What is a Ponzi scheme?

What are the dangers of a Ponzi scheme?

Let me tell you below.

The Ponzi scheme is one of the oldest and most common investment scams, a variant of the pyramid scheme. This scam was invented by a speculative businessman named Charles Ponds.

This scam deceives people into investing in fictitious enterprises, using investors' money as quick profits to pay initial investors to lure more people into falling for the scam.

In China, Ponzi scheme is also known as "rip down the east wall to pay for the west wall" and "empty glove".

In short, it uses the money of new investors to pay interest and short-term returns to old investors in order to create the illusion of making money and thereby defraud more investments.

Characteristics of Ponzi Scheme 1. Anti-investment characteristics of low risk and high return.

As we all know, the iron law of investment is that risk and return are proportional. Ponzi schemes often do the opposite.

Scammers often lure uninformed investors with higher rates of return without ever emphasizing the risk factors of investment.

The rates of return for various cases may vary. Some are ridiculously high. For example, Ponzi promised a 50% return on investment within 45 days. Some are steady extraordinary returns, such as Madoff's guaranteed return to clients every year.

Only about 10%, but he emphasized that "investment will make a profit, and there will never be a loss."

But no matter what, scammers always try to design investment paths that are much higher than the average market return, without ever revealing or emphasizing the risk factors of investment.

Characteristics of a Ponzi scheme 2. The characteristics of tearing down the east wall and making up for the west wall by transferring funds to make up for it.

Since the promised return on investment cannot be realized at all, the return on investment for old customers can only be achieved by relying on the addition of new customers or other financing arrangements.

This puts quite high demands on the capital flow of a Ponzi scheme.

Therefore, scammers always try to expand the scope of customers and expand the scale of funds they absorb, so as to obtain enough room for funds to be transferred and replenished.

Most scammers never refuse the addition of new funds, because as the cake gets bigger, not only will the benefits obtained be more considerable, but the risk of the capital chain breaking is greatly reduced, and the duration of the scam can be greatly extended.

Characteristics of Ponzi Scheme 3. The investment know-how is unknowable and non-replicable.

Scammers try their best to exaggerate the mystery of investment, keep investment tips secret, and strive to create their own image of "genius" or "expert".

In fact, due to the lack of real investment and production support, scammers have no "way to make money" that they can carefully consider, so trying to keep the investment mysterious and promoting the non-replicability of investment are effective tactics to avoid outside doubts.

one.

At that time, a reporter from the Boston Global Times wrote an article exposing Ponzi's scam, but Ponzi refuted it on the grounds that he did not understand financial investment.

Madoff also acted mysteriously and never told others the investment tips for making a guaranteed profit of 10% every year.

Characteristics of Ponzi Scheme 4. Countercyclical characteristics of investment.

The investment projects of a Ponzi scheme never seem to be affected by the investment cycle. Whether it is an industrial investment related to production or a financial investment related to market conditions, investment projects always seem to be guaranteed to make a profit without losing money.

The 10,000-acre afforestation plan seems to have never been affected by climate, environment, and geographical factors. Madoff's hedge funds on Wall Street have also been able to survive several financial crises in the past two decades. These investment projects always show signs of violating the investment cycle.

Anti-regular characteristics.

Characteristics of Ponzi Scheme 5. Pyramid characteristics of investor structure.

In order to pay the high returns for investors who join first, a Ponzi scheme must continuously develop downlines and attract more and more investors to participate through inducement, persuasion, family affection, personal connections, etc., thus forming a pyramid-like structure.

Investor structure.

The few insiders at the top profit from exploiting the vast number of participants at the bottom and in the tower.

Even Madoff, the enigmatic former chairman of the board of directors of Nasdaq, cannot avoid the cliché of wooing downlines. He uses a large number of friends, family and business partners to develop downlines. Some people receive commissions for successfully attracting investment.

Down the line, new down lines are developed, snowballing into a pyramid structure.

Manifestations of Ponzi Schemes Since Ponzi, in less than 100 years, various "Ponzi schemes" have emerged in endlessly around the world.

With the process of China's reform and opening up, a large number of "Ponzi scams" with new disguises have also entered China.

In the 1980s, a "rat club" appeared in southern my country, which was a replica of the "Ponzi scam".

The more well-known improved version of the Ponzi scam is a variety of pyramid schemes.

Most of the illegal fund-raising cases that have occurred in China are reappearances of "Ponzi schemes".

Some Chinese business miracles that suddenly became rich, such as Wu Ying, a 26-year-old female tycoon from Zhejiang who was exposed not long ago, are also the reproduction of "Ponzi schemes".

The 2007 Ant Lishen incident was a similar scam, using newly added money to purchase equipment and Ant seeds to pay previous investors.