Ponzi Schemes

What are Ponzi schemes and have you been affected ?

A Ponzi scheme is a simple but alarmingly effective scam which lures in new investors with the promise of unusually high returns. Here's how it works: a promoter convinces people to invest in their scheme. These initial investors receive what they believe to be returns. Instead, however, this money comes from newer investors. Now satisfied that the scheme is legitimate, those investors who have received payouts pump more of their money into the scheme and encourage others to do the same.

Sooner or later, the scheme collapses when the promoter runs off with the money, or it becomes too difficult to lure new investors. These Ponzi schemes are nothing new and can be easy to spot, but that hasn't stopped some investors from being scammed.

Ponzi Schemes

Ponzi schemes began in the 1920s after Charles Ponzi promised investors a 50% return within a few months for what he claimed was an investment in international mail coupons. Ponzi schemes are also known as fraudulent investment scams.

Like a pyramid scheme, the Ponzi scheme generates returns for older investors by acquiring new investors, who are promised a significant profit at little to no risk. Both fraudulent arrangements work based on using new investors' funds to pay the earlier backers. Companies that engage in a Ponzi scheme focus all their energy on attracting new clients to make investments.

Ponzi scheme warning signs

A. Guaranteed promise of high returns with little risk.
B. Consistent flow of returns regardless of market conditions.
C. Investments that are not registered with the Financial Conduct Authority (FCA).
D. Investment strategies that are secret or described as too complex to explain.
E. Clients are not allowed to view official paperwork for their investment.
F. Clients facing difficulties removing their money.

The lure of high investment returns can often be too much to resist. But unfortunately, these unregulated investments often lead to substantial financial loss and misery. If you have been caught out, give us a call.