How does a Ponzi scheme work？

How did the Ponzi scheme attracts investors?

It is usually the invention of a convincing investment to lure investors into putting money in and promised they would get high returns. At first, it seems very profitable and credible because it’s high return and payed the return on time. So, more investors are attracted depends on it’s high returns.

How did the Ponzi scheme get money?

Actually, there is no good investment project to invest, this is just an excuse to cheat money from victims. These cheaters use the money of the later investors to pay the high returns of the previous investors. It is similar to a snowball. As long as the snowball is bigger and more money is available, more investors will be attracted. And when the initial investors start to make profits, they will be more convinced of the authenticity of the project and may introduce their relatives and friends to join.

At the end of a Ponzi scheme, it's usually the previous investors in the scheme who stops his ‘investment’ in time and they can get their principal and interest but the later investors in the Ponzi scheme as soon as started to receive dividends they were told that the project invested in had failed, so they can’t get their principal back.

Many new Ponzi schemes still occurring around the world every month. For example, in January 2020,Jeff Carpoff and Paulette Carpoff offered investors huge federal tax incentives to lease mobile solar generators typically used at racetracks and concert venues or to power remote cell phone towers during power outages. It was also a Panzi scheme. They used victims’ money to support a lavish lifestyle and the amount of money is up to a billion dollars. 

What are the dangers of a Ponzi scheme?

As for the victims, I think because of the pyramid investor structure inherent, the number of victims must reach a big scale, and because the schemers have no intention of repaying the principal at first, the amount of money involved usually is very huge.

From the social level, because of the large number of victims involved in the Ponzi scheme, I think it is likely that the victims came from many different levels of society, ranging from political officials, to financial professionals who may have been inadvertently involved, and to a large number of retirees. So the harm caused to the society is also very serious.

In my opinion, It will endanger investors’ confidence and financial stability. According to the influence and harmfulness of "Ponzi scheme", its blow to investors' confidence is fatal, it will take quite a long time to repair the damaged financial stability, and the restoration of investors' investment confidence can not be completed overnight.

How could we recognize a Ponzi scheme?

•  There are guaranteed high returns, but little or no risk (there is no such thing).
•  High-pressure sales techniques, such as forcing you to make quick decisions.
•  Technical terms are used to impress you.
•  Be asked to keep investment secrets, even from family members.