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Ponzi schemes

Ponzi schemes are ‘get rich quick’ investment scams which pay returns to investors from their own money, or from money paid in by subsequent investors. There is no actual investment scheme as the fraudsters siphon off the money for themselves.

A fraudster places an advertisement for a non-existent investment that offers extraordinary returns in a short space of time.

After receiving the promised returns on their investment, the first investors start to spread the word to family and friends. In this way, the scheme gains credibility.

Because the money isn’t invested in any kind of investment vehicle, there are no profits. Instead, the first investors are simply paid out from the money paid in by new investors.

Ponzi schemes are created for all levels of income, and have taken in investors in the top bracket as well as those on middle and low levels.

Typically, the fraudster will vanish with investors’ money, so the system eventually collapses with later investors receiving nothing - including their initial investment.

Because Ponzi schemes are unauthorised and make no profits, you are very unlikely to recover any lost money.

Are you a victim of a Ponzi scheme?

  • You have been offered the opportunity to take part in a new investment scheme, or to attend a presentation or meeting with “key investors” about the scheme.
  • You have subsequently invested money in this new scheme.

What should you do if you’re a victim of a Ponzi scheme?

  • If you believe you’ve come into contact with a Ponzi scheme, call the FSA’s consumer helpline on 0300 500 5000.
  • If you think you are actively participating in a Ponzi scheme, break off contact with the fraudsters immediately and do not invest any more money.
  • If you’ve given the fraudsters your bank account details, alert your bank immediately.
  • Keep any written communications you have received from the Ponzi scheme. They may help you give evidence to the authorities.
  • Be aware that you are now likely to be a target for other frauds. Fraudsters often share details about people they have successfully targeted or approached, using different identities to commit further frauds
  • People who’ve already fallen victim to fraudsters are particularly vulnerable to the fraud recovery fraud. This is when fraudsters contact people who’ve already lost money through fraud and claim to be law enforcement officers or lawyers. They advise the victim that they can help them recover their lost money – but request a fee.

Protect yourself against Ponzi schemes

  • If you’re considering any type of investment, always remember: if it seems too good to be true, then it probably is.
  • There’s no such thing as a ‘guaranteed risk-free’ investment - high returns can only be achieved with high risk.
  • Ponzi fraudsters use vague technical jargon to describe their non-existent investments, such as ‘high yield investment programme’ or ‘global currency arbitrage’. This language is designed to dazzle you.
  • Using hard-sell techniques, fraudsters will try to pressure you into making rushed decisions, giving you no time to consider the nature of the investment.
  • As with many fraudulent schemes, you are encouraged to keep your investment secret to ensure you receive maximum returns. This allows the fraudsters to hide the real nature of their scheme.
  • Fraudsters aim to make their business seem legitimate. This means they will often have impressive job titles, glossy brochures and mock websites and will organise meetings in expensive venues to look credible. If you have any suspicions about a scheme’s authenticity, investigate the company’s status and contact details.
  • The Financial Conducts Authority (FCA) regulates companies that offer certain investments to the public. You can have a look at a list of businesses that are known to be unauthorised, or unauthorised overseas businesses.
  • Always ask simple questions about the company and the scheme.  Be on high alert and, if they try to dodge questions, be more persistent. They should be prepared to tell you everything you want to know about the scheme.
  • Ask about the board of directors who are managing the scheme and ask to meet or have a phone call with one of them.

How to report it

If Fraud has been committed report it to Action Fraud. For more advice and to raise any concerns, contact the Office of the Public Guardian.

Source - Action Fraud

Date Published: Nov 13, 2019

Types of fraud

A-Z of fraud

To help understand which fraud you've been affected by, we've categorised them into an alphabetical list.

What is fraud and cyber crime?

Fraud is when trickery is used to gain a dishonest advantage, which is often financial, over another person.

Advance fee fraud

Advance fee fraud is when fraudsters target victims to make advance or upfront payments for goods, services and/or financial gains that do not materialise.

Corporate fraud

Corporate fraud can be any fraud committed against a business.

Individual fraud

Individual fraud could be any fraud that targets a person directly. Individual frauds can differ from frauds affecting businesses and other organisations.

Online fraud

Some fraudsters rely on the internet to commit their crimes. Learn about some different types of internet frauds that and how to protect yourself and get safe online.

Identity fraud and identity theft

Identity theft is when your personal details are stolen and identity fraud is when those details are used to commit fraud.
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