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| INTRODUCTION INTRODUCTION - One of most common internet traps is named after one of the greatest con artist in the history of America, Charles Ponzi. Charles was Italian by origin who moved to US to make his livelihood. Charles lived and died much before the internet came into being but he left behind him, the tricks that have rendered thousands of people bankrupt all over the world! |
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AN OVERVIEW OF CHARLES PONZI’S SCAM: It was around 1920, after the First World War when the Charles Ponzi discovered that the International Postal Reply coupons can be bought for cheap in Germany and sold for a higher price in America. Ponzi needed lot of money so that he could buy more and more of IRCs. He started to rope in people to invest money into this business and offered huge returns in a very short span. Soon, he established Securities Exchange Company to gather public confidence and paid huge sums to the people who invested. Ponzi became a hero and was earning millions of dollars. |
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| Financial experts concluded that this was not a profitable deal but a huge SCAM and that Charles was not making payments out of the profits of buying and selling IRCs but was actually paying the money invested by the new recruits. As time passed by, Charles and his scheme were questioned on several grounds, pressure was building upon him and finally he was arrested and his company was sealed. The man who lived a lavish life of a billionaire was actually insolvent but his charisma was such that people wanted to invest money in his scheme even when he was behind the bars! |
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| Thousands of people had poured huge amounts of money and many of them became bankrupt! |
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| PONZI SCHEMES IN THE INTERNET ERA: |
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| Ponzi schemes of the day have striking resemblance to the MLM schemes and number of them are lurking on the web. |
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| Ponzi schemes can be extremely tempting when you get to read their sales pitch. Many people, both young and old have fallen for it in the hopes of making quick money. Some thought of it as a great MLM opportunity and invested all their life savings, others took it up as a lucrative career and mortgaged everything they had. Some did make money initially but most of these people reinvested their returns and then one day, the operator disappeared with all their money! |
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| This is how almost every Ponzi scheme ends. In a legitimate investment business, the investors’ money is invested in the market whereas in the case of Ponzi schemes, the money of the subsequent investors is used to pay huge returns to the initial investors (or should we call ‘victims’?). To make it simpler, it’s giving investors' money to earlier investors and making it appear like a great money making business. |
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| Today’s Ponzi operators are not only smart but also web savvy. They know how to conceal their fraud and make the scheme appear like a genuine investment opportunity. They also know how to present there scheme and get you to sign in. Ponzi scheme can be in the form of promissory notes, hedge funds, real estate and so on. |
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| LEGAL ACTION: Hundreds of Ponzi schemes have been prosecuted in US in the past decade and most of these were using financial products. Recently, Securities and Exchange Commission has busted a huge Internet Ponzi scheme which held that if people paid certain amount of money to the company and view certain ads on the internet, they would be paid for it. As in any Ponzi scheme, the assured return was a whooping 40% in a couple of week’s time! Over 300,000 people were duped into this scam accounting to more than $50 million. |
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| Despite legal restrictions and cyber patrol, Ponzi schemes still continue to grow. |
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HOW TO AVOID THE PONZIS? Ponzi schemes do not come into market with the labels of being Ponzies so you have to differentiate between the authentic investment options and scams. Here is a bit that could be helpful.
- First sign – Abnormally high returns, avoid such deals!
- Use the web to do some quick research on the company, the scheme and its products.
- Only opt for the companies that are listed on the stock exchanges and have complied with the necessary registration formalities.
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| It’s not really difficult to avoid the Ponzi scams all what it takes is you to be a little careful with your approach. |
