Ponzi schemes in hard times

(Last Updated On: 2020-10-15)

THIS year will be remembered as tough economically. The coronavirus was unprecedented, restricting physical and social interactions, through lockdowns and isolation. Only the internet prospered.

Online business and activities have, hence, become very attractive and necessary.

During recessions, desperate measures are taken by people to ensure survival. Financial crimes have resurged, fairly proportionately to the economic situation. As hard times are here, there is the need for one to have multiple streams of income. Online business seems promising, but it is risky. Notable among online risky ventures are Pponzi schemes.

A ponzi scheme is a form of fraud in which investors are encouraged to recruit others. It is based on recruiting people (with their money) rather than manufacturing products or providing  services. Similar to pyramid schemes, they can be very hard and at times very easy to detect.

The originator of such scheme usually makes an initial payment and, thereafter, others need to be recruited. The continued growth of the scheme is dependent on the influx of subsequent investors. The managers of the scheme will have to keep their promise of a guaranteed return on investment to their investors.

To do this, deposits of new investors are used to settle old investors.

Many investment schemes are ponzi but are not immediately obvious to the rational mind, because the originators are shrewd and innovative. They give the schemes various names with unsuspecting terms. Some offer opportunities in foreign and crypto currencies at an exchange rate, but they are frauds claiming to give their victims financial freedom.

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Greed, gullibility and harsh economic times are some factors responsible for buying into it.

The  get-rich-quick or sure-get-rich schemes flourish during recessions. Worthy of mention is the increased number of fraudulent schemes amid the pandemic.They schemes are mask as genuine. The difficulties caused by the pandemic are to be blamed and not the pandemic

To avoid being a victim one has to be prudent.

Finally, ponzi schemes will continue to thrive as long as there are people to be deceived. Experience and insight will always prove to be invaluable in outsmarting fraudsters.


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