Ponzi Technique and Pyramid Frauds

Updated: 08/20/2010 15:02
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ponzi technique pyramid frauds
Encyclopedia investor. Ponzi Scheme. Popular description of the scheme, the variety of Ponzi schemes and their usage in the investment fraud.
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Learn about the history of Ponzi fund in terms of originating the HYIP industry worldwide. Different shills differently hoax clay pigeons. Cheapskates naively give to scammers a free rein of money. They merely chance on them from 'benefactions' by promising extremely high returns or dividends over a very short period of time. Short period between payouts and high rate of return is required to create the shock for the frenzy that is to follow as word leaks out. And this is soon verified by numerous sources. These scammers are known as "songbirds". "Profits" to investors are not created by the success of the exact business venture, but instead are derived fraudulently from the capital contributions of other investors and that is the classical technique used in a Ponzi scheme.

This kind of scheme was first created and used in 1920 by its namesake, Carl Ponzi. From then on the Ponzi scheme has become the mother lode and have been derived by many scammers. Different shills differently hoax clay pigeons. Cheapskates naively give to scammers a free rein of money. They merely chance on them from 'benefactions' by promising extremely high returns or dividends over a very short period of time. Short period between payouts and high rate of return is required to create the shock for the frenzy that is to follow as word leaks out. And this is soon verified by numerous sources. These scammers are known as "songbirds". "Profits" to investors are not created by the success of the exact business venture, but instead are derived fraudulently from the capital contributions of other investors and that is the classical technique used in a Ponzi scheme.

For performing that kind of scheme a scammer is obliged to owe the three lifebloods. The first one is the author and the creator of the brainchild himself. He may act as a private organization or just as a private person, that makes no matter to him. The second of the most important compound is a participant of the pyramid. In HYIP field (aka HYIP games) the participant is any online investor. As the internet investor we understand anyone who wants to make money online. The third integral feature of the plot is the myth. That is the chemistry motivation of the author and participants of the scheme.

The essential is surely the last feature we have mentioned. What is concerned principles of pyramid operating, the implication seems quite clear and almost nothing has changed for 90 years. A scammer simply takes his spin off from new investors and claws principals back to previous ones. Meanwhile, new myths appear from day to day and exactly their performance mask the core of Ponzi technique.

For instance there is a variety of Ponzi schemes that almost makes no difference from the original. Its name is a Pyramid scheme. The one, which is differentiated by requirement of active participants to bring in more participants till reaching a finite end. The pyramid scheme involves a person, making an investment for the right to receive compensation for finding and introducing other participants into the scheme. Here, everyone understands that the success of the scheme is depending upon attracting these additional participants. So, as far as we see the pyramid scheme is more transparent, people chime in it consciously. Usually you will likely to get involved in a local pyramid club by a friend, neighbor, or coworker may invite you to attend an "opportunity meeting". Pyramid schemes target closely knit groups, like churches or civic groups, and to encourage participants to recruit friends, family members, neighbors, business associates, workmates and relatives via word-of-mouth. That is speaking about the framework of Ponzis, but a sham can be masked!

In Pyramid scheme the main accent is on involving new participants and gathering new funds to the scheme, while in classic Ponzi scheme it makes on appropriation of retained earnings. As you may notice, these two principals may exist combined, that is quite disseminated in the sphere of HYIP investments.

Once, after accepting the targeted audience and the myth, a scammer start-ups. Here comes his full bandwidth. His clear-cut personal doxy or internet contacting, his aim is to involve some participants. The hoax which has been called "Pit Stop" or also known as "NASCAR", "Men`s Club", involved 4,000 participants and targeted men by using auto-racing. Participants were proposed to put up a $2,000 contribution to become members of a "pit crew". They were promised $16,000 as a "lead driver" after recruiting new participants who contribute money. This Ponzi attracted contractors, subcontractors and paint and hardware store employees. That proves that by simply playing on different 'Lexis', scammers elaborate to involve the public at large. Sometimes they assume to hit an agricultural circle of participants, the other time the 'f' one... a series of ladies only pyramid schemes, which are known by the names Circle of Friends, Women Helping Women, the Gifting Club, Heart to Heart, Gifts for Charity, Renewal Celebration, Women Empowering Women, Women's Empowerment Network, Women for Women, and the Dinner Party, are represented as a gathering of women helping one another by gifting money through a tiered structure.

But who are the victims of scammers? Are they chicken-brained? As it appears to be, not at all. Basically it is a human, who have been involved in other, legitimate business activities with their accountant, financial planner, investment banker, broker, etc. After his first principals withdrawal he advices to his friends, family members, business associates. So it becomes apparent that people included as potential victims are not necessarily gullible and we may dig out even prudential ones, that profit the advice of the closest friend etc. And the sad statistic says that if you get into a Ponzi scheme, lose it all, and end up with more that 50 cents on the dollar, consider yourself lucky. There the norm is less than 10 cents, if anything.

 


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