In a Ponzi Scheme, fraudulent activity is taking place. The entity (company or organization) takes money from new investors to pay old investors. New investors are indoctrinated with the lure of fast money in large amounts. They think that they are buying into legitimate business. But, it’s more like sleight of hand.
Ponzi Schemes are also known as “pyramid schemes”. The pyramid shape diagrams how investors get paid. No matter what you call it, these schemes get unraveled as the money and lack of new investors run out.
Some things to look for if you suspect you are being invited to participate in a Ponzi Scheme:
- Guarantees to make large amounts of money
- Low Risk
- Investments not registered with the SEC
- Secret or complex investments
- No paperwork provided
- Trouble withdrawing your investment
In this case, “If something sounds too good to be true, it probably is”. Stay away from Ponzi Schemes.