A Ponzi scheme is where a victim is persuaded into investing in an entity that doesn’t even exist. The operators of such scheme employ unsuspecting individuals by providing them a false hope that they will get rich quick. They assure that the amount they provide will be spent to put into a promising business or into an exclusive investment portfolio. But the reality is a lot different from what these operators tell. The money they collect isn’t invested but just ends up filling the pockets of such operators even more. The operators also try to act smart by providing small payment to the early investors, giving an illusion that the entire operation is actually legit (Moore, Han & Clayton, 2012).
"Robbing Peter to pay Paul” is the phrase commonly used to refer to Ponzi scheme as this around the same modality. The operators under this scheme take money from one person to pay another some. While doing so one debt is reduced by some fraction while another is added to the venture (Artzrouni, 2009). So, the business can only sustain as long as there are new investors into the plan or until many investors (or victims) ask for the return of their investment.
Ponzi scheme was created in the year 1920s when Charles Ponzi offered an opportunity to turn an investment of a thousand dollars into $1,500 within 45-days (Drew & Drew, 2010). The overall operations cost his clients an estimated $20 million. His company promised investors of a huge return by buying low-cost postal reply coupons from foreign countries. He claimed that the company would then redeem those coupons for US postage stamps. That happened in the 1920s when there was extensive use of such and people would buy into the idea.
The originators who carry out such fraudulent practice of Ponzi scheme should have a financial obligation to un-savvy investors, that isn’t true in reality. Ponzi scheme is illegal in so many countries and there are some rules in different parts of the world as well. The case for it is on a rise as well with the US alone witnessing more than a hundred such cases, of whose only ten of them are shut down while action taken on few other. Several other escape with no action.
There is some legal recourse to Ponzi scammers. Even then we’re yet to see Ponzi scammers returning or being forced to return the full investment someone made to the plan. There have also been cases where people from different professional background have been charged for their involvement on such scam. They do face lengthy streak in jail like Bernie Madoff, the mastermind in the US history for the largest financial fraud. He falsified his identity to encourage investors into investing in his firm - to which he was successful for decades. This scam robed $50 billion dollars from wealthy investors to charitable organizations. He was sentenced to a 150-year prison statement and the investors were returned around $4 billion from seizing the assets he owned (Fallik, 2009). That was still a small amount and did little to cover the investment people made. Regardless, there is a legal recourse to such a situation.
References
Artzrouni, M. (2009). The mathematics of Ponzi schemes. Mathematical Social Sciences , 58 (2), 190-201.
Drew, Jacqueline M & Drew, Michael E(2010). The Identification of Ponzi Schemes: Can a Picture Tell a Thousand Frauds ? Griffith Law Review. 19(1). pp 51-70.
Fallik, D. (2009). The Bernie Madoff Effect. Neurology Today , 9 (4), 1-3.
Moore, T., Han, J., & Clayton, R. (2012). The Postmodern Ponzi Scheme: Empirical Analysis of High-Yield Investment Programs. Financial Cryptography And Data Security , 41-56.
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A Ponzi scheme is where a victim is persuaded into investing in an entity that doesn’t even exist. The operators of such scheme employ unsuspecting individuals by providing them a false hope that they will get rich quick. They assure that the amount they provide will be spent to put into a promising business or into an exclusive investment portfolio. But the reality is a lot different from what these operators tell. The money they collect isn’t invested but just ends up filling the pockets of such operators even more. The operators also try to act smart by providing small payment to the early investors, giving an illusion that the entire operation is actually legit (Moore, Han & Clayton, 2012).
"Robbing Peter to pay Paul” is the phrase commonly used to refer to Ponzi scheme as this around the same modality. The operators under this scheme take money from one person to pay another some. While doing so one debt is reduced by some fraction while another is added to the venture (Artzrouni, 2009). So, the business can only sustain as long as there are new investors into the plan or until many investors (or victims) ask for the return of their investment.
Ponzi scheme was created in the year 1920s when Charles Ponzi offered an opportunity to turn an investment of a thousand dollars into $1,500 within 45-days (Drew & Drew, 2010). The overall operations cost his clients an estimated $20 million. His company promised investors of a huge return by buying low-cost postal reply coupons from foreign countries. He claimed that the company would then redeem those coupons for US postage stamps. That happened in the 1920s when there was extensive use of such and people would buy into the idea.
The originators who carry out such fraudulent practice of Ponzi scheme should have a financial obligation to un-savvy investors, that isn’t true in reality. Ponzi scheme is illegal in so many countries and there are some rules in different parts of the world as well. The case for it is on a rise as well with the US alone witnessing more than a hundred such cases, of whose only ten of them are shut down while action taken on few other. Several other escape with no action.
There is some legal recourse to Ponzi scammers. Even then we’re yet to see Ponzi scammers returning or being forced to return the full investment someone made to the plan. There have also been cases where people from different professional background have been charged for their involvement on such scam. They do face lengthy streak in jail like Bernie Madoff, the mastermind in the US history for the largest financial fraud. He falsified his identity to encourage investors into investing in his firm - to which he was successful for decades. This scam robed $50 billion dollars from wealthy investors to charitable organizations. He was sentenced to a 150-year prison statement and the investors were returned around $4 billion from seizing the assets he owned (Fallik, 2009). That was still a small amount and did little to cover the investment people made. Regardless, there is a legal recourse to such a situation.
References
Artzrouni, M. (2009). The mathematics of Ponzi schemes. Mathematical Social Sciences , 58 (2), 190-201.
Drew, Jacqueline M & Drew, Michael E(2010). The Identification of Ponzi Schemes: Can a Picture Tell a Thousand Frauds ? Griffith Law Review. 19(1). pp 51-70.
Fallik, D. (2009). The Bernie Madoff Effect. Neurology Today , 9 (4), 1-3.
Moore, T., Han, J., & Clayton, R. (2012). The Postmodern Ponzi Scheme: Empirical Analysis of High-Yield Investment Programs. Financial Cryptography And Data Security , 41-56.