Tag: What are Ponzi schemes?

Chances are that if you have been following the news the last few years, then you have heard of Bernie Madoff and the most current of the big Ponzi schemes, but you may not actually know what he did wrong or why it is illegal. At the same time, if you are interested in finding some lucrative investments yourself, then you might want to learn about these schemes so that you can avoid them. There are a lot of ways to be taken advantage of in the world of investment, but these schemes can be the most damaging, as well as the most hurtful. It does not feel good to be taken advantage of, and these schemes really can make you feel financially violated.

In short, Ponzi schemes occur when people claim to have plans, strategies, or even charities that need investments. At the end of the day, there is no organization and instead people receive returns based on money that they and other investors already have invested. Instead of generating returns based on real world accruements of wealth, people are getting their own money back. This might seem like a great deal until the truth comes out, there is no more money, and investors soon realize that they have lost thousands upon thousands of dollars.

You probably are wondering now how you can tell when you are dealing with Ponzi schemes. The good news is that these kinds of schemes are relatively rare, so you probably don’t have to worry too much about running into these schemes, especially if you stick to legitimate investments and have trained analysts help to make the best decisions. At the same, however, it is virtually impossible to tell when you have a good schemer. People who develop these schemes might put together fictional information packets and even provide false data, such as profits and information about other investors.

The authorities normally figure out that Ponzi schemes are taking place because of two different indicators. On the one hand, when returns are continual and exceptionally high people tend to become skeptical. This is not normal and often seems too good to be true, leading knowledgeable individuals to contact local financial authorities. The other way authorities catch onto schemers is by finding out that they are selling false securities, such as stocks or debts that don’t actually exist. When it comes to the biggest schemes, people don’t even realize they have been fooled until it’s too late. A strange phenomenon associated with this scheme is that the schemers tend to fool even themselves so that they are very hard to pinpoint as liars.