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Ponzi schemes

/ 08:23 PM January 26, 2013

Entice investors with the promise of extremely high returns (ranging from a low 4 percent to a high 29 percent or even higher per month).

Pay initial investors with exceptional returns from the deposits of a growing number of new investors.

Create “profits” not from the success of the underlying business but from the capital contributions of others.


Offer an economic purpose so that investors think they are investing in a viable venture that generates income.

Guarantee payments by issuance of postdated checks (generally seven checks per investor).

Have the potential of continuing for years.

Pyramiding schemes

Reward participants for inducing other people to join the program.

Allow a participant to pay for the chance to receive compensation for introducing new persons to the scheme, as well as when the new recruits introduce new participants.

Focus primarily on the exchange of money for recruitment.

Offer this selling point: Each participant can recoup his or her original investments and make more money by introducing more participants.


Hide scam by layering it with products, even if these products:

— Have no real world value

— Are priced in an inflated manner

Distort concept of entrepreneurship.

Are inherently injurious to consumers because as a mathematical certainty they are doomed to collapse.

Make only those on top earn money, hence the stress on:

— Positioning

— Timing

— Getting “downlines” (You must be on top.)

Warning signs

Interests or returns that are TOO GOOD TO BE TRUE;

Agents selling the investment scheme might show you a copy of their company’s certificate of registration but will not be able to produce a copy of its SECONDARY LICENSE to sell securities;

Agents selling the investment scheme or contract are not SEC-licensed broker dealers;

Plans or schemes that ask you to purchase a large and expensive inventory (without refund for unsold goods);

“Opportunity meetings” that create a pressured atmosphere for you to invest NOW!

Plans or schemes that reward participants for inducing other people to join the program;

Plans or schemes that claim huge profits through continued growth of “downlines” or bonuses based on your advancement in the structure;

Marketing of a product or service, if done at all, is only of secondary importance in an attempt to evade prosecution or to provide a corporate structure;

Earning potential depends on how many people you sign up, not how much merchandise is sold.


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TAGS: crime, Investment, Investment Scam
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