out heavy sentences to criminals caught doing it. This is little consolation to those who have lost their life savings.

Why does there seem to be so many Ponzi scams at the moment?
It seems like there is currently a flood of Ponzi scams being busted, from all over the globe, in some cases involving hundreds of millions or even billions of dollars. The truth is that Ponzi scams tend only come to light when the fraudsters can’t get new investors to fund payments to investors who have been in the scheme longer. With the current recession people have started asking questions about the safety of their money and moved lots of cash into recession proof havens.

Why do people fall for these scams?
In my opinion the reason people fall for these scams is a combination of showmanship, by the fraudster and greed, by the investor. The fraudsters will routinely promise returns above that which the market would normally allow. This lures greedy investors into the scam.

The showmanship side of the scam frequently uses the mystique of labeling it as limited availability deal. The scam is generally marketed only by word of mouth, they count on the investors, in the scam, to tell people about their great returns and rope in more marks. The fraudsters running the Ponzi scam might even turn away some investors to market the scam better. Investors are always looking for exclusive insider deals that can make them more cash, than conventional investments and the fraudsters exploit this.

Biggest Ponzi scam so far:
A $51 billion Ponzi scam masterminded the former chairman of the Nasdaq, Bernard Madoff is the biggest scam in world history. Madoff had been reported to the FCC and investigated so far back as 2000, but they found nothing wrong with what he was doing.

Do you have any earning invested in a Ponzi scam?
You might be invested in one without any idea that you are. Many folks use investment advisor or investment companies. The advisor is then supposed to invest your money in line with your financial needs. Many advisors have however placed all of their clients money into a single plan, not knowing that it is in fact a Ponzi scam. The advisors protect themselves by having the client sign a contract, before taking them on. This leaves investment adviser free to spend their time looking for more investors, instead of administrating your money. This is of course completely unethical, but also completely legal. Several investors have been entirely whipped out like this, recently.

The only way to protect yourself from this is to know exactly how your money is invested. Do not accept claims from your advisor that it is a trade secret.

These schemes have grown in size as well as number over the last 25 years.

Investor beware.

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