Ponzi schemes have been around since Charles Ponzi scammed New England investors in 1920 dealing in postal coupons from various countries. Since then Ponzi schemes have thrived while attracting novice investors to those who are considered professionals. At the same time the financial markets collapsed by Bernie Madoff that cost thousands of investors billions of dollars. And the Ponzi scheme is still thriving today even after all of the publicity the Madoff scheme received.
One reason Ponzi schemes are still thriving is for two simple facts, first they have become very sophisticated and second a smart Ponzi scheme operator will not offer outrageous returns but rather returns that seem plausible. These two factors combined make it difficult for any novice investor and many professional investors to realize this is indeed not an investment but rather is a Ponzi scheme.
Ponzi schemes seem to operate within ethnic groups and social circles. The reasoning behind this is that people want to feel connected to their peers and desire for the sense of fitting in among their peer groups. And the more exclusive the Ponzi scheme appears to be the more it seems people desire to join the scheme and this is done when the operator of the scheme will deny individuals access to the scheme. Some investors are simply risk takers and will desire to join the scheme because they believe the rewards outweigh the risks associate with the proposed scheme.
A few ways investors can help protect themselves is to approach investments with an open mind and remember the old adage, “If it sounds too good to be true chances are it is.” Before investing in something being offered by an individual or investment firm a prudent investor will check the credentials of those selling the investment to see if they have any negative reports against them. Brokers are required to register with the state in which they operate in and you can check them on www.nasaa.org. If you want to check the background of a broker you can go to www.finra.org. If you believe the individual trying to sell you securities educational credentials you can go to www.studentclearinghouse.com to verify their educational background.
Approaching investments being offered by individuals that offer a guaranteed return you need to be cautious and preform your due diligence prior to giving them any funds. Do your own homework and verify the individual is indeed who they say they are by going to the websites provided as well as looking anywhere else you may find information on the individual or group. But most of all when someone tells you that they can guarantee a return remember legitimate brokers and investment firms do not guarantee any returns and in fact state investing has risks and loss of principal is a possibility.
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