Ponzi is a fraudulent scheme that lures people into the hands to con artists who promise enormous returns if they invest or loan their money.
Initially it was known as “bubble” but got popularised by Charles Ponzi, an Italian immigrant in America who swindled thousands of investors before the law caught up with him in 1920.
In a Ponzi, investments of later investors are used to pay earlier investors, giving the impression that the investments of the initial participants dramatically increased in value within a short period of time.
As more investors participate, the money contributed by later investors is paid to initial investors, purportedly as the promised interest on their loans. It works in the initial stages but is doomed to collapse as more investors participate and funds get exhausted.
It ultimately gets to the point when the promoters declare bankruptcy.
All cases of Ponzi end is the fraudsters not having enough new money to pay old obligations. Investors never get full refund. Gullible individuals are not the only victims of Ponzis.
In Nigeria, the scheme is popularly called “wonder bank” in which investors lost huge sums, leading to the Securities and Exchange Commission (SEC) clamping down on illegal fund managers.
The SEC has repeatedly given insight into ways con artists operate, and how unsuspecting public can identify them and escape their booby traps.
First. Ponzis are not registered with the SEC and are therefore illegal. The intention of the operators is to defraud target investors. Since they are not registered, their operation is not guaranteed or insured by any regulator.
Second. They offer unrealistic – but tempting – investment returns as a bait. Savers and investors alike are drawn in by the hope of greater returns. To put it bluntly, scammers play on our greed and frustration with low interest rates and poor investment returns.
They tell us we can get far-fetched interest rates or investment returns that have no bearing on reality, but in our heart of hearts we want them to be real.
You may even receive convincing-looking, professionally-printed marketing documents in the mail claiming you could earn 30 to 40 per cent interest on your investment. But anyone can have these types of documents printed up if they have access to a computer.
Use your common sense. If it sounds too good to be true, then it probably is.
Third. They want to put your money in a single investment, particularly oil and gas marketing, lifting of crude oil, et cetera.
When you hear any of this high sounding investment windows, it is another tell-tale sign that the ‘financial advisor’ is a scam artist, says the SEC.
Financial advisers worth their salt are aware of the importance of diversification of investment portfolio – not putting all your eggs in one basket. That means spreading investment across different types of assets: bonds, funds, cash et cetera.
Wonder bank operators put pressure on you to make a decision before they complete the target number of investors.
Scammers pile on the pressure because they want you to feel cornered into making a decision without thinking it through and worried that you could be missing out if you don’t take up the opportunity right now.
Sometimes you feel caught up in the moment and the fear of a lost opportunity to make money.
To increase the pressure, you may receive a visit from these con artists to your door or be sent documents by courier to sign immediately.
Typically they will use flattery try to persuade you to transfer your life savings into a bogus investment account. Hard as they may try, don’t let them get their hands on your money.
Shut the door in their face, cut off the telephone call, and report the scammers to the authorities, particularly the SEC, and they will quickly go after them.
You should never allow yourself to be pressurised to make a decision about your finances. Before you sign anything, contact the SEC to be sure you are dealing with genuine and registered fund managers.
