What is a Ponzi scheme?

By Deputy editor Tim Bennett Mar 16, 2012

Tim Bennett

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Tim Bennett explains 'Ponzi' fraud schemes: how to spot them, what the three key ingredients are, and how you can avoid becoming a victim.

 

• Watch all of Tim's video tutorials here

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Published in Video tutorials | More articles by Tim Bennett

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  • 1. Colin Selig-Smith

    (17 March 2012, 06:44PM)  Complain about this comment

    You essentially describe the economic policies of the last 40 years.

    http://www.bbc.co.uk/news/magazine-17390729

  • 2. Tim

    (18 March 2012, 01:17PM)  Complain about this comment

    Colin - true enough!

  • 3. George

    (19 March 2012, 05:39PM)  Complain about this comment

    Sounds not unlike the current economic policies of many governments and central banks today.

  • 4. George

    (19 March 2012, 05:45PM)  Complain about this comment

    I should have added the only difference being that when they run out of new investors they can print money to keep the fraud running.

  • 5. Ravi

    (27 March 2012, 02:33PM)  Complain about this comment

    The key to making any investment is thorough due diligence. Investors will have to do their homework and understand the risks.

    Those with flash cars, offices, houses, etc should be checked out thoroughly, as they tend to live beyond their means by using other people’s money!

    Just look at how Warren Buffet lives and then compare him to the charlatans.

    The key point is that without fools charlatans cannot survive!

    A fool and his money are soon parted.

  • 6. Paul

    (11 April 2012, 01:21PM)  Complain about this comment

    I should think the same principle applies to pyramid selling -basically a glorified chain letter. Discovery of the dubious returns/income is usually revealed by the " tail end Charlies " who fail to receive anything like the forecast sum. The originator has made their money and could have well disappeared. However greed rules and they carry on, eventually getting caught . As in any investment purporting to make extravagant returns they must be thoroughly investigated. A fool & their money is soon parted. (n.b. Tim's tutorials are excellent)

  • 7. Impromptu

    (08 August 2012, 09:03PM)  Complain about this comment

    I agree with Paul that we have previously known this kind of con as pyramid selling - the "branding" as Ponzi schemes came along later.

    Incidentally, I thought the eponymous doughnut-toting perpitrator was an Italian American, whose name would have been pronounced PONZ-EE, rather than PONZ-EYE?

    One point that I feel Tim fails to make strongly enough is that much of the power of this kind of con comes from the fact that you tend to hear the tale enthusiastically not through flashy operators, but through your own trusted network of friends and family.

    They say you can't con an honest man, which is largely true. But if you can con his brother, his brother will do a pretty good job of conning him for you.

  • 8. Rªvî

    (29 September 2012, 07:57PM)  Complain about this comment

    Improptu: I agree, especially if it's the Government that is doing the business.

  • 9. Rªvî

    (29 September 2012, 08:02PM)  Complain about this comment

    Impromptu: I agree. It's even more galling when it is the Government doing the 'business'. whatever happened to the principle of 'full and frank disclosure'?

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