September 21, 2009
Ponzi Scheme
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Ponzi Scheme
The recession is causing a sharp rise in the number of Ponzi schemes. This is due mainly to low interest rates for investors causing them to look elsewhere for better returns, and also workers losing their jobs and receiving a payoff from their employer and then looking to invest that money.In a Ponzi scheme, potential investors are attracted by promises of very large returns or dividends over a very short period of time, due either to the skill of the investor, or the secret nature of the investment.
And according to the Better Business Bureau, there are at least 23,000 of them being promoted online in YouTube videos!
The returns are repaid, at least for a time, out of new investors’ principal, not from profits. This can continue as long as new investors line up with cash, and old investors don’t try to withdraw too much of their money at once.
A few people invest in the scheme, then as news of the offer spreads, more investors are drawn in. Usually there is no actual investment involved, contrary to your understanding, just money being shipped in from new investors to pay the earlier ones. The scam will continue for as long as payments are regularly made to 'earlier investors' to provide credibility. Those fortunate few are known as 'songbirds' since they sing the praises of the scam to others.
The operator of the scheme will usually convince you to 'roll over' your profits into another investment cycle, so that your returns end up being on paper only.
The goal of the scheme is to keep investors from knowing they are being cheated for as long as possible, so more investors can be lured in.
Once the rate of investment slows down, the operator shuts it down [or declares bankruptcy] and disappears. he scheme can only continue for as long as new gullible investors can be found.
Red Flags of Investment Scams
* It offers high rewards with little or no risk, or 'safe' or 'risk free', or 'guaranteed results'
* You are advised to take up the offer immediately or you will lose the opportunity
* You have been selected from a small group for a 'private' offer
* There are few, if any details of the person or company making the offer
* The offer arrives via unsolicited email [spam] and promises huge results with no risk. Remember brokers and traders aren't going to give away good tips for free
* An offer to share 'inside' information along with pressure to invest before you can do any research
For tips on how to avoid Ponzi schemes, see the advice on our webpage dedicated to :
Remember - always watch for scams!
Steve