LAW 101: Signs Of A Ponzi Scheme

Carlo Ponzi was a 1920s convicted American swindler who established a scheme promising extremely high returns for a short period. Ponzi was able to collect about $10M in investments from about 10,000 investors. As the scheme solely relied upon the investment of new investors to fund the high returns, the scheme soon collapsed when authorities stepped in and asked for a halt on new investments.

Basically, a Ponzi scheme is about 'robbing Peter to pay Paul'. Here are the SEC’s signs of a Ponzi scheme :

• No SEC registration
• Investment in foreign currency, preferably in USD
• Offers or guarantees a huge profit in a very short period
• Utilizes a binary network (i.e. upline and downline) to earn commissions
• No paper trail (like contracts or receipts)
• Promises little or no financial risk
• Lock-up period where an investor can’t touch the investment
• Assures pay-off investments in a short time
• Uses high-pressure methods to convince investors to reinvest their earnings
• Unknown principal office
• Unknown founders, directors, officers
• Orientation seminars conducted informally

Be forewarned. And report any such or similar schemes to the SEC (Compliance and Enforcement Division).

Sources:
SEC WARNING: BEWARE OF INTERNET-BASED PONZI INVESTMENT SCHEMES. Accessed July 2, 2007. Securities and Exchange Commission. http://www.sec.gov.ph/Ponzi%20Investment%20Schemes.pdf