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5 Reasons Why People Keep Investing in Ponzi Scheme

Essay by   •  April 24, 2018  •  Book/Movie Report  •  1,331 Words (6 Pages)  •  236 Views

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5 REASONS WHY PEOPLE KEEP INVESTING IN PONZI SCHEME

In the previously posts we have seen what a Ponzi scheme is and how it works. But have you ever thought why the people keep investing their money after knowing there exists? Well today we have five reasons to explain this behavior.

  1. The Benefit: The return rate usually is higher than the other investments in the market but it's credible.  Also, the investors get a specified number regarding the rate of return, therefore when talking with concrete ciphers it becomes more believable to the investor.
  2. The Setup: There is always a good and solid explanation on how they are achieving these above normal rates of return. For example, they tend to say they have someone inside the enterprises that provides them with inside information or simply that the investors are very skilled. Finally, they also used the explanation that the investor has some other opportunities but they are not avaible to the public in general.
  3. Initial Credibility: The person running the scheme is someone trustworthy at least in the business world, that means they "had" or shown a solid background regarding to their careers. What's more tend to be easy going persons with a wide red of networking making the investors believe in the fake identity. This way the person running the scheme is able to convince the investors to leave their money with him.
  4. Initial Investors Paid of: For the first periods the investors actually get the promised rates, if not better. This way the runner created a trust relation for the investors to come back. And is then after everything is well-build that the stoke is made. But, for several times the investors actually get what they were expecting for and its only after a few time when they invest the biggest amount they get timed.
  5. Communicated success: As it was explained in the post before, the only way to pay off the first investors is with the money of a second investor, Consequently the voice need to be spread. This way, the runner gets advantage of the initial part of the relation when they are building "trust" to let the other investors hear about the payoff to let them grow exponentially.

There are more factors that at the end convince the investors and let them fall in the trap, but after an exhaustive analysis those became the most remarkable reasons to explain the peoples actions.  

 

"RED FLAGS" YOU CAN BE IN A PONZI SCHEME 

Today we are going to explain which are the signs that allows you to evaluate if you are been timed or not.  Most Ponzi schemes share the same characteristics, so the next are some warnings while investing.

  • High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns by rule they should involve more risk. So, every time some offer a huge payoff with an insurance of the payment, you need to become highly suspicious of any "guaranteed" investment opportunity.
  • Overly consistent returns. Investment values tend to go up and down over time, especially those offering potentially high returns. Be suspect of an investment that continues to generate regular, positive returns regardless of overall market conditions. In other words, it's not normal that with a high rate of return things don't change at all, so when seen that while the other investments are in crisis and yours don't then be careful, you may be in a Ponzi scheme!
  • Unregistered investments. Ponzi schemes typically involve investments that have not been registered with any securities and exchange commissions or with the respective regulators. Registration is important because it provides investors with access to key information about the company's management, products, services, and finances. Thereupon, always remember to check where the runner is subscribed to, ask for the right information such as: certificates, bank accounts, among others.
  • Unlicensed sellers. Federal and state securities laws require investment professionals and their firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms. If we take into account a common characteristic is that, the runners always make the investor believe they are a well-known firm or a big company but the reality is that is just conformed by a small group of people or and individual.
  • Secretive and/or complex strategies. Avoiding investments, you do not understand, or for which you cannot get complete information, is a good rule of thumb. So, if you have been asking for the information, certificates, and nothing came out please drop the investment. In addition, spread the voice with other investors. Another thing is that you have only talked with one person in the whole process and don't know anybody else that may be involved you should become suspicions about it and careful.
  • Issues with paperwork. Do not accept excuses regarding why you cannot review information about an investment in writing. Also, account statement errors and inconsistencies may be signs that funds are not being invested as promised. As we said before, it's really important to look and analyse the information before going with an investment. Each time, you are making business ask for guarantees, make them sign your own paper that stablish the business you have in hands, this will work as a contingency plan in case of an unexpected turns of events.
  • Difficulty receiving payments. Be suspicious if you do not receive a payment or have difficulty cashing out your investment. Keep in mind that Ponzi scheme promoters routinely encourage participants to "roll over" investments and sometimes promise returns offering even higher returns on the amount rolled over. Sometimes it's ok to postpone the returns, by always ask yourself if it's your decision or if someone else is convincing you. In the case you have been receiving the payoff without problems why you should change it then? Always keep in mind those kinds of questions.

Summarizing the information presented before the most important thing to do when investing is review all the documents and look for certificates with the respective trade regulators of each state, region or country. Hope this have been useful for you, more information on the next post!

DIFFERENCES AND SIMILARITIES BEWTEEN PONZI AND PYRAMIDS

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