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There are many financial scams out there these days, but one of the most enduring and most effective is the Ponzi scheme, which has been used by con men (and women) for years, ever since the infamous Charles Ponzi ‘developed’ the technique in 1903 – although some say that it was already being used, albeit in smaller operations before that time. Nevertheless, it seems that time has been a poor instructor when it comes to Ponzi schemes, as evidenced by the Bernard Madoff debacle in 2009, which is considered to be world’s largest investment fraud / financial scam orchestrated by a single person. Losses from the Badoff Ponzi scheme are estimated to be at a whopping $21 billion.

What is the Ponzi scheme, exactly?
The Ponzi scheme is actually fairly simple, when looking at it from an outsider or from the actual culprit’s point of view. The whole operation is basically enticing people to invest different amounts of money, and then paying them back a certain percentage of “interest” from the so-called investment. The catch is that the culprit is simply paying his / her victims from the accumulated investments other people have put in, with him / her putting the bulk of the money into his or her personal wealth. The whole operation is sustained by continued influx of investors to pump more money into the scheme.

Stage 1: Need a New Business?
Ponzi schemers usually start by partially earning the trust of their targets, and then present the “business opportunity” as a means to help. Before this, they would be putting off the image of being well-off by buying all sorts of expensive stuff. For any other doubts, the culprit also produces faux documents to help lend legitimacy to their claims.
Stage 2: Calling in more people
Once the person has fallen into the trap, the culprit has the victim dig a bigger hole for himself / herself by encouraging him / her to bring more people into the investment scheme. More often than not, there is some added incentive offered for successful referrals, but unbeknownst to the victim, he or she is helping to sustain the scheme.
Stage 3: Everything Falls Apart
When the culprit starts to smell that the fraud is starting to unravel, he or she makes a quick escape – with all the ill-gotten wealth from the hapless victims, of course. Some try to maintain their status in the community by spinning stories of himself or herself being a victim as well. What’s even worse about this is that a lot of the blame will fall on the different recruiters before, as many will be suspected of being a knowing part of the scam. While this is sometimes true, oftentimes the Ponzi scheme is orchestrated by a single person, so as to maximize his or her “profits”.

Don’t be a victim
It’s important that when you plan on investing money anywhere, you check if the business is legit and above-board. Also, is the person offering the business trustworthy? Does he or she have a clean background? Are his or her former business associates happy? Or legit, or even existent? Having a background check is the safest and most effective way to make sure that your hard-earned money is in the right hands and is being invested and used in the right way.