Ponzi Scheme

Home  >>  Financial Literacy 101  >>  Avoiding Financial Fraud  >>  Ponzi Scheme

A Ponzi scheme is essentially an investment fraud where the operator promises high financial returns or dividends that are not available through traditional investments. Instead of investing victims’ funds, the operator pays “dividends” to initial investors using the principle amounts “invested” by subsequent investors. The scheme generally falls apart when the operator flees with all of the proceeds, or when a sufficient number of new investors cannot be funded to allow the continued payment of “dividends.”

This type of scheme is named after Charles Ponzi of Boston, Massachusetts, who operated an extremely attractive investment scheme in which he guaranteed investors a 50 percent return on their investment in postal coupons. Although he was able to pay his initial investors, the scheme dissolved when he was unable to pay investors who entered the scheme later.

With previous Ponzi Schemes being discovered, prospective investors are becoming more involved in their investment choices. Student Destinations would like to suggest the following:

  1. If the rate of return on investments are significantly higher than the rest of the market, conduct further research.
  2. Be very cautious of investment portfolios with no long term historical data.
  3. Review and research the companies that make up the investment portfolio of the investment offer.
  4. Speak with a qualified CFP Financial Planner and request their advice by reviewing the investment package together.
  5. Once you have received professional advice, ask other professionals; 2 is always better than 1.
  6. Research the portfolio manager/ broker(s) bio online.

UA-45593084-1