Charles Ponzi did not invent the scheme named after him but he certainly perfected it. In the 1920’s He got thousands of people to invest in his Postage Redemption Plan. The plan was simple and seemed perfectly legal. Someone would buy cheap postage coupons overseas then send them to Charles to have them redeemed at the much higher American rate. The profits were then shared by the investors. Ponzi guaranteed profits in excess of 50% each 45 days. The investor would deposit $300 on the first of each month then collect a “guaranteed” $450 after 45 days. As the investors raked in the cash the lines at Ponzi’s Bank stretched around the block. What they did not know was there were no postage coupons, no investments and no profits. What Ponzi did was pay the first investor with money provided by the second investor. Eventually Ponzi collected over $9,000,000.00, and then the scheme fell apart and Ponzi disappeared.
Greed blinds people to the obvious. No one bothered to think or investigate. In order to earn the millions of dollars Ponzi had claimed, astronomical quantities of coupons would have to been redeemed. One can only imagine hordes of Ponzi agents, pushing wheelbarrows full of coupons to post offices, unloading them with shovels or pitchforks. Shear logic should tell you; “something is wrong here”.
This is a type of fraud is called a pyramid scheme. This system of making money requires an endless stream of victims for success. The first few investors might make a little money but the scheme will quickly exhaust any new investors. In fact if you use the world’s entire population, an impossible 50 billion people, there will only be 500 million winners and 4.5 BILLION LOSERS.
The only way anybody can make money through a pyramid scheme or chain letter is if other people are cheated out of their money. That is not only morally wrong but it is also very likely you will be the one cheated.
Pyramid schemes are popular because most people are greedy and greed can fog your thinking. Scam artists know how greed works. Don’t be fooled into thinking you can outsmart these grifters. Even police departments have been victims and they should have known better.
In 1995-96, at least 67 employees of the Sacramento Police Department, including 45 officers, were investigated for involvement in a pyramid scheme. The chief of police said that he will fire at least seven officers and discipline 60 other police department employees. Nine officers were placed on administrative leave and relieved of their guns and badges. According to a prosecutor, the scheme involved more than 200 people. The minimum amount lost by those who were on the bottom of the pyramid was $500, not to mention losing their jobs. This police pyramid scheme was called an "investment club". The scheme is sold to investors by claiming it is “perfectly legal” and approved by the BIR and that it definitely is not a pyramid scheme. Remember, if it sounds too good to be true; it probably is not true.
Here are some indicators that you should investigate further before investing your money in a company or club.
-Be wary of high start-up costs / investment requests. Pyramid schemes want you to pay a large amount up front. The promoters behind the scheme make most of their profit on the signing up of new recruits.
- Find out if the company will buy back inventory not sold. Keep in mind that normal legitimate companies will buy back at least 80 percent of your stock purchases.
-What is the consumer market for the products or services? If the company seems to be making money by recruiting, you will want to stay away! Multi-level marketing depends on selling to consumers and establishing a market for a quality product. Pyramid schemes are not concerned with actual sales of the products or services.
-Check with others who have experience with the company, its products or the club and its services. Are the products actually being sold or services actually being provided?
Not every business opportunity is a crooked scheme or an attempt to steal your money but before you invest you owe it to yourself to thoroughly investigate, especially if it sounds too good. Especially if the “investment opportunity” promises high profits and with little risk. Be an Everyday Hero and lets work together to protect each other.
(What happened to Charles Ponzi? He was eventually caught. He spent time in prison, was divorced, was deported and eventually died in a charity hospital in Italy. )