A Ponzi scheme is also a type of fraudulent investment that con artists successfully lure investors through a series of lies. The con artist uses deception to generate business-related income. The con artist first establishes a fraudulent Ponzi trust, then generates personal investments from investors, and finally waits for an opportunity to sell the Ponzi trust. The fraudulent Ponzi scheme usually results in financial disasters for the victims.
A Ponzi scheme differs from other investment opportunities because no upfront costs are incurred. A Ponzi scheme, also called a “purchase loan for shares” or a “securityated loan” involves a profit-from-nothing scheme. Investors investing in a Ponzi scheme are given a single share in the “successor corporation” in return for a small initial investment. The name is taken from the original legal design of the plan used by the scheme’s founders. Later investors become the “successor” corporation, and the original investors become the “owners.” The profit-from-nothing structure is what makes a Ponzi scheme so attractive to investors.
Because of the appealing nature of Ponzi schemes, they have become very popular among fraudulent investment planners and companies Ponzi scheme
. In addition to the attraction of the profit-from-nothing structure, it is also attractive to investors who may lack information on securities markets, investment eligibility requirements, or a reliable lender. Pyramid schemes and Ponzi schemes are examples of investment scams. Some investors fall into the trap of investing blindly and unwittingly and end up losing their hard-earned money to scammers.
Pyramid schemes and Ponzi schemes fall under the category of investment scams because the investors in these schemes are given access to an inadequate pot of funds with the promise that the remaining funds will be divided among the investors as “rewards” for their investments. This is an illegal scam that should be avoided at all costs. Moreover, investing is not the only way to obtain money. Internet frauds, for example, also use investment strategies. Again, if investors choose the wrong investment option, they are liable for their losses.
However, there is one kind of investment strategy that is very safe and promises high returns with little or no risk. This investment strategy is called “floor trading.” Floor traders make their profits by buying and selling predetermined stocks in large quantities, often hundreds of stocks per day. While these trades are not always successful, they offer high returns and a relatively low level of risk.
Another hallmark of a Ponzi scheme that looks like a genuine economic bubble is an inflated price. When investors believe that a stock has reached a new high, that price is considered to be an “exciting” price. Speculators may increase the price even more in hopes of driving up the price even further. Once the bubble burst, however, along comes the crash. Once investors realize that the price was exaggerated, they usually exit the stock.
If you have ever heard the expression “you get what you pay for,” you probably already know this. In the case of fraudulent investment opportunities such as Ponzi schemes, it is true. Those who are willing to invest without a basis for doing so may find themselves stuck with enormous financial losses. Sadly, there are often many people who are willing to participate in such devious activities just to make money.
Investing in the stock market is a great thing. It allows investors to become more financially stable. However, those who participate in schemes such as Madoff’s may find themselves deeply in debt once the “Ponzi Scheme” or “Pump and Dump” has gone underway. With all the possible consequences of investing in these types of ventures, it is imperative that everyone play it safe.