What do Ponzi schemes offer?
A Ponzi scheme is a fraudulent investment scam
that pays returns to investors from their own money or from money
paid in by subsequent investors - rather than from any profit
it actually makes.
How do Ponzi schemes work?
A fraudster places an advertisement for a
non-existent investment that offers
extraordinary returns in a short 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 there is no actual investment vehicle,
there are no profits. Instead, the first
investors are simply paid out from the money paid
in by new investors.
This makes Ponzi schemes unsustainable
and illegal.
Unfortunately, because Ponzi schemes are unauthorised and make
no profits, you are very unlikely to recover any lost
investment.
Typically, the fraudster will vanish with investors’ money or
the scheme will collapse as investors realise they are not
receiving the returns they were promised.
How can I recognise a Ponzi scheme?
- If you’re considering any type of investment, always remember:
if it seems too good to be true, it probably is.
High returns can only be achieved with high risk
- Ponzi fraudsters use vague technical jargon to
describe their non-existent investments. For example: high yield
investment programme or global currency arbitrage. This language is
designed to dazzle potential investors
- Using hard-sell techniques, fraudsters 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 build an air of legitimacy around their
business. This means they will often use technical
jargon, impressive job titles and mock
websites to look credible. Resolve any
suspicions you might have about a scheme’s authenticity by
investigating the company’s status and contact details.
What should I do?
- The Financial Services Authority (FSA) regulates
companies that offer certain investments to the public.
For a list of businesses that are known to be unauthorised,
visit:
-
Financial Services Authority (FSA) Unauthorised firms /
individuals
- Financial
Services Authority (FSA) Unauthorised overseas firms operating in
the UK
- If you believe you have come into contact with a Ponzi scheme,
call the FSA’s consumer helpline on 0300 500
5000
- If you believe you are actively participating in a
Ponzi scheme, break off contact with the
fraudsters immediately and do not invest any more money
- If you have 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 have already fallen victim to fraudsters are
particularly vulnerable to the fraud
recovery fraud. This is when
fraudsters contact people who have 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