[Patrician]

Please be aware of the following - some homebased jobs and 'online business opportunities' sound innocent on their face but have many possible hidden dangers, both legally and financially speaking.

I know it is tough not to be in denial when something sounds so proftable and we may have already decided to do it.

I have personally lost money (autosurf) and I am just blessed that is not all I lost - could have been my identity and even my freedom.

Note that in my case it was the GOVERNMENT WHO CONFISCATED the funds from the program when it was determined it was doing something potentially illegal. At that time the program was paying as promised.

AFFILIATES ARE HELD RESPONSIBLE - if you buy into something and then you recruit 'leads' for the same 'opportunity' - you are at fault legally just as much as the program that has fooled you.

Be aware of the general description of a ponzi and pyramid schemes which is very illegal. Be sure what you are doing could not in any way be construed as ponzi - (see below)

In a nut shell - there is no product or service - you are just exchanging money back and forth. Leads do not really count as a product or service, when they are to promote the same opportunity. Leads as a product are used though, so that technically they can say they are selling something besides a scheme. (see post below)

Also be aware of any program where you would be transferring money or goods for a percentage. The ways you can lose your money in this are endless - as well as the ways they can be breaking laws.

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Internet Crime Complaint Center (IC3) | Home

The Internet Crime Complaint Center (IC3) was established as a partnership between the Federal Bureau of Investigation (FBI) and the National White Collar Crime Center (NW3C) to serve as a means to receive Internet related criminal complaints and to further research, develop, and refer the criminal complaints to federal, state, local, or international law enforcement and/or regulatory agencies for any investigation they deem to be appropriate. The IC3 was intended, and continues to emphasize, serving the broader law enforcement community to include federal, as well as state, local, and international agencies, which are combating Internet crime and, in many cases, participating in Cyber Crime Task Forces.

Since its inception, the IC3 has received complaints crossing the spectrum of cyber crime matters, to include online fraud in its many forms including Intellectual Property Rights (IPR) matters, Computer Intrusions (hacking), Economic Espionage (Theft of Trade Secrets), Online Extortion, International Money Laundering, Identity Theft, and a growing list of Internet facilitated crimes. Since June 2000, it has become increasingly evident that, regardless of the label placed on a cyber crime matter, the potential for it to overlap with another referred matter is substantial. Therefore, the IC3, formerly known as the Internet Fraud Complaint Center (Internet Fraud Complaint Center), was renamed in October 2003 to better reflect the broad character of such matters having an Internet, or cyber, nexus referred to the IC3, and to minimize the need for one to distinguish "Internet Fraud" from other potentially overlapping cyber crimes.

IC3 Mission Statement

IC3's mission is to serve as a vehicle to receive, develop, and refer criminal complaints regarding the rapidly expanding arena of cyber crime. The IC3 gives the victims of cyber crime a convenient and easy-to-use reporting mechanism that alerts authorities of suspected criminal or civil violations. For law enforcement and regulatory agencies at the federal, state, local, and international level, IC3 provides a central referral mechanism for complaints involving Internet related crimes.
Significant and supplemental to partnering with law enforcement and regulatory agencies, it will remain a priority objective of the IC3 to establish effective alliances with industry. Such alliances will enable the IC3 to leverage both intelligence and subject matter expert resources, pivotal in identifying and in crafting an aggressive, proactive approach to combating cyber crime.



Current and ongoing Internet trends and schemes identified by the Internet Crime Complaint Center along with its description:

• Auction Fraud
• Auction Fraud — Romania
• Counterfeit Cashier's Check
• Credit Card Fraud
• Debt Elimination
• Parcel Courier Email Scheme
• Employment/Business Opportunities
• Escrow Services Fraud
• Identity Theft
• Internet Extortion
• Investment Fraud
• Lotteries
• Nigerian Letter or "419"
• Phishing/Spoofing
• Ponzi/Pyramid
• Reshipping
• Spam
• Third Party Receiver of Funds

Auction Fraud Auction fraud involves fraud attributable to the misrepresentation of a product advertised for sale through an Internet auction site or the non-delivery of products purchased through an Internet auction site.


Consumers are strongly cautioned against entering into Internet transactions with subjects exhibiting the following behavior:

• The seller posts the auction as if he resides in the United States, then responds to victims with a congratulatory email stating he is outside the United States for business reasons, family emergency, etc. Similarly, beware of sellers who post the auction under one name, and ask for the funds to be transferred to another individual.
• The subject requests funds to be wired directly to him/her via Western Union, MoneyGram, or bank-to-bank wire transfer. By using these services, the money is virtually unrecoverable with no recourse for the victim.
• Sellers acting as authorized dealers or factory representatives in countries where there would be no such dealers should be avoided.
• Buyers who ask for the purchase to be shipped using a certain method to avoid customs or taxes inside another country should be avoided.
• Be suspect of any credit card purchases where the address of the card holder does not match the shipping address. Always receive the card holder's authorization before shipping any products.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
In addition, visit eBay and PayPal for additional security alerts and fraud prevention tips.
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Auction Fraud — Romania Auction fraud is the most prevalent of Internet crimes associated with Romania. The subjects have saturated the Internet auctions and offer almost every in-demand product. The subjects have also become more flexible, allowing victims to send half the funds now, and the other half when the item arrives.

The auctions are often posted as if the seller is a United States citizen, then the subject advises the victim to send the money to a business partner, associate, sick relative, a family member, etc., usually in a European country. The money is usually transferred via MoneyGram or Western Union wire transfer. The Internet Crime Complaint Center has verified in order to receive funds via Western Union, the receiver must provide the complete information of the sender and the receiver's full name and address. The funds can be picked up anywhere in the world using this information. There is no need to provide the money transfer control number (MTCN) or the answer to any secret question, as many subjects have purported to the victims. Money sent via wire transfer leaves little recourse for the victim.

The most recent trend is a large increase in bank-to-bank wire transfers. Most significantly, these wire transfers go through large United States banks and are then routed to Bucharest, Romania or Riga, Latvia.
Similarly, the sellers also occasionally direct the victims to pay using phony escrow services. Sometimes actual escrow websites are compromised and other sites resembling them are created by the subjects. Once the funds are wire transferred to the escrow website, the seller discontinues contact. See also, Escrow Fraud.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
In addition, visit eBay and PayPal for additional security alerts and fraud prevention tips.
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Counterfeit Cashier's Check The counterfeit cashier's check scheme targets individuals that use Internet classified advertisements to sell merchandise. Typically, an interested party located outside the United States contacts a seller. The seller is told that the buyer has an associate in the United States that owes him money. As such, he will have the associate send the seller a cashier's check for the amount owed to the buyer.

The amount of the cashier's check will be thousands of dollars more than the price of the merchandise and the seller is told the excess amount will be used to pay the shipping costs associated with getting the merchandise to his location. The seller is instructed to deposit the check, and as soon as it clears, to wire the excess funds back to the buyer or to another associate identified as a shipping agent. In most instances, the money is sent to locations in West Africa (Nigeria).

Because a cashier's check is used, a bank will typically release the funds immediately, or after a one or two day hold. Falsely believing the check has cleared, the seller wires the money as instructed.

In some cases, the buyer is able to convince the seller that some circumstance has arisen that necessitates the cancellation of the sale, and is successful in conning the victim into sending the remainder of the money. Shortly thereafter, the victim's bank notifies him that the check was fraudulent, and the bank is holding the victim responsible for the full amount of the check.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Credit Card Fraud The Internet Crime Complaint Center has received multiple reports alleging foreign subjects are using fraudulent credit cards. The unauthorized use of a credit/debit card, or card number, to fraudulently obtain money or property is considered credit card fraud. Credit/debit card numbers can be stolen from unsecured websites, or can be obtained in an identity theft scheme.

Visit any of the three credit bureaus, Equifax, Experian, or TransUnion, for more information or to place a fraud alert on your credit report.
Visit the Federal Trade Commission for additional information on security and fraud prevention tips.
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Debt Elimination Debt elimination schemes generally involve websites advertising a legal way to dispose of mortgage loans and credit card debts. Most often, all that is required of the participant is to send $1,500 to $2,000 to the subject, along with all the particulars of the participant's loan information and a special power of attorney authorizing the subject to enter into transactions regarding the title of the participant's homes on their behalf. The subject then issues bonds and promissory notes to the lenders that purport to legally satisfy the debts of the participant. In exchange, the participant is then required to pay a certain percentage of the value of the satisfied debts to the subject. The potential risk of identity theft related crimes associated with the debt elimination scheme is extremely high because the participants provide all of their personal information to the subject.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Parcel Courier Email Scheme The Parcel Courier Email Scheme involves the supposed use of various National and International level parcel providers such as DHL, UPS, FedEx and the USPS Often, the victim is directly emailed by the subject(s) following online bidding on auction sites. Most of the scams follow a general pattern which includes the following elements:

• The subject instructs the buyer to provide shipping information such as name and address.
• The subject informs the buyer that the item will be available at the selected parcel provider in the buyer's name and address, thereby, identifying the intended receiver.
• The selected parcel provider checks the item and purchase documents to guarantee everything is in order.
• The selected parcel provider sends the buyer delivery notification verifying their receipt of the item.
• The buyer is instructed by the subject to go to an electronic funds transfer medium, such as Western Union, and make a funds transfer in the subject's name and in the amount of the purchase price.
• After the funds transfer, the buyer is instructed by the subject to forward the selected parcel provider the funds transfer identification number, as well as their name and address associated with the transaction.
• The subject informs the buyer the parcel provider will verify payment information and complete the delivery process.
• Upon completion of delivery and inspection of the item(s) by the receiver, the buyer provides the parcel provider funds transfer information, thus, allowing the seller to receive his funds.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Employment/Business Opportunities Employment/business opportunity schemes have surfaced wherein bogus foreign-based companies are recruiting citizens in the United States on several employment-search websites for work-at-home employment opportunities. These positions often involve reselling or reshipping merchandise to destinations outside the United States.

Prospective employees are required to provide personal information, as well as copies of their identification, such as a driver's license, birth certificate, or social security card. Those employees that are "hired" by these companies are then told that their salary will be paid by check from a United States company reported to be a creditor of the employer. This is done under the pretense that the employer does not have any banking set up in the United States.

The amount of the check is significantly more than the employee is owed for salary and expenses, and the employee is instructed to deposit the check into their own account, and then wire the overpayment back to the employer's bank, usually located in Eastern Europe. The checks are later found to be fraudulent, often after the wire transfer has taken place.
In a similar scam, some web-based international companies are advertising for affiliate opportunities, offering individuals the chance to sell high-end electronic items, such as plasma television sets and home theater systems, at significantly reduced prices.

The affiliates are instructed to offer the merchandise on well-known Internet auction sites. The affiliates will accept the payments, and pay the company, typically by means of wire transfer. The company is then supposed to drop-ship the merchandise directly to the buyer, thus eliminating the need for the affiliate to stock or warehouse merchandise. The merchandise never ships, which often prompts the buyers to take legal action against the affiliates, who in essence are victims themselves.
If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Escrow Services Fraud In an effort to persuade a wary Internet auction participant, the perpetrator will propose the use of a third-party escrow service to facilitate the exchange of money and merchandise. The victim is unaware the perpetrator has actually compromised a true escrow site and, in actuality, created one that closely resembles a legitimate escrow service. The victim sends payment to the phony escrow and receives nothing in return. Or, the victim sends merchandise to the subject and waits for his/her payment through the escrow site which is never received because it is not a legitimate service.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
In addition, visit Escrow.com for security alerts and fraud prevention tips.
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Identity Theft Identity theft occurs when someone appropriates another's personal information without their knowledge to commit theft or fraud. Identity theft is a vehicle for perpetrating other types of fraud schemes. Typically, the victim is led to believe they are divulging sensitive personal information to a legitimate business, sometimes as a response to an email solicitation to update billing or membership information, or as an application to a fraudulent Internet job posting. See also, Phishing/Spoofing.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
In addition, visit the Federal Trade Commission for additional information on security and fraud prevention tips.
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Internet Extortion Internet extortion involves hacking into and controlling various industry databases, promising to release control back to the company if funds are received, or the subjects are given web administrator jobs. Similarly, the subject will threaten to compromise information about consumers in the industry database unless funds are received.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Investment Fraud Investment fraud is an offer using false or fraudulent claims to solicit investments or loans, or providing for the purchase, use, or trade of forged or counterfeit securities.
If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Lotteries The lottery scheme deals with persons randomly contacting email addresses advising them they have been selected as the winner of an International lottery. The Internet Crime Complaint Center has identified numerous lottery names being used in this scheme.
The email message usually reads similar to the following:

“This is to inform you of the release of money winnings to you. Your email was randomly selected as the winner and therefore you have been approved for a lump sum payout of $500,000.00. To begin your lottery claim, please contact the processing company selected to process your winnings.”

An agency name follows this body of text with a point of contact, phone number, fax number, and an email address. An initial fee ranging from $1,000 to $5,000 is often requested to initiate the process and additional fee requests follow after the process has begun. These emails may also list a United States point of contact and address while also indicating the point of contact at a foreign address.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Nigerian Letter or "419" Named for the violation of Section 419 of the Nigerian Criminal Code, the 419 scam combines the threat of impersonation fraud with a variation of an advance fee scheme in which a letter, email, or fax is received by the potential victim. The communication from individuals representing themselves as Nigerian or foreign government officials offers the recipient the "opportunity" to share in a percentage of millions of dollars, soliciting for help in placing large sums of money in overseas bank accounts. Payment of taxes, bribes to government officials, and legal fees are often described in great detail with the promise that all expenses will be reimbursed as soon as the funds are out of the country. The recipient is encouraged to send information to the author, such as blank letterhead stationary, bank name and account numbers, and other identifying information using a facsimile number provided in the letter. The scheme relies on convincing a willing victim to send money to the author of the letter in several installments of increasing amounts for a variety of reasons.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.

Visit the Economic and Financial Crimes Commission to learn more about combating financial and economic crimes in Nigeria.
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Phishing/Spoofing Phishing and spoofing are somewhat synonymous in that they refer to forged or faked electronic documents. Spoofing generally refers to the dissemination of email which is forged to appear as though it was sent by someone other than the actual source. Phishing, often utilized in conjunction with a spoofed email, is the act of sending an email falsely claiming to be an established legitimate business in an attempt to dupe the unsuspecting recipient into divulging personal, sensitive information such as passwords, credit card numbers, and bank account information after directing the user to visit a specified website. The website, however, is not genuine and was set up only as an attempt to steal the user's information.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.

Visit the Anti-Phishing Working Group, for more information on phishing and email spoofing.
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Ponzi/Pyramid Ponzi or pyramid schemes are investment scams in which investors are promised abnormally high profits on their investments. No investment is actually made. Early investors are paid returns with the investment money received from the later investors. The system usually collapses. The later investors do not receive dividends and lose their initial investment.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Reshipping The "reshipping" scheme requires individuals in the United States, who sometimes are coconspirators and other times are unwitting accomplices, to receive packages at their residence and subsequently repackage the merchandise for shipment, usually abroad.
"Reshippers" are being recruited in various ways but the most prevalent are through employment offers and conversing, and later befriending, unsuspecting victims through Internet Relay Chat Rooms.

Unknown subjects post help-wanted advertisements at popular Internet job search sites and respondents quickly reply to the online advertisement. As part of the application process, the prospective employee is required to complete an employment application, wherein he/she divulges sensitive personal information, such as their date of birth and social security number which, unbeknownst to the victim employee, will be used to obtain credit in his/her name.

The applicant is informed he/she has been hired and will be responsible for forwarding, or "reshipping", merchandise purchased in the United States to the company's overseas home office. The packages quickly begin to arrive and, as instructed, the employee dutifully forwards the packages to their overseas destination. Unbeknownst to the "reshipper," the recently received merchandise was purchased with fraudulent credit cards.

The second means of recruitment involves the victim conversing with the unknown individual in various Internet Relay Chat Rooms. After establishing this new online "friendship" or "love" relationship, the unknown subject explains for various legal reasons his/her country will not allow direct business shipments into his/her country from the United States. He/she then asks for permission to send recently purchased items to the victim's United States address for subsequent shipment abroad for which the unknown subject explains he/she will cover all shipping expenses.

After the United States citizen agrees, the packages start to arrive at great speed. This fraudulent scheme lasts several weeks until the "reshipper" is contacted. The victimized merchants explain to the "reshipper" the recent shipments were purchased with fraudulent credit cards. Shortly thereafter, the strings of attachment are untangled and the boyfriend/girlfriend realizes their Cyber relationship was nothing more than an Internet scam to help facilitate the transfer of goods purchased online by fraudulent means.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.

Visit the Economic and Financial Crimes Commission to learn more about combating financial and economic crimes in Nigeria.
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Spam With improved technology and world-wide Internet access, spam, or unsolicited bulk email, is now a widely used medium for committing traditional white collar crimes including financial institution fraud, credit card fraud, and identity theft, among others. It is usually considered unsolicited because the recipients have not opted to receive the email. Generally, this bulk email refers to multiple identical messages sent simultaneously. Those sending this spam are violating the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act, Title 18, U.S. Code, Section 1037.

Spam can also act as the vehicle for accessing computers and servers without authorization and transmitting viruses and botnets. The subjects masterminding this Spam often provide hosting services and sell open proxy information, credit card information, and email lists illegally.
If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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Third Party Receiver of Funds A general trend has been noted by the Internet Crime Complaint Center regarding work-at-home schemes on websites. In several instances, the subjects, usually foreign, post work-at-home job offers on popular Internet employment sites, soliciting for assistance from United States citizens. The subjects allegedly are posting Internet auctions, but cannot receive the proceeds from these auctions directly because his/her location outside the United States makes receiving these funds difficult. The seller asks the United States citizen to act as a third party receiver of funds from victims who have purchased products from the subject via the Internet. The United States citizen, receiving the funds from the victims, then wires the money to the subject.

If you believe you may have fallen victim to this type of scam and wish to report it, please file a complaint with us.
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[Patrician]

Cash Gifting & The Law | Cash Gifting Watchdog


Cash Gifting is just another Ponzi/Pyramid - I note this due to the popularity of this on the internet.

"If it seems too good to be true, it probably is"

Whether they start out honest or not, there is still danger that it will collapse, danger that the government will seize the funds, and danger that the program will disappear taking your money.

FTC Consumer Alert

• PDF Format

• Email

The Gifting Club "Gotcha"

When is a gift not a gift? When it’s a "gotcha."

In a scam spreading throughout the mid-Atlantic states and the Pacific Northwest, people pay to join a "gifting club," billed in promotional materials as a private club with members eager to help new friends -- often from within their own neighborhood or church group.

In reality, the clubs are illegal pyramid schemes. New club members give cash "gifts" to the highest-ranking club members, with titles such as "captains." And they’re promised that if they get additional members to join the club, they, too, will rise to become captains and receive money – far more than they initially paid to join the club -- from newer club "friends."

The problem is that, like most pyramid schemes, illegal gifting clubs must continually recruit ever-increasing numbers of members to survive. When the clubs don’t attract enough new members, they collapse. Most members who paid to join the clubs never receive the financial "gifts" they expected, and lose everything they paid to join the club.
Don’t Get on the Receiving End of a Gifting Club "Gotcha"

Promises of quick, easy money can be a powerful lure – especially when it comes with the additional benefit of new friendships.
If you’re approached about joining a club but you aren’t sure if it’s an illegal gifting club, the Federal Trade Commission reminds you to:

• Consider that a legitimate gift has no strings attached and is not an "investment."
• Avoid being misled into thinking a gifting club is legitimate because the ads say that members consider their payments a gift and expect nothing in return. This is an attempt to make an illegal transaction look legal.
• Be wary of success stories or testimonials of tremendous payoffs. Very few members of illegal gifting clubs or pyramid schemes ever receive any money.
• Take your time. Don’t buckle under to a high-pressure sales pitch that requires you to join immediately or risk losing out on the opportunity. Remember, solid opportunities – and solid friendships – aren’t formed through nerve-wracking tactics.

To File a Complaint

If you’ve been victimized by a gifting club promoter, contact your local consumer protection agency, state attorney general and Better Business Bureau.
The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters consumer complaints into the Consumer Sentinel Network, a secure online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
January 2000


ALSO NOTE THE BOLDED PARAGRAPH ABOUT AUTOSURF in PONZI

Just say 'NO'!

[Patrician]

From Wikipedia, the free encyclopedia


Jump to: navigation, search
A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business. It is named after Charles Ponzi.[1] A Ponzi scheme has similarities with a pyramid scheme though the two types of fraud are different.


[edit] Overview

A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The high returns that a Ponzi scheme advertises (and pays) require an ever-increasing flow of money from investors in order to keep the scheme going.

The system is doomed to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.
The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States.

Ponzi's original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted later investors' money to support payments to earlier investors and Ponzi's personal wealth. Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit investor naïveté.

[edit] Hypothetical example

1920 police mugshot of Charles Ponzi


An advertisement is placed promising extraordinary returns on an investment – for example 20% for a 30 day contract. The precise mechanism for this incredible return can be attributed to anything that sounds good but is not specific: "global currency arbitrage", "hedge futures trading", "high-yield investment programs", "Offshore investment", or something similar.

With no proven track record for the investors, only a few investors are tempted, usually for smaller sums. Sure enough, 30 days later the investor receives the original capital plus the 20% return. At this point, the investor will have more incentive to put in additional money and, as word begins to spread, other investors grab the "opportunity" to participate. More and more people invest, and see their investments return the promised large returns.

The reality of the scheme is that the "return" to the initial investors is being paid out of the new, incoming investment money, not out of profits. No "global currency arbitrage", "hedge futures trading" or "high yield investment program" is actually taking place. Instead, when investor D puts in money, that money becomes available to pay out "profits" to investors A, B, and C. When investors X, Y, and Z put in money, that money is available to pay "profits" to investors A through W.

One reason that the scheme initially works so well is that early investors – those who actually got paid the large returns – quite commonly reinvest (keep) their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) – they simply have to send statements to investors that show how much the investors have earned by keeping the money in what looks like a great place to get a high return. They also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time, for example 50% return per month for one year. They then get new cash flows as investors are told they could not transfer money from the first plan to the second.


The catch is that at some point one of three things will happen:

1. the promoters will vanish, taking all the investment money (less payouts) with them;
2. the scheme will collapse of its own weight, as investment slows and the promoters start having problems paying out the promised returns (and when they start having problems, the word spreads and more people start asking for their money, similar to a bank run);
3. the scheme is exposed, because when legal authorities begin examining accounting records of the so-called enterprise they find that many of the "assets" that should exist do not.

[edit] What is and is not a Ponzi scheme

• A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish pyramid schemes from Ponzi schemes:
  • In a Ponzi scheme, the schemer acts as a “hub” for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).
  • A Ponzi scheme claims to rely on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
  • A pyramid scheme is bound to collapse a lot faster, simply because of the demand for exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by getting most participants to "reinvest" their money, with a relatively small number of new participants.

• A bubble. A bubble relies on suspension of belief and an expectation of large profits, but it is not the same as a Ponzi scheme. A bubble involves ever-rising (and unsustainable) prices in an open market (be that shares of a stock, housing prices, the price of tulip bulbs, or anything else). As long as buyers are willing to pay ever-increasing prices, sellers can get out with a profit.
• And there doesn't need to be a schemer behind a bubble. (In fact, a bubble can arise without any fraud at all - for example, housing prices in a local market that rise sharply but eventually drop sharply because of overbuilding.) Bubbles are often said to be based on "greater fool" theory. Although, according to the Austrian Business Cycle Theory, bubbles are caused by expanding the money supply beyond what genuine capital investment supports, and in this case would qualify as a Ponzi scheme, with expanded credit taking the place of an expanded pool of investors.

• Robbing Peter to pay Paul. When debts are due and the money to pay them is lacking, whether because of bad luck or deliberate theft, debtors often make their payments by borrowing or stealing from other monies they have. It does not follow that this is a Ponzi scheme, because from the basic facts set out there is no indication that the lenders were promised unrealistically high rates of return via claims of unusual financial investments. Nor (from these basic facts) is there any indication that the borrower (banker) is progressively increasing the amount of borrowing ("investing") to cover payments to initial investors (as, again, Ponzi was not the first to do).

[edit] Notable Ponzi schemes

The eponymous scheme was orchestrated by Charles Ponzi, who went from anonymity to being a well-known Boston millionaire in six months using such a scheme in 1920. Profits were supposed to come from exchanging international postal reply coupons. He promised 50% interest (return) on investments in 45 days or “double your money” in 90 days. About 40,000 people invested about $15 million all together; in the end, only a third of that money was returned to them.

[edit] Extremely high-volume schemes

Many Ponzi schemes in unregulated markets have bankrupted hundreds or thousands of people when they finally run dry.

[edit] 19th century

• Before Ponzi, in 1899 William "520 Percent" Miller opened for business as the "Franklin Syndicate" in Brooklyn, New York. Miller promised 10% a week interest and exploited some of the main themes of Ponzi schemes such as customers reinvesting the interest they made. He defrauded buyers out of $1 million and was sentenced to jail for 10 years. After he was pardoned, he opened a grocery store on Long Island. During the Ponzi investigation, Miller was interviewed by the Boston Post to compare his scheme to Ponzi's — the interviewer found them remarkably similar, but Ponzi's became more famous for taking in seven times as much money.[2]

[edit] 1980s

• Between 1970 and 1984 in Portugal, a woman known as Dona Branca maintained a scheme that paid 10% monthly interest. In 1988 she was sentenced to 10 years in prison. She always claimed that she was only trying to help the poor, but in her trial it was proven that she had received the equivalent of 85 million Euro.[3][4]
• In January 1984 Adriaan Nieuwoudt started a scheme with an apparent product in South Africa. Subscribers to the scheme were sent an "activator", that was used to grow "cultures" in milk, which was then sent back to the Kubus Kwekery for about 30% return on the money paid for the "activator". The Cape Supreme Court held that the kubus scheme was an illegal lottery.[5]
• Sixteen hundred investors in Diamond Mortgage Company and A.J. Obie, two firms with the same managers, lost approximately $50,000,000 in what the Michigan Court of Appeals described as "the largest reported 'Ponzi' scheme in the history of the state." It led to the passage in 1987 of the MBLSA(Mortgage Brokers, Lenders, and Servicers Act)."[6][7]
• In the 1980s in San Diego, California, J. David & Company, an alleged currency and commodity trading and investing operation named after its founder, J. David Dominelli, a withdrawn and shy (and thus, presumably, "genius") currency and commodity trader, was revealed to be a Ponzi scheme which took in $200 million and returned $120 million to investors, leaving a net loss of $80 million, spent on the good life. The scheme touched all levels of upper class business and professional life in San Diego and environs, and involved the Mayor of Del Mar, California, a cozy upscale beach town just north of La Jolla, who was J. David's assistant and live-in companion, and others, including the prominent New York law firm Rogers & Wells (now Clifford Chance), which had advised J. David (through a rogue partner) and others.[8][9][10][11][12] When the fall came, J. David briefly escaped to Montserrat in the Caribbean, but was returned ultimately to plead guilty to federal charges and receive 20 years' federal imprisonment.[13]

[edit] 1990s

• In Romania, between 1991 and 1994, the Caritas scheme run by the "Caritas" company of Cluj-Napoca, owned by Ioan Stoica promised eight times the money invested in six months. It attracted 400,000 depositors from all over the country who invested 1,257 billion lei (about a billion USD) before it finally went bankrupt on 14 August 1994, having a debt of 450 million USD. The owner, Ioan Stoica was sentenced in 1995 by the Cluj Court to a total of seven years in prison for fraud, but he appealed and it was reduced to two years; then he went on to the Supreme Court of Justice and the sentence was finally reduced to one year and a half.
• MMM was a Russian company that existed in the 1990s. It involved at least two million people and collected as much as $1.5 billion before its collapse. Its founder was sentenced to 4.5 years in prison in 2003.
• In late 1994, the European Kings Club collapsed, with ensuing losses of about $1.1 billion. This scam was led by Damara Bertges and Hans Günther Spachtholz. In the Swiss cantons Uri and Glarus, it was estimated that about one adult in ten invested into the EKC. The scam involved buying "letters" valued at 1,400 Swiss francs that entitled buyers to receive 12 monthly payments of 200 Swiss francs. The organisation was based in Gelnhausen, Germany[citation needed]
• In May 1995, Pennsylvania's attorney general moved to freeze the assets of the Foundation for New Era Philanthropy and its chairman, John G. Bennett, Jr. The organization had raised over $500 million from 1,100 donors. Participants, including the Red Cross, had believed they were participating in a matching-gifts program through New Era but, in fact, it was really a Ponzi scheme. Losses amounted to $135 million.
• In early 1996, the SEC filed a civil action against Bennett Funding Group, its chief financial officer, Patrick R. Bennett, and other companies Bennett controlled, in connection with a massive Ponzi scheme. The companies fraudulently raised hundreds of millions of dollars, purportedly to purchase assignments of equipment leases and promissory notes.[14]
• From 1993 until 1997 a church named Greater Ministries International in Tampa, Florida, headed by Gerald Payne bilked over 18,000 people out of 500 million dollars.[15] Payne and other church elders promised the church members double their money back, citing Biblical scripture. However, nearly all the money was lost and hidden away. Church leaders received prison sentences ranging from 13 to 27 years.
• In the mid-1990s, Albania was transitioning into a liberalized market economy after years under a State-controlled economy reinforced by the cult of personality involving longtime Communist leader Enver Hoxha; the rudimentary financial system became dominated by pyramid schemes, and government officials tacitly endorsed a series of pyramid investment funds. Many Albanians, approximately two-thirds of the population, invested in them.
• By 1997 the inevitable end came: Albanians, who had lost $1.2 billion, took their protest to the streets where uncontainable rioting and attacks on government infrastructure led to the toppling of the government and the temporary existence of a stateless society before neighboring governments intervened militarily to protect their own investments, killing some 2,000 people. Although technically a Ponzi Scheme, the Albanian scams were commonly referred to as Pyramid Schemes both popularly and by the IMF.[16]

[edit] 21st century

• In 2000, a Ponzi scheme perpetrated by Scientology minister Reed Slatkin came unraveled when the U.S. Securities and Exchange Commission regulators became aware that Slatkin was not a licensed investment adviser. Slatkin had raised some $600 million from over 500 wealthy investors, mostly Hollywood celebrities.
• In December 2005, in Los Angeles, California, Larry Toshio Osaki, who ran a gigantic Ponzi scheme and continued to offer bogus investments in accounts receivable "factoring" after being ordered to cease and desist by a Federal judge, was sentenced to 20 years in federal prison. In addition to the prison term, Judge Stephen V. Wilson ordered Osaki to pay more than $145 million in restitution to victims.
• The Brothers was a large investment operation, eventually exposed as a Ponzi scheme, in Costa Rica from the late 1980s until 2002. The fund was operated by brothers Luis Enrique and Osvaldo Villalobos. Investigators determined that the scam took in at least $400 million. Most of the clientele were American and Canadian retirees but some Costa Ricans also invested the minimum $10,000. About 6,300 individuals ultimately were involved.
• Interest rates were 3% per month, usually paid in cash, or 2.8% compounded. The ability to pay such high interest was attributed to Luis Enrique Villalobos’ existing agricultural aviation business, investment in unspecified European high yield funds, and loans to Coca Cola, among others. Osvaldo Villalobos’ role was primarily to move money around a large number of shell companies and then pay investors. In May 2007 Osvaldo Villalobos was sentenced to 18 years in prison for fraud and illegal banking. Luis Enrique Villalobos remains a fugitive.[17]
• In May 2006, James Paul Lewis, Jr. was sentenced to 30 years in federal prison for running a $311 million Ponzi scheme over a 20-year time period. He operated under the name Financial Advisory Consultants from Lake Forest, California
• In October 2006 in Malaysia, two prominent members of society and several others were held for running an alleged scam, known variously as SwissCash or Swiss Mutual Fund (1948). SwissCash offered a returns of up to 300% within a 15-month investment period. Currently, this HYIP investment is offered to citizens of Malaysia, Singapore, and Indonesia. It claimed investors’ funds were channeled to business activities ranging from oil exploration to shipping and agriculture in the Caribbean. The company claims to be operating out of New York and incorporated in the Commonwealth of Dominica.[18][19][20]
• On Friday 13 April 2007 a person named Sibt-e-Hassan Shah, aka "Double Shah," was arrested by government officials in Wazirabad, a small town of Pakistan.[21] Sibt-e-Hassan claimed to double investors' money within 30 days in the beginning of his scheme, later extended to 90 days. He is suspected to have gathered very large investments (approx US$ 1 Billion) in a very short time period.
• On June 27, 2007 former boy band mogul and notorious con artist Lou Pearlman was indicted by a grand jury on several counts of fraud which is turning out to be one of the largest and longest running United States Ponzi schemes ever.[citation needed] His scheme lasted for over 20 years. The final total damage may rest somewhere near $500 million dollars.[22] Pearlman's scam involved bilking investors out of their savings with a fraudulent savings and loans program claiming it to be FDIC insured though it was not. On March 4, 2008, Pearlman agreed to plead guilty to charges of conspiracy, money laundering, and making false statements during a bankruptcy proceeding, and to testify for the prosecution of several accomplices, according to law enforcement officials. On May 21, 2008, Pearlman was sentenced to 300 months in jail with the stipulation that he could cut one month off his sentence for every $1 million dollars he paid his investors back.
• On August 17, 2007, the Philippine National Bureau of Investigation filed syndicated estafa cases against 27 officers and investors of FrancSwiss Investment, a "Ponzi" pyramiding scam on the Internet. Charged were Michael Mansfield, chief financial officer; Kurt Sandelman, risk management team leader; Rupert Benedict Da Vinco, investment team leader; Julia Rodriguez, international banking team leader; Hector Willem Sidberg, marketing and international affairs; and Fernando Munoz, customer service leader; Roger Smith, the British chief operation officer of FS Investment in the Asia-Pacific region; Bensy Fong, the Singaporean system operation officer; Raymond Chua, Singaporean marketing officer; a certain Michelle and Mike, Filipino secretaries and collectors of money from investors; 16 investors, including arrested suspect Eleazard Castillo, 26, a native of Cabuyao, Ilocos Sur, allegedly one of the financial advisers of FrancSwiss Investment. 41 investors claimed they lost a total of $75,000 to the investment scheme. FrancSwiss deceived investors in the Philippines of ₱1 billion ($50 million).[23]
• In Slovakia, the so called non-banking institutions collected appx. 25 bil. SKK ($1 billion) from 300-350 thousand people. There were around 30 of these companies, such as BMG Invest and Horizont Slovakia, Drukos, AGW, 1. dôchodková, Sporoinvest and SaS. Mr. Fruni, the owner and director of both BMG and Horizont will sit 115 years in prison, according to the Court's judgement from April 2008.
• In the third and the biggest Philippines Ponzi scam (involving $150 million and $250 million), criminal charges, based on suit filed by 21,000 complainants were filed on June, 2008, with the Department of Justice, against against Performance Investments Products Corp (PIPC) officers and incorporators for violation of the Securities Regulation Code (SRC), versus: Singaporean national Michael H.K. Liew, PIPC president; Cristina Gonzalez-Tuason, general manager, and other officers and agents - Ma. Cristina Bautista-Jurado, Barbara Garcia, Anthony Kierulf, Eugene Go, Michael Melchor Nubla, Ma. Pamela Morris, Luis Aragon, Renato Sarmiento Jr., Victor Jose Vergel de Dios, Nicoline Amoranto Mendoza, Jose Tengco III, Oudine Santos and Herley Jesuitas.[24]
• India : Anubhav Plantations, Royapettah Benefit Fund, Kalaimagal Sabha

[edit] Other notable schemes



Other notable (but lesser dollar) Ponzi schemes include:

• Sarah Howe, who in 1880 opened up a "Ladies Deposit" in Boston promising eight percent interest, although she had no method of making profits. This unique scheme was billed as "for women only". Howe disappeared with the money from her scam.[2]

• The novel Chance by Joseph Conrad depicted a Ponzi scheme in 1914 before Ponzi himself had hit the scene. Conrad's scammer "de Barral" offered ten percent interest on deposits in his operation "without system, plan, foresight, or judgement".

• On March 22, 2000, four people were indicted in the Northern District of Ohio, on charges including conspiracy to commit and committing mail and wire fraud. A company with which the defendants were affiliated allegedly collected more than $26 million from "investors" without selling any product or service, and paid older investors with the proceeds of the money collected from the newer investors.[25]

• In late 2003, a scheme by Bill Hickman, Sr., and his son, Bill Jr., was shut down. He had been selling unregistered securities that promised yields of up to 20 percent; more than $8 million was defrauded from dozens of residents of Pottawatomie County, Oklahoma, along with investors from as far away as California.[26] Hickman was sentenced to 8 years in state prison.

• In December 2004, Mark Drucker pleaded guilty to a Ponzi scheme in which he told investors that he would use their funds to buy and sell securities through a brokerage account. He claimed that he was making significant profits on his day trades and that he had opportunities to invest in select IPOs that were likely to turn a substantial profit in a short period of time. He promised guaranteed returns of up to fifty (50%) percent in 90 days or less. In less than two years of trading, Drucker actually lost more than $850,000 in day trading and had no special access to IPOs. He paid out more than $3.6 million to investors while taking in $6.3 million.[27][28]

• In June 2005, in Los Angeles, California, John C. Jeffers was sentenced to 168 months (14 years) in federal prison and ordered to pay $26 million in restitution to more than 80 victims. Jeffers and his confederate John Minderhout ran what they said was a high-yield investment program they called the "Short Term Financing Transaction". The funds were collected from investors around the world from 1996 through 2000. Some investors were told that proceeds would be used to finance humanitarian projects around the globe, such as low-cost housing for the poor in developing nations. Jeffers sent letters to some victims that falsely claimed the program had been licensed by the Federal Reserve and the program had a relationship with the International Monetary Fund and the United States Treasury. Jeffers and Minderhout promised investors profits of up to 4,000 percent. Most of the money collected in the scheme went to Jeffers to pay commissions to salespeople, to make payments to investors to keep the scheme going, and to pay his own personal expenses.[29]

• In February 2006, Edmundo Rubi pleaded guilty to bilking hundreds of middle and low-income investors out of more than $24 million between 1999 and 2001, when he fled the U.S. after becoming aware that he was under suspicion. The investors in the scheme, called “Knight Express”, were told that their funds would be used to purchase and resell Federal Reserve notes, and were promised a six percent monthly return. Most of those bilked were part of the Filipino community in San Diego.[30]

• On May 10, 2006, Spanish police arrested nine people associated with Forum Filatelico and Afinsa Bienes Tangibles in an apparent Ponzi scheme that affected 250,000 investors from 1998 to 2001. Investors were promised huge returns from investments in a stamp fund.[31]

• 12DailyPro was a version of what is commonly known as a "paid autosurf" program where "investors" deposited money and received an extremely high profit (44%) within a short period (12 days). Charis Johnson created what authorities considered one of the largest modern-day versions of the Ponzi scheme. She accumulated a total of over US$1.9 million from the program. More than 300,000 people joined over the course of eight months, spending over $500 million.[32]
• When a federal investigation of 12DailyPro took place, its main payment processor, Stormpay, froze all funds related to it. Stormpay has since refused to return any of these funds. On February 24, 2006, the United States Securities and Exchange Commission (SEC) ordered 12DailyPro and its parent company to cease and desist all operations. On February 28, a Los Angeles judge ordered all company assets and records to be turned over to an appointed receiver for investigation. Charis F. Johnson now faces criminal and civil suits from both local and federal agencies.

• On August 31, 2007, the Securities and Exchange Commission ("SEC") filed an emergency action against James Blackman Roberts ("Roberts"), FOMAC International, Inc. ("FOMAC"), and Consultores Las Tres Americas S.A. ("Consultores LTA") to halt an ongoing Ponzi scheme and freeze assets for the benefit of defrauded investors. The complaint filed by the SEC alleges that, since 2002, the defendants have raised at least $50 million in principal from approximately 450 investors located primarily in the U.S. and Costa Rica. The complaint further alleges that as early as 2005, the defendants experienced significant losses while trading investor funds in the Forex markets, misappropriated at least $3 million, and then used new investor money to pay returns and principal to existing investors. As a result, the complaint alleges, the defendants misrepresented to investors that these Ponzi payments were actually returns from their Forex trading.[33] It should be noted that the above-mentioned allegations have yet to be proved before a Court of law, and that the US and Costa Rican law considers any person innocent until proven guilty.

• On September 20, 2007, a complaint was filed in Federal District Court in Manhattan, accusing political fund-raiser Norman Hsu of operating a Ponzi scheme. Hsu attracted investments by claiming to be running a legitimate business involving the importation of clothes from China, and is reported to have cheated investors out of at least $60 million.[34]

• In May 2007, the Florida Office of Financial Regulation and the Florida Department of Law Enforcement announced they were investigating local Bradenton investment broker Michael O. Traynor, 56, and his son, Matthew O. Traynor, 28, on complaints from at least a dozen residents in Sarasota and Manatee counties alleging that the Traynors defrauded clients out of approximately $8 million in investor funds. On November 16, 2007, Michael Traynor, who had found many of his clients though his church social circles, was arrested on a first degree felony grand theft charge that he had stolen $6.5 million from his investors. It is believed Traynor stole funds from at least 34 clients in Sarasota, Manatee and Hillsborough counties between 2001 and February 2007. At least ten investors filed complaints with state regulators, and many had unfruitful meetings with Traynor to have money returned, including those who met him through Bradenton Christian Reformed Church and Bradenton Christian School.

Representatives of the Florida Department of Law Enforcement called Traynor's scam a "classic Ponzi-scheme". Traynor had sold investments in Manatee County for InterSecurities Inc., also known as ISI, since 1997, and was the company's Bradenton branch manager before he was fired in February 2007.

• Michael Eugene Kelly (born October 6, 1949) is the owner of Yucatan Resorts, Resort Holdings International, Puerto Cancun and Avanti Motor Corporation. He is accused by the FBI and the United States Attorney's Office of operating a $428 million Ponzi scheme that defrauded over a thousand elderly and senior citizens of their retirement money.

Kelly was arrested in his hospital room at the Mayo Clinic on December 22, 2006 just before he was about to be discharged and return to one of his homes in Cancún, Mexico. In pretrial services, Kelly claimed that he makes $55,000 a year and only has $48,000 in assets. In spite of his claim of meager earnings, Kelly offered a private jet, four yachts and race track as collateral at his detention hearing. He was denied bail and is currently in the Metropolitan Correctional Center, Chicago waiting for arraignment. Since his arrest, Kelly has attempted to avoid indictment by arranging a plea agreement that includes paying restitution to the victims. The time to file an indictment or information was extended to and including February 8, 2008. This is expected to be the final extension.[dated info]

• In the first quarter of 2008, many Ponzi schemes are flourishing in Colombia.[35] Those schemes for which complaints are filed are the only ones that the Colombian police have been able to stop and have their organizers detained. Curiously, an organizer of one of these schemes was in fact a policeman. There are many Ponzi schemes going on right now, and even though they are quite popular and, as of February 2008, at least one of the organizers publicly admitted operating what can be defined as a Ponzi scheme, authorities haven't been able to act legally against the people behind organizations such as "People Winner" which have strong support from individuals who have already got their profits.

• Matteo Quintavalle is - according to the source quoted in the following footnote - an Italian scammer, who cheated investors with more than US$10 million by promising very high yield in Costa Rican real estates and hotels. After being involved in a serie of frauds in Italy, Mr. Quintavalle grabbed money in San Francisco,California and went to Costa Rica and bought hotels, resorts and even soccer players ' contracts and gave false contracts to the original investors let they think they were owning those properties in Costa Rica. Mr. Quintavalle is currently under arrest awaiting trial.[33
• Currently (May 2008) the Finnish National Bureau of Investigation is investigating a long running scheme where possibly over 10,000 people could have lost up to €100 million investing in WinCapita's WinClub "investment club", supposedly a currency trading scheme. Investigators now say they have found no evidence that WinCapita ever engaged in any legitimate currency trading at all.[36]

• On May 7, 2008, The U.S. SEC filed suit against The Little Shell Goldquestinternational (site currently down due to court order) as an alleged Ponzi scheme[37]. The company claimed an 87.5% YoY return on an investment by trading on the Foreign Exchange. According to SEC filing, as much as 80% of an investors' investment would be paid out as commissions. On May 20, 2008, U.S. District Judge Lloyd George authorized the use of necessary force to help a receiver obtain property and records of GoldQuest[38]. Cook receiver services was appointed by the court in order to

  take such action that is necessary and appropriate to preserve and take control of and to prevent the dissipation, concealment, or disposition of any assets of, or managed by, Gold Quest and its affiliates.[39]
  

• On May 27, 2008, the Philippine National Bureau of Investigation (NBI) filed a case of syndicated estafa based on complaint of Korina Sanchez and 15 other investors, against the officials of Power Generation Trading Corporation regarding a multimillion-peso investment scam by using the “Ponzi” scheme. Those indicted were: Chief executive officer Rudy Enrique Olalia, treasurer Lourdes Olalia, corporate secretary Marie Frances Yuvienco and 21 others, including Bernie De Venecia.[40][41]

• In September 2008 a one-time English teacher called Sakvithi Ranasinghe vanished with around $9 million in depositors' money in Sri Lanka.

[edit] Virtual world examples

Some experts have suggested that unregulated virtual world banks such as Second Life's Ginko Financial closely resemble Ponzi schemes. By February 2007, Ginko was noted by the Illinois Business Law Journal for offering interest in the range of 44% annually on virtual "bank accounts," with no real transparency in the entity's investment strategy.[42]
Ultimately, Ginko Financial declared itself insolvent in August 2007, reporting unpayable Linden Dollar deposits in the L$200,000,000 range (roughly $650,000 USD at current exchange rates).[43]

Complicating formal action in the matter are a number of issues, including a long-standing disclaimer by Linden Lab in Second Life's Terms of Service.[44] According to the company, the Linden Dollar "is a limited license right available for purchase or free distribution at Linden Lab's discretion, and is not redeemable for monetary value from Linden Lab." Further complicating the matter is lack of information on Ginko Financial's operator, a Second Life avatar by the name of Nicholas Portocarrero. To date, Portocarrero's self-admitted identity of São Paulo, Brazil resident Andre Sanchez has yet to be independently confirmed.[45]

In the wake of Ginko Financial and similar virtual bank collapses, Linden Lab banned unregulated Second Life banking activities on January 22, 2008.[46][47]

In addition, the first large-scale scheme to take place in the EVE universe was a Ponzi scheme orchestrated by a player who went by the in-game name Morbor.[48] Reputedly making off with as much as $1 billion of in-game currency,[49] the scheme eventually grew to such levels of infamy that the perpetrator's name is now an in-game moniker for scheme artists of any flavor.[50]

[edit] As a political metaphor

Some free-market economists, such as Thomas Sowell, and the Cato Institute[51]social security systems, such as the Social Security system in the United States and the National Insurance system in the United Kingdom, are actually large-scale Ponzi schemes. In economic terms, these pension systems are often referred to as "pay-as-you-go" or unfunded national pension plans. have argued that national
Sowell and others point out that, under these national systems, incoming payments, made up of taxes and/or other kinds of non-voluntary "contributions," are neither saved nor invested. Instead, current contributions (from one set of individuals, due benefits at a later time) are used to pay for current benefits (to another set of individuals). The critics of Social Security say that as North American demographics trend toward more pensioners and fewer workers this "pay-as-you-go" system has begun to show its inherent flaws. Therein lies the basis for the Ponzi scheme metaphor: that the system relies on a steady flow of new contributors, just as a Ponzi scheme relies on a steady flow of new "investors."


Nevertheless, retirement programs run by national governments are significantly different from a typical Ponzi scheme in a number of ways:

• Retirement systems, like Social Security, are not blatantly fraudulent. In a genuine Ponzi scheme, the perpetrators falsely claim that there is some business that generates the promised revenues. In Social Security, people know where the money comes from, and actuaries supply written predictions of future cash in-flows and out-flows.
• Retirement systems promise a stipend to the country's retired persons, not the quick and exorbitant profits to current investors that Ponzi schemes invariably offer.
• Retirement systems rely on the taxing power of the state to ensure continuous funding, as opposed to voluntary investor contributions.
• Retirement systems are in many ways insurance rather than investment systems. A person who dies before retirement gets no money back (regardless of what he/she paid in). Someone who lives to a very old age continues to get payments regardless of the amount of money he/she has paid in.

The U.S. Social Security Administration provides the following response[1] to the "Ponzi scheme" accusation as applied to a pay-as-you-go system like Social Security:

There is a superficial analogy between pyramid or Ponzi schemes and pay-as-you-go insurance programs in that in both money from later participants goes to pay the benefits of earlier participants. But that is where the similarity ends. A pay-as-you-go system can be visualized as a simple pipeline, with money from current contributors coming in the front end and money to current beneficiaries paid out the back end. ... As long as the amount of money coming in the front end of the pipe maintains a rough balance with the money paid out, the system can continue forever.

There is no unsustainable progression driving the mechanism of a pay-as-you-go pension system and so it is not a pyramid or Ponzi scheme.

If the demographics of the population were stable, then a pay-as-you-go system would not have demographically-driven financing ups and downs and no thoughtful person would be tempted to compare it to a Ponzi arrangement. However, since population demographics tend to rise and fall, the balance in pay-as-you-go systems tends to rise and fall as well. ... This vulnerability to demographic ups and downs is one of the problems with pay-as-you-go financing. But this problem has nothing to do with Ponzi schemes, or any other fraudulent form of financing, it is simply the nature of pay-as-you-go systems.

[edit] See also

• Stock Market
• Finance
• Multi-level marketing
• Holiday Magic
• High-yield investment program
• Investment
• List of finance topics
• Pyramid scheme
• Lottery
• Get-rich-quick schemes
• Matrix scheme
• Reed Slatkin
• Double Shah
• Federal Reserve

[edit] External links

• Ponzi Scheme in Colombia. people falling prey to pyramid schemes[3]
• US Securities and Exchange Commission background information
• Is Social Security a Ponzi Scheme? - Social Security Administration
• Ponzi Schemes, by Bill E. Branscum, a financial crimes investigator.
• Cash Gifting Watchdog

[Patrician]

Pyramid scheme

From Wikipedia, the free encyclopedia


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The unsustainable geometric progression of a classic pyramid scheme


A pyramid scheme is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without any product or service being delivered. It has been known to come under many guises.
Pyramid schemes are illegal in many countries, including the United States,[1] the United Kingdom, France, Germany, Canada, Malaysia, Norway, Australia,[2] New Zealand,[3] Japan,[4] Nepal,[citation needed] Sri Lanka,[5] Thailand[6] and Iran.[citation needed] These types of schemes have existed for at least a century.
Contents


[hide]

• <LI class=toclevel-1>1 Models
  • 1.1 Internet
  <LI class=toclevel-1>2 "8-ball" model <LI class=toclevel-1>3 Matrix schemes <LI class=toclevel-1>4 References <LI class=toclevel-1>5 See also
• 6 External links

[edit] Models

There are other commercial models using cross-selling such as multi-level marketing (MLM) or party planning which are legal and sustainable[citation needed], although there is a significant grey area in many cases. Most pyramid schemes take advantage of confusion between genuine businesses and complicated but convincing moneymaking scams. The essential idea behind each scam is that the individual makes only one payment, but is promised to somehow receive exponential benefits from other people as a reward. A common example might be an offer that, for a fee, allows the victim to sell the same offer to other people, or receive bonuses through other people they refer. Each sale includes a fee to the original seller.
Clearly, the flaw is that there is no end benefit; the money simply travels up the chain, and only the originator (or at best a very few) wins in swindling his followers. Of course, the people in the worst situation are the ones at the bottom of the pyramid: those who subscribed to the plan, but were not able to recruit any followers themselves. To embellish the act, most such scams will have fake referrals, testimonials, and information.

[edit] Internet

In 2003, an internet-based "pyramid scam"[7] was uncovered by the United States Federal Trade Commission (FTC), where customers would pay a registration fee to join a program and purchase a package which included Internet mail and related goods and services. The FTC's complaint states that the company assured consumers who purchased the package that it would allow them to earn significant commissions for every website sold.
The FTC alleged that the company deceptively represented that consumers who participated in their scheme would earn substantial income, when in fact most consumers lost money in the operation, and that the defendants provided deceptive marketing material to affiliates - providing them with the means to deceive others; and finally, the company failed to disclose that a substantial percentage of participants would lose money, and that the scheme was actually an illegal pyramid scheme.

[edit] "8-ball" model

Many pyramids are more sophisticated than the simple model. These recognize that recruiting a large number of others into a scheme can be difficult so a seemingly simpler model is used. In this model each person must recruit two others, but the ease of achieving this is offset because the depth required to recoup any money also increases. The scheme requires a person to recruit two others, who must each recruit two others, who must each recruit two others.
The "8-ball" model contains a total of 15 members. Note that unlike in the picture, the triangular setup in the cue game of eight-ball corresponds to an arithmetic progression 1 + 2 + 3 + 4 + 5 = 15. The pyramid scheme in the picture in contrast is a geometric progression 1 + 2 + 4 + 8 = 15.


Prior instances of this scam have been called the "Plane Game" and the four tiers labelled as "captain", "co-pilot", "crew", and "passenger" to denote a person's level. Another instance was called the "Original Dinner Party" which labelled the tiers as "dessert", "main course", "side salad", and "appetizer". A person on the "dessert" course is the one at the top of the tree. Another variant "Treasure Traders" variously used gemology terms such as "polishers", "stone cutters" etc. or gems "rubies", "sapphires", "diamonds" etc.
Such schemes may try to downplay their pyramid nature by referring to themselves as "gifting circles" with money being "gifted". Popular scams such as the "Women Empowering Women"[8] do exactly this. Joiners may even be told that "gifting" is a way to skirt around tax laws.
Whichever euphemism is used, there are 15 total people in four tiers (1 + 2 + 4 + 8) in the scheme - the person at the top of this tree is the "captain", the two below are "co-pilots", the four below are "crew" and the bottom eight joiners are the "passengers".
The eight passengers must each pay (or "gift") a sum (e.g. $1000) to join the scheme. This sum (e.g. $8000) goes to the captain who leaves, with everyone remaining moving up one tier. There are now two new captains so the group splits in two with each group requiring eight new passengers. A person who joins the scheme as a passenger will not see a return until they exit the scheme as a captain. This requires that 14 others have been persuaded to join underneath them.
Therefore, the bottom 3 tiers of the pyramid always lose their money when the scheme finally collapses. Consider a pyramid consisting of tiers with 1, 2, 4, 8, 16, 32 and 64 members. The highlighted section corresponds to the previous diagram.
No matter how large the model becomes before collapse, approximately 88% of all people will lose.


If the scheme collapses at this point, only those in the 1, 2, 4 and 8 got out with a return. The remainder in the 16, 32, and 64 tier lose everything. 112 out of the total 127 members or 88% lost all of their money.
During a wave of pyramid activity, a surge frequently develops once a significant fraction of people know someone personally who exited with a $8000 payout for example. This spurs others to seek to get in on one of the many pyramids before the wave collapses.
The figures also hide the fact that the confidence trickster would make the lion's share of the money. They would do this by filling in the first 3 tiers (with 1, 2, and 4 people) with phoney names, ensuring they get the first 7 payouts, at 8 times the buy-in sum, without paying a single penny themselves. So if the buy-in were $1000, they would receive $56,000, paid for by the first 56 investors. They would continue to buy in underneath the real investors, and promote and prolong the scheme for as long as possible in order to allow them to skim even more from it before the collapse.
Other cons may also be effective. For example, rather than using fake names, a group of seven people may agree to form the top three layers of a pyramid without investing any money. They then work to recruit eight paying passengers, and pretend to follow the pyramid payout rules, but in reality split any money received. Ironically, though they are being conned, the eight paying passengers are not really getting anything less for their money than if they were buying into a 'legitimate' pyramid which had split off from a parent pyramid. They truly are now in a valid pyramid, and have the same opportunity to earn a windfall if they can successfully recruit enough new members and reach captain. This highlights the fact that by 'buying' in to a pyramid, passengers are not really obtaining anything of value they couldn't create themselves other than a vague sense of "legitimacy" or history of the pyramid, which may make it marginally easier to sell passenger seats below them.
In early 2006 Ireland was hit by a wave of schemes with major activity in Cork and Galway. Participants were asked to contribute €20,000 each to a "Liberty" scheme which followed the classic 8-ball model. Payments were made in Munich, Germany to skirt Irish tax laws concerning gifts. Spin-off schemes called "Speedball" and "People in Profit" prompted a number of violent incidents and calls were made by politicians to tighten existing legislation.[9] Ireland has launched a website to better educate consumers to pyramid schemes and other scams.[10]

[edit] Matrix schemes

Main article: Matrix scheme
Matrix schemes use the same fraudulent non-sustainable system as a pyramid; here, the victims pay to join a waiting list for a desirable product which only a fraction of them can ever receive. Since matrix schemes follow the same laws of geometric progression as pyramids, they are subsequently as doomed to collapse. Such schemes operate as a queue, where the person at head of the queue receives an item such as a television, games console, digital camcorder, etc. when a certain number of new people join the end of the queue. For example ten joiners may be required for the person at the front to receive their item and leave the queue. Each joiner is required to buy an expensive but worthless item, such as an e-book, for their position in the queue. The scheme organizer profits because the income from joiners far exceeds the cost of sending out the item to the person at the front. Organizers can further profit by starting a scheme with a queue with shill names that must be cleared out before genuine people get to the front. The scheme collapses when no more people are willing to join the queue. Schemes may not reveal, or may attempt to exaggerate, a prospective joiner's queue position which essentially means the scheme is a lottery. Some countries have ruled that matrix schemes are illegal on that basis.


[edit] See also

• Autosurfing
• Burnlounge
• Large Group Awareness Training (LGAT)
• High-yield investment program
• Holiday Magic
• Ponzi scheme
• Sali Berisha
• Make money fast

[edit] External links

• FTC consumer complaint form
• Cash Gifting Watchdog
• Article by Financial Crimes Investigator, Bill E. Branscum
• Spoof article

• The Math Behind Pyramid Schemes, Chain Letters, and 2-Up Schemes - Investigates the mathematics of the geometric series involved.
• IMF feature on "The Rise and Fall of Albania's Pyramid Schemes"
• Cockeyed.com presents: Pyramid Schemes - A thorough description of the 8-ball model and matrix schemes which is a close cousin to pyramid schemes.
• National Consumer Agency on Pyramid Schemes - Irish consumer site describes two local pyramid schemes and offers advice to would-be participants.
• London Kural Coverage of Gold Quest owner's recent arrest in Indonesia
• National Consumer Agency Ireland
• Australian Trade Practices Amendment Act (No. 1) 2002 Australian Law Online
• Public Warning on Pyramid Schemes Central Bank of Sri Lanka

[Graham Maddison]

WOW!

That takes a bit of digesting Pat. Nonetheless, thank you for posting.

Graham

[Patrician]

Yes I know it is long but thought it would help to make it 3 separate posts.

Whenever an issue comes up (and it just did) where someone here may fall prey to a scam, then I feel it is appropriate to discuss these issues.

[JJonesRN3]

Hi,

Thanks for the detailed information. Is there a website that list the most popular gift giving/ ponzi schemes?

[Jeff Schuman]

Great post Pat. Interesting read!

[josefnew]

Thanks for the unselfish enlightenment Pat. Keep up the good work

[CPA_OFFICER]

Very informative! ``If its too good to be true it probably is...`` Let`s never forget that.

Thanks,
CPA_OFFICER

[cmbwealth]

Wow Pat, this one is definitely a re-read.

Thanks Mark

[Paul D Brady]

Excellent info. This is exactly what we need to know here to keep ourselves safe, but more importantly knowing where to go when something does go wrong. Thanks for the time & effort you put into this.

[Andie]

Pat,
Thanks for taking the time to put this one up for everyone!
(had a friend who fell for the re-shipping one...scared her to death)

Andie

[hushy]

Thanks Pat for the info. Good to know soemone stays on top of some of these things.

[breadtoaster]

Thanks for the detailed info! Should had taken a lot of your time to complete this post..

[briley knox]

Hey Pat good post I hope some of the newbies take time to read this post it help us all.Thanks

[webdollarz]

long post.. nevertheless a good read. i found it quite useful for myself.

[LaLaLives]

The actions of people who instigate these scams make me sick to my stomach and not only for obvious reasons, but because they also frighten people away from legitimate work from home opportunities. People need real information so that they can arm themselves against predators, but they also need to know that legit work at home jobs do exist. Your post helps to increase one's general knowledge of what to look for and avoid, and, for this, I am very grateful!

[legithomebiz]

very informative..... noted....

[CrhisD]

Could be updated with the likes of Madoff.

[Radcliff]

Prevention is better than cure.


Everyone using the internet to make money has to be aware of these.It is very nice of you to take your time in writing the post including facts which someone can't find easily.Keep your good work up.....