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Ponzi Scheme Alert

What is a Ponzi Scheme?

A Ponzi Scheme is an illegal investment system that relies on new member's "investments" (or other monetary contributors) to continue to pay out former investors. This system is commonly referred to as "robbing Peter to pay Paul." Although most of these schemes claim to offer extraordinary rates of return, no legitimate revenue is ever earned through any real investments. Instead, the model requires exponential growth factors in new members and new investments.

Because ponzi schemes feed off a constant increase in new investments, each and every program utilizing a ponzi model eventually reaches a point of saturation; i.e. exponential growth dies down and therefore the giant money pool paying people abnormally high ROI completely dries up. Once a ponzi scheme reaches this inevitable level, it can no longer function or pay out previous investors. At this point, all current investors immediately lose all their money or equivalent asset value in the program.

Since the sheer mathematical logic of a ponzi based system will ultimately produce more "losers" than "winners" upon its collapse, all ponzi schemes are considered illegal scams in the United States and most other countries. The FTC (Federal Trade Commission) and SEC (Securities and Exchange Commission) is responsible for actively pursuing companies and organizations that violate the law by using a ponzi scheme model. However, with the recent rise in Information Age technology - primarily the Internet - new, cunning ponzi schemes are developed each year that go undetected until they collapse, disappear, and rob people of their money.

Charles Ponzi & the Original Ponzi Scheme

Although ponzi schemes have most likely existed in some form for centuries, the model's name ("Ponzi") stems from Charles (Carlos) K. Ponzi, a financial con artist in the early 1900's. Charles Ponzi gathered prospects from the city of Boston and promised them a tremendous ROI of 50% in only 45 days. He claimed that he was able to consistently obtain these high rates of return by selling international postal reply coupons (IRCs) at a 3-400% exchange rate in the United States.

However, Ponzi's "genius arbitrage" system was nothing more than a cover-up. He was merely collecting and using new investments to pay off previous contributors. Many of his initial investors never cashed out their entire principal and continued to reinvest with Ponzi for compounding effects, thus lengthening the lifespan of Ponzi's massive money pot. Eventually, the numbers caught up with Charles Ponzi and his scam, but not until several millions of dollars were involved. The U.S. Federal Government ordered Ponzi's arrest in late 1920. After being charged with fraud, Ponzi was sentenced to 5 years in prison.

The legacy of "Charles Ponzi" lives on today. Several forms and variations of Ponzi's elaborate scheme have been developed over the past decades. Many people have been enticed to rack up credit card debt and mortgage their homes in order to participate in these deadly scams. Billions of dollars have been lost in the name of "greed." Worst of all - these nefarious fraud tactics are still used today, and clever ponzi scheme operators make it difficult for legitimate investment seekers to properly identify the charlatan tactics involved. Make no mistake - This generation is at risk for ponzi scheme fraud no less than any previous generation.

Protect Yourself - Identify the Scams!

Times are tough with the current poor economic standings in the United States. Unfortunately, it's a little known fact that people are more susceptible to greed in gloomy eras. Con artists and sleazy crooks are constantly using this "greed" to feed their own pockets at the expense of good people's trust and money.

Ever since the news of Bernard ("Bernie") Madoff's 50 billion dollar ponzi scheme, many individuals have become acquainted with the term "ponzi" and understand it's illegal "rob Peter to pay Paul" principles. Unfortunately, Madoff's tragic financial keg of dynamite is merely one of many. At any given time (even now), a brick and mortar establishment under the guidance and control of a so-called "professional" or "investment guru" is offering high rates of return to it's investors through a ponzi model that remains to be discovered by the public or authorities.

Most people fail to realize that miniature variations of the Bernie Madoff scam are created month by month through the dark corners of the internet. In fact, new, crude blatant ponzi schemes, commonly referred to as simple HYIPs (High Yield Investment Programs), are posted on various "money making" forums and other online discussion platforms on a daily basis. The vast majority of internet HYIPs disappear in a matter of weeks; therefore, they should be considered extremely dangerous! However, be forewarned that some HYIP websites and promotional materials are not necessarily obvious and may require extensive due diligence in order to properly determine their true nature. "When in doubt, don't risk it!"

Some of these schemes grow to thousands (even millions) of "investors" and attempt to mask their true illegal nature by using clever terminology and providing ambiguous representations of the mathematical logic behind the "payment system." These sly, deceptive systems are more commonly referred to as "Sophisticated Ponzi Schemes." A very common classification of sophisticated ponzi schemes is the "Autosurf" - a model that requires members to purchase advertising packages or upgrades (as "investments") and surf through websites each day to qualify for high returns.