The first thing a ponzi scheme is is simply an assured way of losing every cent you put into it! A rip off - a sham! In short, a ponzi scheme is a fraud. Ponzi schemes are named after an Italian immigrant, Charles Ponzi. As legend has it, Ponzi took in large sums of money from all over the US from people looking to get rich in his investment fraud. And a fraud it was! His investors lost every penny and Ponzi ended up a rich man! Jailed, but rich!
The basic elements of a ponzi scheme involve:
- A pr oven, sure-fire money making story
- The lure of decidedly higher than normal returns
- The promise to begin paying dividends once the business gets, "established"
- The initial payment of solid returns followed by a request for more investment
- The ultimate collapse of the business either by legal action or the fleeing of the founder
The catch of the ponzi scheme is that while you are waiting for the business to become "established", the founder is recruiting others using the same story you fell for. Once they begin to wait for the business to become "established", you begin to receive dividends taken directly from the next guys investment. The founder keeps a large share and then asks you to invest more since your returns are so great. Your money, in turn pays off another participant while the founder again keeps a healthy sum. And so on, and so on, and so on.
Highly illegal and morally reprehensible, the ponzi scheme lives on as the con artists best way to lure large sums away from the unsuspecting public.
Remember a fool and his money are soon parted!
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