Ponzi Schemes and Other Scams

Ponzi Schemes

A Ponzi scheme is essentially a scheme were you are offered much better returns than you could gain through traditional investments. There are so many different forms of investment vehicles these days that it's difficult to keep up with the vernacular of puts and calls and derivatives. With a Ponzi scheme, Instead of investing the victims money the operator uses the money to pay the previous investor or victim. Usually the scheme falls apart when new investors can't be found to pay the investors on the bottom or when the operator runs off with everyones money.

How do you keep from being a victim of a Ponzi scheme?

• Be careful about who you invest your money with. make sure that the investment firm has a long established track record that you can trust.


• Don't invest in any type of investment that you full don't understand! Don't rely on others to explain what the investment is about.

Jury Duty Scam

One scam that is going around is a Jury Duty where a clerk of the court calls you and tells you that you have been selected for jury duty and they then ask you for name, social security number and then a credit card number. If you refuse they threaten you with fines!

Multilevel Marketing and Pyramid Scams

The scam artist will try to gain your trust. He might be a friendly widower. Then all of a sudden he will start pressuring you into some business deal where you would invest $1,500 dollars and you could make loads of money in return. He might even have some glossy pamphlets that look professional. This happened with my mom one day. The conversation went like this:

Con man: "If you invest $1,500 you could make thousands in return! just get other investors enrolled in the program and they will pay you back and thousands besides."

My mom: "Isn't this just a pyramid scheme?"

"Oh no--that would be illegal. Just invest $1,000."
"I'm not giving you a $1,000!"
"Just five hundred then...you can write me a check."

So then, to get rid of the guy, my mom says,"My daughter Penny handles all of my business and finances." So she gives him my name, phone number and address! So, I have that to look foreword to--a call or visit from Ralph--you would think that being a con-man and all he would change his name to Alfonse or Jonathon or something wholly more attractive and affluent sounding. I am looking foreword to it...almost salivating at the thought...oh yeah...it's on Ralph!, it's on like Donkey Kong!

Multi level marketing is in many business opportunities a legitimate form of selling products. The difference between a legitimate multi level marketing business and that of a pyramid scam is easy to spot.

1. The legitimate multi level marketing company places an emphasis on selling a product


2. pyramid scams places an emphasis on recruiting people or asking for investments


3. In some cases like gifting clubs they will ask for donations where you in turn will recruit people below you to ask for donations or investments. The gifting clubs will sometimes use religious "feel good" terms or names like Renewal Celebrations or Jacobs ladder and might come as a special invitation from a church member.
   

A pyramid scheme is set up so that there is a hierarchy where people are recruited below those who have been previously recruited. Those who have been recruited make payments to the people above them in the hope of making their money back by recruiting others and gaining payment from them. In pyramids, most of the sales are made to the recruits and not the general public. The nutritional supplements or what ever they have going only serves as way to make the scheme look legitimate.

How do you avoid being scammed?

1. Never feel pressured into joining a multi level marketing group.
   


2. Never feel pressured into signing or investing in something that you aren't sure of.
   


3. Take the time to investigate any business opportunity.
   Check the business out on the Better Business Bureau website at http://welcome.bbb.org/


4. Never make investments at the swap meet!
   


5. Always keep in mind, that it's a felony in the United States to participate in a pyramid scheme and is punishable by fines and time in jail. People participating in the scam are viewed as engaging in illegal activities rather than being a victim.
   

Resources: FBI and The Better Business Bureau