How to Detect a Ponzi Scheme

Ponzi schemes continue to be a common investment fraud. You should know how to detect it to protect yourself from investing in such a scheme, and losing your money.

A Brief Introduction to Ponzi Schemes

A Ponzi scheme is a kind of investment fraud in which scammers promise investors that they are using a particular investment strategy to return payments with added earnings, but in reality, they simply use the investments of the new investors to pay the old investors, according to

A Ponzi scheme needs a consistent flow of money from investors. It collapses when the number of new investors declines, or when several investors demand payments. So far, innumerable investors have been scammed via this scheme. You should the learn ways of detecting a Ponzi scheme, so that you do not fall victim.

Detecting a Ponzi Scheme

A Ponzi schemer uses psychological tactics to attract and persuade investors. Their most common tactics are described below. You can detect a Ponzi scheme if it uses the same strategies.

Promising Above-Market Returns

Ponzi schemers lure investors by promising above-market gains. They tell you how you can live a luxurious life and fulfill your dreams by making this investment. They awaken the inner greed, but you can protect yourself from losing money if you understand their investment plan before investing.

Gaining Trust by Involving Reputable Individuals

This technique is called the source credibility tactic. A Ponzi scammer who people believe is new to the investment world attracts people by involving individuals and companies that people already trust. It helps the scammer gain trust to allow them to attract new investors. Ponzi scammers usually use trusted people who belong to the investment and financial industry.

Offering Different Deals and Discounts

Scammers can entice investors by claiming that they are offering attractive discounts and deals. If they offer such deals, they first describe the benefits of the deal, then say that these deals are only for future investors and that they are time-limited. This way, they create urgency, and people end up investing in fear of losing an amazing deal.

Claiming that Many have Invested and Received their Payments

Ponzi scammers use the social consensus technique, and claim that many investors have already received their payments as promised. This tactic uses the herd behavior of humans. This behavior involves following the actions of a group of people, which then means that you do not analyze the situation on your own.

Creating a Sense of Urgency

You can detect a Ponzi scheme if the investment plan is offering a limited supply and creating a sense of urgency. This tactic is named the scarcity tactic.

What to Do if You Have Been a Victim of a Ponzi Scheme?

You should immediately take action after realizing that you have become a victim of a Ponzi scheme. Report the scam to the state security regulators, and hire a Ponzi scheme attorney such as, to sue the Ponzi scammer. If you delay this decision, you may lose the chance of getting your money back.