Ponzi Scheme

Ponzi Scheme

        Named after the famous Charles Ponzi the Ponzi scheme has become one of the largest and most fraudulent financial schemes. From Charles Ponzi to Allen Stafford and Bernard Madoff Ponzi schemes have lost investors billions of dollars. The scheme is a get-rich-quick scheme and is one that is difficult end or stay out of trouble. To help counter the fraudulent act of these business men the SEC created all sorts of enforcements and penalties to help deteriorate the fraudulent actions. Ponzi schemes have become the largest fraudulent act and lost investors more money than any other corruptive act in the business world (Altman 2008).    

        The get-rich-quick Ponzi scheme consists of an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business (SEC 2013). People fall for these Ponzi schemes as con-artists is often the most intelligent and likeable person in the room, the greatest con artists were manipulators and knew what to say and when to say it. The most important key in running a Ponzi scheme is paying the returns of the initial investors. A person conducting a Ponzi scheme will first gather investment from their first batch of investors and use that money to buy an office and create a persona of a legit business operation. The next step is to use that persona and then gather a second round of investors. The second round of investors see the business and believe there is a legitimate chance for a return and with that money they invest the con artists uses to pay off returns to the initial investors. The pattern continues through the years as the con artist attracts new investors and uses that money to pay off the other initial investors (Clark 2013).

        Through the years con artists have used all types of different plans to create a Ponzi scheme. The most popular target for a Ponzi scheme was older people or those with savings that were unused and could be used for future gains. By creating hedge funds or investing in common market operations, like Charles and his stamps, con artists have been able to deceive investors who have little knowledge or understanding of a certain market. By creating a picture of high returns con artists could manipulate investors and create a false dream of all the riches they could gain.