Pyramid model

Note:

If you don’t want to read, check out my 2 videos below to better understand this model.

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What is a Ponzi Scheme?

The Ponzi scheme is a form of credit used by one person to repay another. Borrowers offer high yield engagements to lenders and advertise them with examples of past high yield returns to attract lenders. Lenders attracted to high returns even refer to newer lenders. In this way, borrowers can increasingly borrow larger amounts of money from more new lenders.

Ponzi scheme owners often attract new investors with higher returns than other investments, with short-term returns that are either unusually high or unusually long.

The Ponzi scheme sometimes starts out as a legitimate business company until the company fails to make the expected profits. The business becomes a pyramid scheme if it continues the fraudulent practices. Regardless of the starting point, paying high returns requires increasing cash inflows from new investors to maintain this model.

Example of how the Ponzi model works

A Ponzi scheme usually works like this:

1. There will be an initial initiating member to promote an investment opportunity that requires participants to contribute $ 1000. This person is promised to get back the entire initial investment with a 10% profit after a certain investment cycle (e.g. 90 days).
2. Let’s say this investor gets 2 more investors to join before the 90 day period expires. Then the initiator subtracts $ 1,100 from the $ 2,000 raised by the 2nd and 3rd person to return it to the first person. At this point, the first investor will be attractive and will be more likely to reinvest with the initial $ 1,000.
3. By taking money from new investors, the scammer will have enough financial capacity to pay early investors and convince them to reinvest and encourage many others to join.
4. As the system has grown, the initiator is forced to find new investors to join the model in order to be able to pay the promised interest.
5. At some point, when the system reaches the point where it can no longer be serviced, the initiator is either arrested or disappears with the proceeds from the investors.

The basic tell-tale signs of the Ponzi pattern

Regardless of the type of Ponzi scheme used, all scams using this model have similar characteristics as follows:

• Committed to high returns with low risk
• Constant profits regardless of volatile market conditions
• Investment forms are not registered with reputable authorities uy
• Organizational investment strategies or forms are all described as secret or very problematic
• Customers are not allowed to view official papers for their investments
• It is very difficult for customers to withdraw money from the organization

How to protect yourself

Given your own greed, you will know how difficult it is to resist this temptation. Yes, most people’s goal when entering the market is to make more money, but you should also know that losing money is very common when investing.

So you have to be careful with your decisions

• Always ask questions. Any investment opportunity that promises high and quick returns with a small initial investment is a sign of dishonesty. This is especially true for less common or elusive problems. Incredible chance, often incredible!
• Beware of opportunities that fall from the sky. Always be extra careful with goddamn invitations to long-term investment opportunities.
• The seller must be thoroughly examined. The reality of promoting investment opportunities needs to be carefully examined. A reputable financial advisor, broker, or stockbrokerage company is registered and regulated in legal institutions.
• Do not rely on trust, but on authenticity. Legitimate investments must be legally registered. The first thing you need to do is request information on business registration. If this investment opportunity is not registered, there should be adequate explanation and evidence of it.
• Understand the nature of the investment. Never invest in something you don’t know. Make the most of the resources available and watch out for “secret” investments.
• Denounce. If it is found that someone has been lured into participating in the Ponzi scheme, it is necessary to notify the relevant authorities immediately in order to protect investors from this form of fraud.

Hopefully this article will help you reduce some of the risk of unnecessary losses from these multi-step Ponzi projects.