Learning about investing should be fun! Interested in protecting yourself from becoming a victim of the newest Ponzi scheme? Read through this post and then test your new knowledge by working through the crossword puzzle that follows:
In a Ponzi scheme, funds from new investors are used to pay purported returns to earlier investors. Unlike Pyramid schemes, victims of Ponzi schemes are not required to recruit new victims to receive “investment returns.”[i]
It is typical for the perpetrator to interact directly with participants in an effort to receive as much money as possible. Be highly suspicious of investment promises of high returns with little or no risk. Every investment caries some degree of risk. Beware of investments that regularly generate consistent returns regardless of overall market conditions. Investments tend to fluctuate overtime.
A Ponzi scheme will often market itself as a high yield investment program (HYIP).[ii] These unregistered investments frequently promise returns of 30% or more per day. These scams are sold through sophisticated-looking websites and are shared through social media to lure investors and create the illusion of social consensus that these investments are legitimate.[iii]
HYIPs may require you to open an e-currency account from online vendors that service the HYIP market. There is currently no federal regulation of e-currency sites.
Ponzi schemes typically offer unregistered investments. This is important because when products are registered with the SEC, the SEC “provides investors with access to information about the company’s management, products, services, and finances.”[iv]
While some investors may receive returns early on, eventually the investors will want to cash out, and with no real profits to support the investment, it will surely collapse.
Test your Knowledge:
- The SEC is a useful resource, but it can’t provide as much information about these. (Two words)
- Because they don’t involve real products, Ponzi schemes lie about making these regardless of market conditions. (Two words)
- A scheme which frequently claims unrealistic returns while marketing itself through sophisticated websites (Four words)
- When interest in a Ponzi scheme lapses, it tends to do this.
- Some investments are able to provide _____ _______, but if an investment claims to be able to do this without risk, that’s a warning sign. (Two words)
- If you invest in a Ponzi scheme, you don’t have to ______ members like you would in some schemes
- ________ sites are frequently used in Ponzi schemes, but they are not regulated.
- These are gathered from new investors to create “returns” for old investors.
[i] Sec. & Exch. Comm’n, Investor Alert: Ponzi Schemes Using Virtual Currencies https://www.sec.gov/investor/alerts/ia_virtualcurrencies.pdf (Last visited April 8, 2018).
[ii] FINRA, Investor Alerts: HYIPS (July 19, 2010) http://www.finra.org/investors/alerts/hyips-high-yield-investment-programs-are-hazardous-your-investment-portfolio.
[iv] Sec. & Exch. Comm’n , Investor Bulletin: Ten Things You Should Know About Investing (July 17, 2014) https://www.sec.gov/oiea/investor-alerts-bulletins/ib_tenthings.html.