This particular section consists of a departure from my usual avoidance of topics that are covered in detail elsewhere on the Internet.  With no end of investor scam warnings, and loads of excellent sites covering those scams, I have nevertheless noticed an increase in Ponzi-related schemes, and felt that one more article on the topic couldn’t hurt.

“The American public is better educated and better informed than ever.  But here’s a paradox:  The more people know, the dumber and more careless they seem to get about their investments.”

Forbes Magazine, 1995, The Smarter They Are, The Harder They Fall.

According to the Council of Better Business Bureaus and The North American Securities Administration Association, Americans lose hundreds of millions of dollars every year to investment fraud.  It touches all segments of society: the rich and the poor, the young and the old.  No one is immune.  Swindlers and con artists prey on the hopes of us all.  What’s’ more, the allies of the swindlers are ignorance and greed.  Investment frauds are fueled by the swindlers’ knowledge that people generally do not understand what is being offered to them and hear only the promise that they can make a great deal of money easily and quickly by handing over their savings to the promoters. 

An excellent site outlining the history of the Ponzi scheme can be found at the CHARLES PONZI WEBSITE.  In a nutshell, this particular scheme involves someone who appears and offers you an opportunity to participate in an investment that is guaranteed to provide you with a sizable no-risk return, and in a very short time. 

 

Such investments are guaranteed, and backed by the promoter.  To lend some credibility the promoter (con artist) will make good on his or her promise of quick and sizable returns by paying off some of the initial investors.  These people soon become advertisers for the con artist and help bring in new investors, whose money is used to pay other investors.  So what’s the problem? If people are making money then where’s the fraud?  Here’s what goes on behind the scenes:

The only product the con artist has to offer is his or her ability to say nothing using lots of words.  The investment opportunities they offer are so convoluted that the potential victims are never able to fully explain the details of their investment.  Any explanations such people do tender are simply products of their own imagination.

What draws citizens into these schemes are catch phrases like, Lots of Money, No Risk, Guaranteed Profits, Insider Secrets, You Can’t Lose, and so on.  Add to this the knowledge that others have actually made money with these once in a lifetime investments and what you have are people begging to be taken. 

Some of the early players realize they are taking part in a big rip-off, but could care less so long as they are making money—which they won’t.  Using greed as their guide, most suckers think they can con the con only to discover that they are wrong in the assumptions.  These early investors almost always reinvest what money they obtained, thinking they can double their riches.  With a firm grasp of human nature, the con artist is willing to play the part of the fool and allow the sucker to believe they are about to become millionaires.  Only after such players are rendered penniless do they see the errors of their ways. 

Once the number of willing investors increases, the only payment the con artist will make are to himself.  The amounts vary, but $30 million and up are typical figures.  With money in hand, the con artists are quick to move to another location and begin anew. 

 

As mentioned at the outset, there is no shortage of advice on how to avoid falling prey to a Ponzi scheme, and yet millions of us do so every year.  Why this occurs is not clear, but as noted elsewhere on this site, people tend to resist any notion that suggests they are potential fraud victims.  Whether it’s because they see themselves as being too smart, too educated, too streetwise, or some other erroneous belief, they simply place themselves above the fray.  This allows them to believe that reading fraud prevention advice is a total waste of their time. 

 

The logical question at this point, is why am I writing this?  If potential victims do not waste their time on sites like this one, then what is to be gained? 

Maybe, just maybe, you the informed, might hear about an uninformed friend who is in the midst of a Ponzi scheme, and spare them from financial ruin by sharing your wealth of knowledge. Since they won’t want to listen to a lengthy dissertation, here are a few tidbits of advice that should prove highly effective:

If you do not fully understand a particular investment opportunity, then it’s merely an opportunity for disaster. There is no topic on this planet that cannot be put into easy to understand terms.  If the wonderful person, who wants to put you onto the path of instant wealth, can’t clearly describe the “investment opportunity,” then you’re probably dealing with a con artist. Decide to deal with such a person and you are about to obtain an expensive education.

There is no such thing as no-risk investment opportunities.  Legitimate investment plans not only address themselves conservatively to any discussion of profits but rigorously avoid any promise of specific percentages over any given period.

Any request that you keep this “special investment” a secret is a certified indicator of a scam in progress.  Regardless of what the promoter says about the reasons for such secrecy, everything should be taken to mean that the deal is an absolute fraud. 

Some key words and phrases, which should signify a Ponzi scheme in progress, include:

No Risk

Guaranteed Returns

For Selected Investors Only

Insider Investment Opportunity

For Players Only

Deferred Profit Payments

Instant Profit

Investment too technical to explain in layman’s terms.

"Human beings, who are almost unique in having the ability to learn from the experience of others, are also remarkable for their apparent disinclination to do so." Douglas Adams

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