Ponzi schemes are a variation of pyramid schemes, named after Charles Ponzi who successfully conned millions of dollars from Boston folk back in 1920.
Based on a business investing in the postage coupon market Ponzi managed to rake in new investors at an exponential rate.
This was achieved by paying up to 50% interest to those who got in early.
This made the scheme not only look legitimate but created an enormous amount of interest too.
As it’s popularity increased so Ponzi was able to use new funds to cover the earlier investor’s stake plus 50% profit.
Of course, when new investment eventually peaked and went into decline the “bubble burst” and the later investors were left high and dry.
So successful a scam was it that Ponzi actually raked in over $1m in three hours at the scheme’s height.
Not bad considering he only ever owned $30 dollars worth of coupons!
Such schemes, known as Ponzi schemes, still operate today.
Though new technologies and refinement may make them look nothing like Ponzi’s original scam, they are easily identifiable by their “Rob Peter to pay Paul” approach.
The way the scammer profits is by paying back early investors to gain legitimacy and huge interest which in turn swells the money coming in.
If he is wise he will know when the investment level is peaking and will choose that moment to disappear with all the available funds at that time.