A Guide To Understanding Ponzi Schemes

Ponzi schemes have been around for a very long time and are schemes that people commonly fall for. This is because many people are attracted to the idea of sowing benefits without putting in hard work. It is important to understand what Ponzi schemes are so that you will be alert and not fall prey to such schemes. Here is a guide to understanding Ponzi scheme.

What are Ponzi Schemes?

In layman's terms, Ponzi schemes are scams disguised as investments. Scammers convince their targets to invest their hard-earned money in businesses or funds that guarantee high returns. However, these are not real. Money is being generated when these scammers find other people to scam. It is a type of securities fraud.

The reason why Ponzi schemes have high success rates is that sometimes, scammers manage to pay investors. To prevent getting a bad name, scammers usually pay their early investors a portion of the money generated by new victims. When new investors see early investors getting paid, they believe these scammers and let down their guard.

How to Differentiate Ponzi Schemes

It is important to be able to differentiate Ponzi schemes so that you can avoid becoming a victim of one yourself. Ponzi schemes are not pyramid schemes. Pyramid schemes are known as multi-level-marketing (MLM) schemes. In MLM schemes, new members are charged and these new members are tasked to recruit even newer members to earn money. They have a different structure from Ponzi schemes although they may seem similar.

Ponzi schemes are not investment bubbles as well. Investment bubbles are cases of assets being priced at an extremely high price, with the price usually pushed up by demand. The market will then correct the price. Investment bubbles do not necessarily involve fraud. Although Ponzi schemes are different from pyramid schemes and investment bubbles, they have some similarities which may result in some people getting confused over them. This is also a reason why it may be difficult for some to spot a Ponzi scheme.

What to Do if You Suspect an Organization is Involved in a Ponzi Scheme

If you have analyzed an organization or a business, and your gut feeling is telling you that it is a Ponzi scheme, you should alert others. This can help prevent people from losing their hard-earned money which may be difficult to recover. You should always be careful when it comes to matters like these. You can also contact the Federal Bureau of Investigation (FBI), the Internal Revenue Service (IRS), or the Securities and Exchange Commission (SEC) to alert them.

Weltz Law Can Help with Scams and Fraud

Now that you understand more about what Ponzi schemes are, do you suspect someone close to you has become a victim of a Ponzi scheme? If this is the case, it will be best to contact an experienced lawyer who can help. At Weltz Law, our attorneys are knowledgeable in the securities litigation field and will be able to provide sound advice and represent victims. Feel free to contact us today for a free consultation.

Ponzi Schemes - Top Tips to Watch Out For

Ponzi schemes aren’t just created by or high-profile target individuals you hear about on the news — Ponzi schemes can affect anyone. If you are investing, be on the lookout for the following signs if you are concerned about your investments.

You Have Little or No Risk and Constantly Get High Returns

While there is a degree of risk with every investment, any investment that results in a large return usually has a higher risk. If you are investing with little or no risk and consistently getting high returns, it could be a red flag that there is something else going on.

Paperwork Issues

You should be able to review all investment information in writing. If your investor is giving you pushback, that could be a warning sign. If there are also errors on your account statements or inconsistencies, this could mean that your funds aren’t being invested correctly.

Issues with Receiving Payments

If you are having problems receiving your payment or cashing out your investment, that could be another suspicion that a bigger issue is at hand. It’s important to note that Ponzi scheme promoters usually encourage those investing to roll over their funds rather than cash out and in turn promise higher returns. An investor can not make any promises so if your investor is doing this, it’s a significant red flag.

Sellers Who are Not Licensed

There are federal and state securities laws that require investors and their firms to be licensed or registered. Usually, a Ponzi scheme will involve unlicensed investors or unregistered firms. Make sure you can trace back where all your investments are going to ensure that you are not involved in any illegal activity.

Investments That are Unregistered

All investments must be registered with the U.S. Securities and Exchange Commission (SEC) or other state regulators. Being registered helps protect all involved because the SEC will have information about the investment company’s finances, management, products, and services. If your investor can not provide registration information, that is a consequential warning sign.

What To Do If You Have Concerns About Your Investments

At Weltz Law, we’re here to help if you have any questions about your investments. We have helped countless clients who were concerned about their investments, and we want to help you too. With offices located nationwide, we’re available to help you no matter where you’re located. Get started today with a free consultation — contact us online or at (877) 905-7671.

Pyramid schemes and Ponzi schemes have been in existence seemingly forever. Back in 1920, a man cheated numerous individuals in a fraudulent investment scheme and ended up getting lots of money out of them. His name was Charles Ponzi. Though many people think Ponzi schemes and pyramid schemes are identical, there are some differences.

At some point in their life, most people will be exposed to pyramid or Ponzi schemes. The activity is actually illegal, and most people don't even recognize the fact that they are in one. They can seem like innocent gift exchanges or games. On the other hand, millions of dollars can be lost. With promises of big returns, some people have forfeited money they've saved for years.
Over $65 billion was defrauded from investors by a man named Bernie Madoff in the early 2000's. It was a Ponzi scheme that made headlines.

While attempting to alert the public to online Ponzi schemes and how to avoid them, we’ll also touch on pyramid schemes here.

What is a Ponzi Scheme?

The main focus of a Ponzi scheme is to offer low-risk profiles with high returns by creating false investment opportunities. New investor payments are actually what funds any returns because the investments don't exist. Most of the money is actually pocketed by the scammer.

There are two strategies to these types of schemes:

Pyramid Schemes vs. Ponzi Schemes

Though some people do mistakenly refer to these as Ponzi schemes, there is a slight difference. In both cases, large returns are promised to investing (soon-to-be) victims. But in a pyramid scheme, rather than making money through passive investment, the investor/victim is tasked with getting additional investors to enter the scheme as well. This is supposed to earn larger sums. Because more and more people are recruited into the scam, the ever-increasing layers of individuals give the scheme it's "pyramid" name.

Red Flags & Signs of Online Financial Scams

Often disguised as book exchanges or support efforts, social media schemes can seem fun or innocuous. There are phrases and behaviors to watch out for where online scams and schemes are concerned.

Tips to Avoid Falling Into a Ponzi Scheme

Any time you receive an offer online, be skeptical. Everything can be faked including caller ID displays, website addresses, emails, etc. Even if it's a friend coming to you with a seemingly unbelievable offer, be wary. Scammers may have already hacked their account! Always use due diligence, particularly if you're considering investing a large sum of money.

The best words of wisdom when it comes to Ponzi schemes and pyramid schemes – and you've heard it before – "if it seems too good to be true, it probably is!"

Weltz Law Helps Protect Victims of Fraud

Have you lost money to a Ponzi scheme or a pyramid scheme? If so, Weltz Law can assist you. In securities arbitration and litigation, we have over two decades of representation experience. We understand how devastating it can be when you're the victim of a scam. Contact us today to discuss your case.

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