How To Recognize A Ponzi Scheme

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When MMM was in vogue, I was indifferent about it. Even when I heard testimonies of huge returns from friends, I didn’t budge. That’s because I’ve helped myself become acquainted with their gimmicks. I don’t want you to fall victim anymore so…


Let’s start from the basics!


What Is A Ponzi Scheme?
The Ponzi scheme is the oldest and most common type of investment fraud. It was dubbed after the 1920s fraudster, Charles Ponzi. While Ponzi didn’t formulate this form of investment fraud, his operation was the first to become known in the United States.

He collected money from people who wanted to invest in his business and then paid investors large interest payments from the money he obtained from the new investors.


Initiators of schemes like this can be very persuading. In the early stages, he pays out high returns ‘as promised’ to build trust with the early investors and encourage new investors.

Once the supply of new investors inevitably dries up and the promoter is unable to pay out returns, investors become suspicious and distrustful.


I’m making you aware of this so that when you are looking into a new investment opportunity, you should take the time to check out both the person proposing the investment and the investment itself. Validating that both the promoter and the opportunity are genuine can save you a lot of time, money, and heartache. This is important!


Sadly, many people are not observant enough to take note of warning signs so I’ll just list it out for you.

  • Unregistered business and hidden information. If you discover that the business isn’t registered and several excuses are given for errors, missing documents, or employees, maybe it’s time you flee.
  • You don’t understand the business
    If you don’t understand the business being proposed after a description, be suspicious. The investment should be easy to understand and, as an investor, one should be clear where and how returns come about. Fraudsters are notorious for using complicated grammar such as ‘hedge future trading’, ‘high yield investment’ and ‘offshore investment program’ to compel would-be investors. These tactics confuse investors. It was Warren Buffett who said, “Never invest in a business you can’t understand.” A word, they say, is enough for the wise.
  • Unusually high returns
    Even though you understand the business model, you need to watch out for returns that seem abnormally high. While Ponzi schemes may take a variety of shapes, they all follow the same pattern.
  • Promised returns
    When it comes to investing, no return is ever guaranteed and even the most modest investment carries some risks. At least be sure of the latter. Remember, greed is your greatest enemy when investing.
  • An uncanny pressure to invest immediately
    These persons of awesome repute are also infamous for creating a false sense of urgency by making you believe the deal is only valid for a limited time. It is often enveloped in secrecy, and you’ll be pressured to ‘act now’ while the ‘once-in-a-lifetime’ window of opportunity is open. This should be considered a red flag, please.
    6. Pressure to reinvest
    Ponzi schemes need to be sustained with regular income so if too many investors withdraw their funds, the business will collapse. To stay in business, the person will offer you higher returns if you don’t cash out or if you reinvest your money. Now that you know the warning signs, what should you do if you are on the verge of falling victim to a Ponzi Scheme? Apart from withdrawing, you should contact an experienced investment fraud Lawyer. Now, what are the steps to avoid being roped in a Ponzi Scheme?
  • Check out the certifications and background of the person who has approached you about the investment.
  • Have a lawyer examine any contracts that you are given. Don’t send any money until you have had the contracts analyzed by a lawyer that you can trust.
  • Make sure you understand your investment. If the investment appears complicated or if it cannot be appropriately explained, don’t hand over your money!
  • Finally, trust your instincts. If you don’t feel comfortable about an investment, walk away.
    INVESTIGATE BEFORE YOU INVEST!


Warning Signs Of Ponzi Schemes

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