What’s a Ponzi Scheme? (And Other Financial Scams to Avoid)

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Financial scams have only gotten more subtle in the last decades. The most popular examples – the Ponzi scheme and the Pyramid scheme are still happening to date. This is because fraudsters find new ways to keep these fraudulent schemes afloat even when they’re against the law. In this article, we’ll be talking about Ponzi schemes and providing a list of financial scams to avoid at all costs.

A Ponzi scheme is a fraud that often proposes an investment opportunity. They offer unrealistic promises and ROIs (return on investments) within a short time by paying earlier investors with the money from more recent investors. This scheme will often masquerade as a business opportunity for some hidden, untapped well of gold. They will often act as though there is legitimacy and actual business activities going on; however, all the funds are most likely funds received from unknowing investors.

A Pyramid scheme is also a financial scam to avoid. This scheme is quite similar to the Ponzi scheme, except there is the presence of products. A pyramid scheme is a model of business that masquerades as a business with a distributorship program. The real profit, however, comes from convincing other people to register and pay to become distributors themselves.

Some other Financial Scams to Avoid

  1. Advance Fee Schemes – This occurs when a person promises to give you a product of greater value worth more than the funds you will provide. They often end up paying little to nothing in return to the victim.
  1. Charity and Disaster Fraud – In times like these, many fraudsters are masquerading as charity companies. It is important to only donate to credible sources.
  1. Counterfeit Prescription Drugs – Under-the-counter drug sales are often fraudulent, with either the victim being scammed or the drug is hazardous and unsafe.
  1. Credit Card Fraud – This is when a credit card is used without permission. Unauthorized use of debit/credit cards has been used to steal money, assets, and even property.
  1. Illegal Sports Betting – Illegal sports betting happens at underground clubs or events where a lot of money is placed on the results of sporting events. Because these events are so secretive, there is little to no official security which makes it dangerous.
  1. Internet Auction Fraud – Internet auctions can be extremely fraudulent. If you are not sure of the source and the product, it is better to avoid them.
  1. Investment Frauds – Investment frauds are quite similar to Ponzi schemes; however, they can come in several forms. If you’re being coerced into an investment, ensure that the claims being made are true and not false.
  1. Money Mules – A money mule is someone who moves money, usually physically or via internet banking, from one person to another. If the money is stolen or gotten via fraudulent activities, being a money mule can be a criminal offense. If a person you hardly know asks you to hold a large amount of money for them, always ask questions.

The FBI has compiled a list of common scams and crimes to be aware of. If you would like to read the full list, please click here.

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