What is a Ponzi Scheme?
Bernie Madoff and Allen Stanford to
Trevor Cook and
Arthur Nadel, it seems every con artist out there is a “Ponzi schemer.”
But, what does that mean?
What exactly is a “Ponzi scheme”?
A “Ponzi scheme” is a type of investment fraud scheme that involves the payment
of false “returns,” “interest,” or “dividends”
to some investors from funds contributed by other or newer investors.
The scheme takes its name from Charles Ponzi, a man who defrauded thousands
of investors and many banks back in 1919.
Unfortunately, no one Ponzi scheme is exactly like another, which makes
detecting them somewhat difficult. However, there are ways to protect
yourself and understand who are
common targets for Ponzi scams.
While today’s Ponzi schemes may differ from one another in size,
scope, or strategy, they almost all share the same red flags:
Promises of higher than average returns, typically over a short period
of time; (Charles Ponzi, for example, promised his investors returns of
50 to 100 percent in as little as three months.)
Falsified account statements that show high, consistent gains;
High-pressure tactics to keep investors from cashing out;
Unauthorized transfers; and/or
Misappropriation of investor funds.
Many investors may believe they’re making money off these so-called
“investments” although there typically is little to no legitimate
investment activity actually taking place. Instead, more and more investors
are brought in to keep funding the scheme. When the promoter is unable
to bring enough new funds into the scheme to keep up appearances, the
entire thing falls apart.
The best way to safeguard your savings from a Ponzi scheme is to avoid
becoming a victim in the first place. However, if you believe you may
be a victim of a Ponzi scheme, you may be able to recover some of your
investment losses. To learn how, click