Most of us have heard of these two words “Ponzi Scheme” used especially in a business world. But if you never have, I will give you a simple definition shortly.
WHAT IS A PONZI SCHEME?
A ponzi scheme is a type of fraud. It is usually based on a bogus investment that a schemer or schemers get other people to give them money.
Many business opportunities pop up both online and offline on a daily basis but only few survive in the long run. With this being the case, people are scammed everyday especially online.
Question: Do you ever wonder when a business model becomes a Ponzi scheme?
Answer: When the business continues to run under fraudulent terms and the demand for high returns requires an ever increasing cash flow from new investors to keep up the scheme.
The business model is not sustainable and the business usually goes under with some money received from investors.
WHO STARTED IT?
The scheme gets its name from the notorious Charles Ponzi, who in 1920’s wanted to use countries money-exchange rates to make money based on international postage stamps. Of course the money stopped being invested in coupons and early investors got their money while a lot of it went to Ponzi himself. Later the money ran out before the last investors could get paid.
HOW DOES A PONZI SCHEME WORK?
The operator, organization or an individual pays returns to investors from new investment paid to the operator by new investors, instead of from profit earned through legitimate sources.
Whoever is running the scheme, falsely represent the investment opportunity therefore misleading the investors.
In most cases though, ponzi schemes start as genuine businesses until the business is unable to achieve the return on investment that’s expected.
DOES A PONZI SCHEME WORK?
The short and simple answer is “NO”. A Ponzi Scheme does not work especially in the long term. In reality, however, early investors can and do make money.
All investors are made to believe that they are making money and eventually the money stops coming in leaving the members with empty pockets.
ARE PONZI SCHEMES ILLEGAL?
Yes, they are! Ponzi scheme business models do not have long term sustainability. The schemer runs out of money to pay out to new investors. The programs are illegal because at some point, soon or later will fall apart.
WHO IS TO BLAME IN THE PONZI SCHEME?
Who gets the blame in ponzi scheme? The schemer or the people who willingly take a risk in joining the scheme?
Is every victim on a ponzi scheme to blame?
You, be the judge!
Protect yourself and remember to use common sense which will serve you well.
Share your scam story and report a scam here. I do like to hear your thoughts (share them below in the comment box) on this post. Thank you for reading.