The ideal financial investment will generate large sums of money from a small initial contribution in a short amount of time. However, earnings such as these are rare, unpredictable and quite often illegal! The more realistic, legal and proven successful approach is rather to invest in a safe, diverse portfolio enabling more consistent, predictable growth over a long period of time. With a Ponzi Scheme, named after Charles Ponzi, the ideal scenario is promised yet in the end one rarely recoups their initial investment and possibly never sees another penny ever again. In 2009, Bernard Madoff was charged and sentenced to 150 years in prison after pilfering billions of dollars!
What is a Ponzi Scheme?
A Ponzi Scheme is a fraudulent financial investment that guarantees high returns within a short period of time with unregistered securities for example. The problem is that when the operators do pay out, it's done the investors own money because the funds were never invested in the first place! Scammers promise immense growth potential with high returns over either a short term period or has payouts at intervals in the form of dividends over longer periods of time. The operator then uses your newly contributed funds to payout the victims who came on board before you. The scam continues on like this until either the operator flees with all of your money, they get busted or an insufficient amount of new investors can't be found and it crumbles.
Ponzi Schemes are often compared to Pyramid Schemes and Multi Level Marketing
Factors Required for a 'Successful' Ponzi Scheme
Ponzi schemes require a few elements to unfold in succession in order to survive. The first is for the operator to convince and encourage naive investors. They do this by behaving professionally and using complicated financial jargon to impress ,with most of it being bunk! For those people who take the bait and invest early enough they will yield on the returns as promised (so long as new investors continue to participate). This action in turn builds confidence in the scheme from an investors point of view thus the word continues to spread, quietly. Transactions occur on the down low so as not to encourage too much attention yet via word of mouth new investors continue to fall prey to this 'amazing' opportunity. Operators maintain the appearance of credibility by drawing up paperwork, sending false manufactured statements and even allowing the odd investor to completely withdraw with the profits they earned. All of which aide in solidifying potential investors and retaining current ones.
How to Invest Smart
1) Develop a financial plan with realistic goals. Begin with your current financial position and then determine your financial goals for the future.
2) Be sure to conduct your research thoroughly, regarding all types of investments, before handing over your money! Pursue advice from an unassociated 3rd party who is a qualified financial consultant.
3) Keep in mind that a diverse portfolio is a strong, healthy portfolio.
The FBI provides information on various Fraudulent Scams so does the RCMP Scams and Fraud.
Other examples of how one can be ripped off, check out these two popular investment deals gone wrong, Enron and BRE-X.
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