Ponzi scheme

Emmanuel Guzman
What is a ponzi scheme
 Is form of fraud that lures investors and pays
profits to earlier investors with funds from
more recent investors. Named in honor to
Italian businessman Charles Ponzi, the scheme
leads victims to believe that profits are coming
from legitimate business activity (e.g., product
sales or successful investments), and they
remain unaware that other investors are the
source of funds. A Ponzi scheme can maintain
the illusion of a sustainable business as long as
new investors contribute new funds, and as
long as most of the investors do not demand
full repayment and still believe in the non-
existent assets they are purported to own.
 Characteristics
 In a Ponzi scheme, a hustler offers to investments that promise very high returns with
little or no risk to their victims. The returns are said to originate from a business or a
secret idea run by the con artist. In reality, the business does not exist or the idea does
not work like magic formula etc.
 With little or no legitimate earnings, Ponzi schemes require a constant flow of new
money to survive. When it becomes hard to recruit new investors, or when large
numbers of existing investors cash out, these schemes collapse.
 As a result, most investors end up losing all or much of the money they invested In
some cases, the operator of the scheme may simply disappear with the money.
 Red flags
 High investment returns with little or no risk. Every investment carries some degree
of risk,[16] and investments yielding higher returns typically involve more risk.
Any "guaranteed" investment opportunity should be considered suspect.
 Red flags
 Overly consistent returns Investment values tend to go up and down over time, especially
those offering potentially high returns. An investment that continues to generate regular
positive returns regardless of overall market conditions is considered suspicious.
 Red flags
 Unregistered investments. Ponzi schemes typically involve investments that have not been registered with
financial regulators (like the SEC or the FCA). Registration is important because it provides investors with
access to key information about the company's management, products, services, and finances.
 Red flags
 Unlicensed sellers In the United States, federal and state securities laws require that
investment professionals and their firms be licensed or registered. Most Ponzi
schemes involve unlicensed individuals or unregistered firms.
 Red flags
 Secretive or complex strategies. Investments that cannot be understood or on which
no complete information can be found or obtained are considered suspicious.
 Red flags
 Issues with paperwork. Account statement errors may be a sign that funds are not
being invested as promised.
 Red flags
 Difficulty receiving payments. Investors should be suspicious of cases where they don't
receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try
to prevent participants from cashing out by offering even higher returns for staying put.
 Red flags
According to criminologist Marie Springer, the following red flags can also be of relevance:[20]

 The sales personnel or adviser are overly pushy or aggressive.

 The initial contact took place by a cold call or through a social network, a language-based radio or a
religious radio advertisement.
 The client cannot determine the actual trades or investments that have been carried out.
 The clients are asked to write checks with a different name than the name of the corporation (such as
an individual) or to send checks to a different address than the corporate address.
 Once the maturity date of their investment arrives, clients are pressured to roll over the principal and
the profits.
 Falls of ponzi scheme

 The operator vanishes, taking all the remaining investment money. Promoters who intend to abscond often
attempt to do so as returns due to be paid are about to exceed new investments, as this is when the
investment capital available will be at its maximum.
 Since the scheme requires a continual stream of investments to fund higher returns, if the number of new
investors slows down, the scheme collapses as the operator can no longer pay the promised returns (the
higher the returns, the greater the risk of the Ponzi scheme collapsing). Such liquidity crises often trigger
panics, as more people start asking for their money, similar to a bank run.
 External market forces, such as a sharp decline in the economy, can often hasten the collapse of a Ponzi
scheme (for example, the Madoff investment scandal during the market downturn of 2008), since they often
cause many investors to attempt to withdraw part or all of their funds sooner than they had intended.
 Similar schemes
1. Pyramid scheme
 A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken
belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several
characteristics distinguish these schemes from Ponzi schemes:
 In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid
scheme, those who recruit additional participants benefit directly. Failure to recruit typically means no investment
return.
 A Ponzi scheme claims to rely on some esoteric investment approach, and often attracts well-to-do investors,
whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
 A pyramid scheme typically collapses much faster because it requires exponential increases in participants to
sustain it. By contrast, Ponzi schemes can survive (at least in the short-term) simply by persuading most existing
participants to reinvest their money, with a relatively small number of new participants.
 Similar schemes
1. Crypto Ponzi scheme
Cryptocurrencies have been employed by scammers attempting a new generation of Ponzi
schemes. For example, misuse of initial coin offerings, or "ICOs", has been one such
method,known as "smart Ponzis" per the Financial Times. The novelty of ICOs means that
there is currently a lack of regulatory clarity on the classification of these financial devices,
allowing scammers wide leeway to develop Ponzi schemes using these assets. Also, the
pseudonymity of cryptocurrency transactions can make it much more difficult to identify and
take legal action (whether civil or criminal) against perpetrators. The May 2022 collapse of
TerraUSD, a stablecoin propped up by a complex algorithmic mechanism offering 20% yields,
was described as "Ponzinomics" by WIRED. In September 2022, Jamie Dimon, CEO of
JPMorgan, described cryptocurrencies as "Decentralised Ponzi Schemes".
 Ponzi scheme in RD
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 La flor de la abundacion
 Cacao talk
 Go arbit
 Butter 3,14
The end