.If you are an online money-making enthusiast. I am convinced that you are already familiar with the name of the Ponzi Scheme. It has been the number one famous system, yet there are massive rumors that Ponzi is a scam. Have you planned your money to be invested at Ponzi? Better to find out the fact first before you decide it.
But, what a Ponzi Scheme is? It is an investment scheme that promises the investors an extremely high return with only little risk. This scheme recruits new investors to generate more income for previous investors. So basically, investors or clients contribute funds for the manager’s portfolio.
The one who operates this system is responsible for organizing the whole operation. They turn over from one investor to the other and forego any specific investment activity.
Clients contribute funds for the manager’s portfolio.
That is why people say it is fraud because of the similarity with the pyramid scheme. Both of them are using the funding from new investors to pay off the early one.
In terms of real profit, this company never generates real profit because it is redistributing the funds from one investor to the other and claim it as a profitable company. So, as long as they still can gather new investors, everything seems alright, and the cycle keeps going on.
Consequently, the truth is unraveled. No more new investors and the scheme is no longer sustain. After this period, which this system gets its trust, is it undetectable since the first place?
That is the biggest problem. We barely recognize whether or not it is a scam until it falls.
Before we proceed into any further, it feels incomplete not to talk about the initial story about the Ponzi Scheme itself. The name of Ponzi was started in 1919 after the name of Charles Ponzi revealed. Back in time, he discovered the postal service that had increased to be international reply coupons which let the sender to pre-order the postage and to insert it in its correspondence. The one who receives the postage should put that coupon into a nearby post office to send the reply.
The steady ups and downs of postage prices brought the impact of the increasing of stamps in one country and another. To overcome this thing, Ponzi employed subordinates to buy cheap coupons and sent it to him. He switched these coupons for getting more expensive stamps compared with the initially ordered. And he got the profit from the margin of selling those stamps.
Is it Illegal?
Even though this type of business can’t be considered an illegal practice, but the fact that Ponzi became greedy and demanded more with spreading his action.
After he got his own company named Securities Exchange Company, he was sure he could give a return for approximately 50% only in 45 days, and after 90-day, the performance became 100%. With the story from the postage stamp scheme, no wonder if it was easy for him to grab inventors’ attention to join this bigger scheme under his company’s name.
A scheme that people thought it was a credible and trusted one turned out it just a redistribution model of inventors’ fund, but he claimed it as profit. Suddenly in 1920, The Boston Post started their investigation on Securities and Exchange Commission.
Based on their report, Ponzi was convicted by the authorities because of multiple frauds.
The story didn’t end in 1920. Due to the current technology, the Ponzi Scheme was evolved. It was proven with the conviction of Bernard L. Madoff because of his involvement in the Ponzi Scheme.
A vast network that was built by Bernard L. Madoff could raise a lot of cash from clients, gathered for approximately 5000 investors. The money was transferred into Madoff’s bank account.
He didn’t make any investment with that money. At the moment when the crisis came in 2008, he wasn’t able to manage his fraud business any longer. The Securities and Exchange Commission estimated the total amount of loss to clients was roughly more than $60 billion
Authorities said it was a scam due to the report that showed clients or investors getting a return from investment which didn’t exist in the first place. Thenceforth, there is a massive investigation in which the targets are businessman, investment enthusiast, economic expert, and another professional to catch the other Ponzi Scheme follower and successor.
Although it is tough to be spotted, yet it always has similar signs.
Better for us to figure out now, so we can be more aware if there is the same fraud like this in the future.
Several things we have to pay attention to are, first, when there is an investor who is brave enough to promise you high profit with a few risks. Bear in mind with this simple economics theory: no risk, no reward. So it is barely impossible to invest with high reward, yet there is no equal risk followed.
Second, a steady flow of profit, no matter the conditions of the current market. Investment, no matter the form, is a volatile thing. You have to supervise the latest market trend to foresee the profit or the loss. So, when the market is down, usually your investment will follow that trend. It is hardly possible to find an investment system which is always in constant profit.
Third, be careful with an investment system which doesn’t reveal its strategies, rules, systems, or pattern. In another case, it may be stated, but in ambiguous meaning or pictured as too complicated.
Investment needs transparency and accountability.
It is understandable if, in business, it is hard to reveal everything that happened in the inside. But, it is not an excuse to conceal too many things because clients and investors also deserve to know that information in exchange for their money that is invested there.
Fourth, it is most likely a fraud when you don’t get permission to see, assess, and evaluate the official paperwork of this investment. Similar to number three, as a client or an investor, you have the privilege to assess the paperwork. Even though nothing can guarantee the accuracy of this paperwork, but at least you will get a better picture of how good the investment is, is there any possibility to do fraud, or does the track record is clean and trusted enough to get your money. It is a usual thing to do; nothing should be hidden.
Fifth, every time you feel it is hard to remove your money, you have the right to doubt and question more. Probably, your money is used for another illegal purpose. For example, as the newest client, your money is claimed as profit for the early investor’s profit. If this case becomes a reality, then it makes sense if you always get rejected when you want to withdraw or remove your money.
Sixth, this is maybe the most common MO.
Have you ever seen an investment that implements a powerful marketing technique? The forms may vary, from never-ending calls, spam email, or texting you from instant messaging apps. Whatever the platform, the essence is the same: pressing you to make quick decisions.
This MO is closely related to the system of pyramid schemes like the previous explanation. Because of Ponzi’s promises, in the beginning, they have a deadline to recruit more and more new investors to cover the return for existing clients. When time is approaching the due date of paying return, be ready to get excessive marketing calling. It is annoying.
Seventh, be suspicious when you receive any advertising or pitching from the agents who use overwhelming technical jargon. It doesn’t mean they want to impress you with the knowledge or skills about investment topics. Turns out, it just their tactic to make an astonishing first impression.
The more you are impressed, the more you are interested in.
Eight, don’t you dare to invest your money without seeking the information from the Securities and Exchange Commission. You can contact them to get the list if there is any open investigation toward online money-making or the sign of fraud investment activity is detected.
Last but not least is the weirdest thing, yet it still happened. It is possible if the investment company demands you to keep quiet and pretend the investment like a big secret, even for your parents, spouse, and any other close parties.
It can be their trick to hide the fraud scheme so the news will not spread uncontrollably. Just remember that everything which is secretly kept tends to have a dirty secret behind it.
And they don’t want many people to know it.
Based on those nine parameters to early detect whether or not your investment company is legit. We can say that the Ponzi Scheme and many other pyramid scheme is a fraud. Particularly the Ponzi Scheme which is proven by the court and somebody has been jailed because of running this type of business.
Wait a minute. Do you think that Ponzi Scheme and a pyramid scheme are the same?
Even though it has multiple similar characteristics, yet they are different. The significant differences come in the form of products that these investments provide to their clients or targeted investors.
In Ponzi Scheme, the one responsible for finding so many recruits to cover the guarantee for existing investors is the top management itself. So, it doesn’t follow the traditional rules of MLM. Once you become a client, the only thing you have to do is invest your money and wait until you get the return.
Different from pyramid schemes. In this system, the top management will enroll recruits to be a client. This client supposed to enroll another client.
And the cycle goes on until there are plenty of clients who can be recruited.
At some point, the one who able to recruit new members deserves Incentive. Which is allocated as an investment chance, for instance: the opportunity to sell a specific product. Each client will pay the one who enrolls them in the exchange of selling this item. The receiver supposed to share these proceeds with the person at higher chains of a pyramid scheme.
Another critical point of difference between the Ponzi Scheme and a pyramid scheme is because of the manner of the pyramid scheme. Follows the traditional way of MLM, so it barely can be recognized. They also have a stronger legal team to protect the institution legally. So they can prepare a solid argument to defend just in case they get sued in court. That is why in terms of the law, a pyramid scheme is much more powerful than the Ponzi Scheme.
If you think the only fraud system investment which has a bad track record is just a Ponzi Scheme, you are wrong. One of the most significant cases of illegal pyramid scheme was what happened with healthy product company named Herbalife. Although they were accused of fraud and illicit companies because of its practice of pyramid schemes, but the product still available on the market. Surprisingly, the stock price in the market seems steady and in constant profit.
Its famous name maybe is too familiar for your ears.
In a nutshell, consider these two extra essential parameters. Don’t blame your disappointment through the participants because they are just victims too.
So, how do you think about the review afterward? Because technology becomes more and more sophisticated. It is essential to increase awareness. And necessary knowledge to at least can determine, which one are the real investment and the scam.