Ponzi scheme

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PONZI SCHEME.

January 31, 2020

Hello Everyone! In recent times we have listened many fraud cases and one of them is Ponzi schemes.   

Let’s understand what Ponzi scheme is and how people get into such trap. Ponzi schemes are one of the most famous, and arguably first, scam. In this, Investors are promised high returns and, at first, it appears to be successful and profitable. This attracts new investors. The money from the new investors is then used to pay off the original investors and the cycle continues.

The company or investment never makes a real profit. It just redistributes the money and claims it’s profitable. So, as long as there is a stream of new investors, it at least appears as if everything is going well. But, eventually, new investors dry up and the scheme collapses, generally just leaving the person at the top with all the money.
A Ponzi scheme is always a scam because it’s built on false returns on your investment. The problem is, it’s very hard to know it’s a Ponzi scheme until it actually collapses.

What is the origin of the Ponzi scheme?

Nobody is exactly sure what the first Ponzi scheme was as it essentially involves taking investors’ money and running.There are newspaper reports of such scams in America during the 1880s and similar frauds were mentioned in books by Charles Dickens in the 1850s. But, it was made infamous by a man called Charles Ponzi.

Charles Ponzi was born in Lugo, Italy, in 1882 and immigrated to America in 1903.After several years in the US and Canada, including a stint in prison for forging a cheque, Ponzi stumbled across a loophole in the cost of postage stamps that would cement his name in the history books.The price of postage stamps varied widely across the world. However, Ponzi discovered you could purchase what was known as an international reply coupon for a lot less.

These could then be exchanged for much more valuable American postage stamps.Technically speaking, this was not illegal, but it required money to get the idea off the ground and Ponzi went out looking for investors.What Ponzi did, which made this illegal, was take money from new investors to pay existing investors.  (Reference – Times of India)