A Ponzi scheme ( PHUSHI PHUSHI ) is a type of an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.
Most of the times there no or little legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.
Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a postage stamp speculation scheme. Ponzi schemes are usually unregistered invested schemes and are not regulated.
With help of the internet investments fraud stars operating Ponzi schemes have also become more sophisticated by using internet platforms mainly social media, they give new names to the scheme to create an impression that it is another legitimate investment scheme in which people stand to make money quickly.
Ponzi scheme “red flags”
The South African investing public is urged to be cautious and vigilant when responding to calls and offers to invest their hard earned money in Ponzi schemes, at most these schemes share common characteristics and red flags . Investors need to always look for these warning signs:
High returns with little or no risk. In the investment industry ,every investment carries some degree of risk, and investments yielding higher returns typically involve more risk( The higher the returns, the higher is also the risk involved, investors need to be highly suspicious of any “guaranteed” investment opportunity.
Overly consistent returns. All investments tend to go up and down over time as the respond to the markets. Be skeptical and wary about an investment that regularly generates positive returns regardless of overall market conditions.
Unregistered investments. Ponzi schemes typically involve investments that are not registered with the FSB or with any government regulators e.g Register of Companies in case of IPO’s. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances. (The prospectus) It is there easy for investment fraud criminals to give and spread false information, use manipulation and deceptive means in order for them to attract more investor to invest in their scams as there is always no available information about themselves on the markets.
Unlicensed sellers.The South African securities laws require investment professionals and firms to be licensed or registered with the Financial Services Board (FSB), which is an overseer, regulator, of Financial and Capital markets activities in the country . Most Ponzi schemes involve unlicensed individuals or unregistered firms.(Criminals)
Secretive, complex strategies. It is there fore best advised that investors should avoid investments in which they don’t understand them or can’t get complete information about them.
Issues with paperwork.Account statement errors may be a sign that funds are not being invested as promised.
Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out your money. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put, as most of the time they can not meet up with the demand from their investors.
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