The Ponzi scheme is probably the most popular financial scam there is. This type of fraud not only affects those people who are naÃ¯ve to investments but has also been used successfully on some of the biggest investors in the world. It can take a lot of time before a Ponzi scheme becomes unmasked and during that time a lot of damage can occur. People have been known to lose all their savings and businesses have gone bust because of this scam. It is called the Ponzi scheme because this is the name of the fraudster who brought it to the public’s attention back in the 1920s in the United States; it has probably been around for much longer time than this though. Some experts warn that these scam investment firms make a lot of effort to look like a traditional firm.
What is the Ponzi Scheme Scam?
Put simply, the Ponzi scheme involves offering people the chance to get a huge financial return on any investment they make; this can be as much as 20% over one month. This money though is paid back out of the original sum that was invested or by new people who are buying into the scheme. As people witness for themselves the great profit they are making they will be tempted to invest even more money. They will also spread the word and soon more and more people will be investing in the scheme. The investors believe that they are on to a real winner but the reality is that no real profit has been made. The money from the new investors is being used to pay off the older investors; the more long-term investors are so impressed by the scheme that they keep on reinvesting. When the scam artists are happy that they have made enough money they will take off with the money. The scheme will collapse and everyone will realise that they have been had.
How to Spot a Ponzi Scheme
The old advice that, “if something sounds too good to be true it probably is” probably sums up the best way to spot these schemes. Unfortunately those committing the scam are very good at it and this is why people who should know better are often caught out. This is different than a lot of other types of scam because in the beginning people are actually making money. The Safe from Scams Website (http://www.safefromscams.co.uk/PonziSchemeScam.html) further warns that anything that sounds like a ‘get rich quick’ scheme is potentially a scam; high returns always mean high risk. If you are considering an investment offering high returns you will really have to do your homework no and investigate the background of these companies. If you are not sure then don’t invest any money; losing out on the potential of getting your hands on a bit of profit can be better than losing all your savings.