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 Conduct Authority (FCA) regulates companies that offer certain investments to the public. For a list of businesses that are known to be unauthorised, visit:
- 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.