Ponzi Schemes

November 25, 2013

Raining cash

The following report provides general information on Ponzi scams and was provided from the Alberta Consumer and Corporate Affairs Security Commission.

Ponzi scams resemble pyramid schemes where there is no true product or service being offered in exchange for the investment. Also, like a pyramid, early "investors" will usually receive funds as a result of the later "investors" cash. ALL Pyramid Schemes are illegal. The swindles are often disguised as transactions in new and poorly understood investment instruments. They usually do not involve an actual sale of products or services.

A Ponzi scam operates by using the funds from many investors to pay the first few. As the number of investors grows, and the supply of potential new investors dwindles, the Ponzi scam collapses under pressure of meeting the promised interest payments. Initial investors may receive interest payments but the vast majority end up losing their money.

A successful Ponzi scam usually depends on some of the following:

  1. Greed of potential investors
  2. Promises that it is a surefire investment, even offering supposedly valid guarantees.
  3. Initial investors line up their closest friends, relatives or professional associates as new victims for the swindler
  4. Apparent success as initial first few investors are paid.
  5. Investors are reluctant to admit they have been swindled and fear looking foolish for being greedy
  6. Investors cling to the hope everything will work out for the better eventually.

How to avoid Ponzi scams

  1. Beware of promises of high, guaranteed profits
  2. Avoid promoters who fail to provide clear and detailed explanations of their investment vehicles in writing.
  3. Obtain detailed, written information about the promoters' background and the offering.
  4. Be leery of deals that cannot be checked out in person
  5. Resist the pressure to reinvest without seeing your profit
  6. Look for unbusinesslike conduct or disruption of services.

If you would like more information, contact Alberta Securities Commission at:
Alberta Securities Commission
Suite 600, 250-5th St SW
Calgary, Alberta T2P 0R4
To phone within Calgary call 403-355-4151 or call toll-free at 1-877-355-4488.

For other related topics, please refer to the files on; Pyramid Schemes, Multi-Level Marketing, or the Recovery Pitch.