Bernie Madoff is the most notorious name associated with Ponzi schemes.

When you search for Ponzi scheme definition, a picture of his face is somewhere on the page. He brought death, destruction, and desolation to many of America’s elite.

Bernard Lawrence Madoff was a stockbroker who ran a Ponzi scheme for many years.

Everyone he associated with fell prey to by his criminal dealings. 

Billionaires, millionaires, celebrities, actors, musicians, and people from all walks of life lost millions of dollars, which they thought was accruing interest in his company.

His family lost their status.

His investors lost their pensions and life savings.

Those who could not handle the psychological ramifications committed suicide.

Even now, people are still trying to amass what they once had. This can place them in double jeopardy and make them susceptible to another “get rich quick” Ponzi scheme.

His prosecution and imprisonment shed light on this illegal act.

Many people understood nothing about it. This made people take an active and safer stance, with investing their money.

To protect your investment, always conduct research on investment opportunities. Learning about Ponzi schemes is the best place to start.

What is a Ponzi Scheme?

Finance professionals define Ponzi scheme as investment fraud.

This system gives cash brought in by new investors as returns to older investors.

Investment fraudsters assure potential clients of high yielding returns, at no risk to them. They make false claims.

First, they are not likely to invest the cash at all.

Crooked stockbrokers will take the money and give it to their other clients and repeat the cycle. Often, they use the money to fund their lavish lifestyles.

Because there is no surplus cash, this system needs a constant inflow of revenue to keep it afloat. It is such a delicate balance, that if investors pull out in large numbers and no new investors buy in, the scheme crumples.

In 1920, this unfair practice started with Charles Ponzi. He used a postage stamp speculation scheme. This cost many investors their hard earned savings.

How to Identify a Ponzi Scheme

There are characteristics that will identify any Ponzi scheme. Know what to look for.

First, investors offer a high return, with little risk.

If you know the basic rules of investment, you understand that this is a game of risks. There is never, no risk involved.

The higher the payoff, the greater the risks.

If you hear this promise, especially now that people are worried about Bitcoin Ponzi schemes, think twice about investing with that person or company.

Next, if your investor uses the term “guaranteed,” this is also a red flag.

Also, some of these crooked investors who run Ponzi schemes like to talk about “consistent returns.” There is no such thing. Have you seen the stock market since its inception?

Stocks are always rising and falling. It’s the nature of the game.

Be dubious concerning any opportunity that often produces positive returns, despite the general market conditions.

If your stockbroker starts talking about unregistered investments pay attention. This is a red flag.

The SEC oversees all investment schemes. If something is off the books, then chances are it is illegal and it is a Ponzi scheme. Regulation is important because it protects both investors and stockbrokers.

Money is a natural tempter that will break even the strong-willed and most ethical person if they can get away with it.

The SEC demands that all information pertaining to the investment companies and their investments be registered. This includes their finances, services, products, and management.

Did you know that you could request license proof?

Every seller must be registered. It is the law.

If someone is found guilty of running a Ponzi scheme, they can lose their license and face fines and imprisonment.

Any investment opportunity that you are vetting should not be so complex that you can’t understand it. In addition, you must be given access to any information concerning your investments.

If it feels secretive, stay away.

Also, there should be no account statement errors. If it is a matter of human error, this must be corrected without delay.

This kind of mistake is a blatant sign of investment fraud.

Finally, you should have no problems and delays to get your money whenever you want, even if it is at 2:00 a.m. in the morning.

If your investor is always giving excuses or delaying your payments, report the matter and if you can, pull out right away. Keep in mind you might be coerced into taking higher payments as a deterrent.

Keep Your Eyes Opened

In 1920, this unfair practice was pioneered by Charles Ponzi. Recently, Bernie Madoff is the poster boy for Ponzi schemes.

The game has the same rules and they are often unfair and leave their players broke.

Using the characteristics identified above, assess every investment opportunity by these standards and you will never fall prey to these crooked liars or Ponzi schemes.

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