The Ponzi Scheme

Discussion in 'General Scam formats' started by Templar, Jul 7, 2009.

  1. Templar

    Templar Super Moderator

    Charles Ponzi - March 3, 1882 – January 18, 1949

    When something is too god to be true, it usually is.

    Carlo Pietro Giovanni Guglielmo Tebaldo Ponzi, aka Charles Ponei, Charles P. Bianchi, Carl and commonly as Charles Ponzi was not the first to do it but he is remembered for it.

    The Ponzi Scheme.

    A Ponzi scheme is basically an investment that perpetuates consistent and higher than normal returns and is fraudulent. It works on the premise of taking Peter’s and Paul’s money to pay Paul, with an enticing yield while siphoning some for the Operators.

    Initial investors are paid a yield, 5% per month to 15 % aper annum, with some less careful operators giving 10 to 20% per month. In reality, no real business is being done. Investors are paid with their own funds and funds of subsequent investors thus building a pyramid like structure.

    Upon initial payment of proceeds to the first investors, the operators now are armed with a track record of payouts, then are able to easily entice new investors join, building another layer of funds thus keeping it alive.

    It is usual for investors to keep the principle amount in the scheme and collect the so called profits keeping the principle sum as a residual investment that keeps generating returns for them.

    Even if an investor gets out early, his gains are still liable as it is deemed as ‘Ill Gotten Gains’ and the law can come after the investor as in the Madoff Case.

    There will come a time when the system breaks down as the investor pool dries out and the scheme collapses and investors become victims.

    Some of the tell tale signs are :

    1 ) The ability of the scheme to pay out abnormally high or unusually
    consistent returns regardless of the economic situation.

    2) Operators who continually dissuade investors from withdrawing, baiting
    with even higher returns should they stay on or alternate investment
    within the company as if they allow investors to withdraw, the earlier the
    system will collapse.

    3) The lack of information on operators investments.

    4) The lack of credible audit reports.

    Most people are enticed by operators purely from the standpoint of greed, emotions, and gullibility.

    With large and impressive offices, flashy suits and sharp talking investment advisors that look the part. A jargon of buzz words like leveraged finance, fixed income derivatives, Term Notes, Government and Municipal bonds, Treasury notes, Commercial papers and so forth.
    Never mind that they are only a year old or less but the name of the outfit seems legitimate, like Goldstein or Sachs, some wall street like, familiar name.
    Look at the stacks of files and the size of the board room. All to impress their victims.

    With the right trappings and flash money they do look and sound legitimate. The returns are very good, three to four times what the high street banks are doing.

    You can hear the chatter of little old ladies in the corridors saying thing like
    “Mrs Kaputnik and the Sasha made enough to vacation in Florida last winter, they even brought their cat along,” and
    “They are such nice people not like that frumpy Mr Butler at our bank.”

    These same people will be angry and cursing when the scheme collapses as in the case of Madoff victims.

    Remember your mother’s advise as it rings true.

    “if it is too good to be true, it probably is.”
    Last edited: Jul 7, 2009
  2. Templar

    Templar Super Moderator

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