Sunday, August 14, 2011

Scam warning (Ponzi scheme)

Here's a type of scam which works well, beware of it.

The scammers present an apparent "investment", which sounds amazing. It's something that gives fantastic returns, and very few people know about it. In fact, it's preferably a bit hush-hush, which makes it even more attractive. The "powers that be" don't want you ordinary people to know about it, you know?

Early investors actually do get some returns! This is sometimes paid out via specially made cash-cards, making it even more believable. The returns make the scheme seem very convincing to the early investors, so they 1: get greedy and they invest more, and 2: they tell their friends about it, who believe it because they are friends and they've already got proof it's real. And of course they get a commission per investor they bring in, adding the pyramid scheme flavor to it.

As time goes on, some "problems" arrive though, like the scammers' bank account is being apparently barred by their evil bank or other evil authority who doesn't want people to know about this amazing investment form. Or the new kind of payout card is being delayed and delayed...

Over time, people get more and more apathetic about ever getting their profits, or even their money back, and the scammers disappear quietly with a few million bucks.

This can take many forms, but look out for the pattern. Remember the silver rule: if it sounds too good to be true, it probably is. There is no investment without risk which pays more than maybe 7 percent per year (minus inflation). Over 15% per year, big risk. If it claims fifteen percent per month, it's sure to be a scam.

It's called a Ponzi scheme after Charles Ponzi, thanks to A.


Anonymous said...

This is called a Ponzi scheme.

Eolake Stobblehouse said...

Oh yeah! Thanks.

Eolake Stobblehouse said...

Ooooold scheme, innit.

Anonymous said...

You can't cheat an honest man.

Timo Lehtinen said...

Exactly. The book You Can't Cheat an Honest Man: How Ponzi Schemes and Pyramid Frauds Work... talks about this.

The "You can't cheat an honest man" line is also the motto of the fantastic TV series Hustle.

Anonymous said...

The "You can't cheat an honest man" line is also the motto of the fantastic TV series Hustle.

I think that's where I heard it, even though the idea is familiar to many people.