Keep Your Money Save. Ponzi Scheme is Everywhere


Playing with money is dangerous. I use the word “play” because some people frequently can make a huge amount of money with little effort. Yeah, life is cruel and we have to get used to it. To face the cruelty in the front, people think they need much money. I also think that is true but the way people get the money sometimes did not make any sense.

That is also the nature of mankind. We tend to make the easiest decision instead of the best. So, that is why people always easily impressed by pyramid and Ponzi scheme. Some experts said the two is different but I think they have too many similarities to be distinguished. The worst similarity is the two frequently make people suffered.

What it Ponzi Scheme?

Charles Ponzi
[/media-credit] Charles Ponzi

Ponzi got the name from the very person who found it, Charles Ponzi. Ponzi scheme got the popularity by the support of international reply coupons for postal service. In that time, a sender is allowed to pre-purchase postage and include it in their correspondence. The receiver then took the take the coupon to a local post office. He or she then should exchange it for the priority airmail postage stamps needed to send a reply.

It made the postage in high volatility, I mean the stamp price. The price of the stamp in one country is usually more expensive in another country. Charles Ponzi saw a business in that. He then hired agents to purchase cheap international reply coupons. He also hired another agent to exchange it higher in other countries. The different of the price went into his pocket.

However, it is an illegal activity but Ponzi still doing it and became greedy. He built up Securities Exchange Company and expanded his effort. The company attracted much more people to invest in. it offered 50% return in only 45 days and even double it to 100% in one and a half month!

However, Ponzi did not realize the hidden cost he should bear. Transporting the coupons and exchanging them for cash caused delays and it means extra costs undermine the revenue. That condition prevented him from paying investors as quickly as he promised. Of course, he kept it by himself. He never told the investors the truth so other new investors were so excited when hearing the news. They then handed over their money but Ponzi gave it to the existing investors. As long as the new investors got the high return no one complaining.

However, his greed revealed anything bad behind the company. Imagine this: he successfully bought and sold 160 million stamps while there were only 27,000 existed in the world. His investors started complaining and Securities Exchange Company was busted.

financial fraud
[/media-credit] The biggest financial fraud in Korea ~ according to Master

End of story? Of course NOT.

The scheme evolves to be more and more complex by different of people. If you read my previous post, you will know that fraud today happens with Ponzi scheme under the hood.

After the inventor Charles Ponzi, another well-known “practitioner” of Ponzi scheme is Bernie Madoff. His practice is known as the biggest fraud in American History! Madoff is the real masterpiece (after the inventor of course).

Bernie Madoff
[/media-credit] Bernie Madoff

So, is Madoff scheme very identical with Ponzi scheme?

Madoff actually should be better than Ponzi. He was well-respected financier in Wall Street. His scheme seems normal, matching his portfolio with the performance of S&P 500 index. The strategy gave his existed investors not very high return but stable. Every investor can withdraw their money anytime, almost immediately. His investors are also very targeted and he keeps them closer to the company.

The scam activity is away from the Security and Exchange Commission. New people are excited with the scheme and the existed is happy. There is nothing to worry about. The scheme runs well for years.

However, other financial analysts start suspecting Madoff’s company performance. It is very difficult to be replicated. In other words, they inspect there is something unusual behind it.

The financial crisis in 2008 revealed the truth. Madoff was borrowing money and couldn’t keep up with all of the investors who were desperate with him. H could not liquidate their assets because the market continued to deteriorate.

Eventually, Madoff realized he was over. SEC was arresting him, put his scheme to an end. Bernie Madoff was sentenced to 150 years in prison.

ponzi scheme
[/media-credit] It is how the system works

Lesson Learnt

If we can learn anything from these two criminals, it does not be ever greedy. Greed makes you careless. I am pretty sure Both Ponzi or Madoff’s scam will not be revealed. However, it is a sign for us to always keep an eye on our money.

Scam broke you because you let it yourself tricked. So, it is better for you to know the characteristic of Ponzi Scheme. Here they are:

  • High investment returns with little or no risk. Do not ever interested with very high and nonsense promise.
  • Overly consistent returns. Investment should be up and down. If not, sorry it is a scam.
  • Unregistered investments and Unlicensed sellers. Scams will not register themselves. So, keep checking.
  • Secretive and/or complex strategies. Do not ever trust any investment you can’t understand the system!
  • Issues with paperwork. On paper is better. Never except any excuses regarding why you cannot review information about an investment in writing!
  • Difficulty receiving payments. Be suspicious if you do not receive a payment as promised. More than that, when you have difficulty cashing out your investment, the investment may be a scam.

If someone offers you any investment instrument with these characteristic, Just go away from him/her. Remember, save your money first.

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