Pyramids and Ponzi schemes . . . what else is new?
Do you want to make $65 billion? Yes, you read it right! Bernard Lawrence “Bernie” Madoff, a former nonexecutive chairman of the National Association of Securities Dealers Automated Quotations stock exchange, scammed and collected almost $65 billion.
How much money is $65 billion? To give you an idea, if you line up the money in $100 bills from the Earth to the moon, it will reach the moon and back again to the Earth at least five times back and forth. It is even enough to buy malaria flu shots for the whole population of Africa every year for more than 200 years. The whole world learned about the scam in December 2008 after the global financial crisis in the last quarter of last year.
Actually, this news was not new.
History does repeat itself and lightning does really strike twice! Remember Charles Ponzi? The term “Ponzi scheme” is a widely known description of any scam that pays early investors returns from the investments of later investors. Ponzi promised clients a 50-percent profit within 45 days, or a 100-percent profit within 90 days. This created wealth for a lot of people in a short time. In the process, Ponzi created wealth in a short time to the point he was making $250,000 a day in the early 1920s.
This type of illegal scheme comes about in different forms, shapes and sizes during hard times, and creative and cunning minds usually take advantage of the situation. And if the scheme is not stopped, it eventually hurts not only the investors but also the credibility of the entire financial industry, when people start losing confidence in the legitimate financial institutions that offer secure, safe and realistic returns.
How can we identify the genuine from the fraud? What are the telltale signs of a pyramiding scam? Well, you know something is awry if it is a “get rich quick” scheme and it offers immediate, quick, fast, huge, big income or returns in a short time.
Here is the common sales pitch of a ponzi schemer.
Ponzi: “Why put your money in the bank that offers you only 2-percent to 3-percent return per annum if you can make 3 percent to 5 percent per month?
Investor: Is this safe?
Ponzi: “Yes, it is very safe. The company has been in existence for the past so many years. There is nothing to worry about. Did you know that Mr. and Mrs. So and So (he would drop the names of well-known personalities to earn your trust) have also invested? As a matter of fact, I even personally invested my own money, and do you know how much I earned last month? I earned this amount last month (normally they would show you a check or proof on how much they made in the past to win your confidence).
Are these lines familiar? Well, if you’ve heard them before and almost (almost?) fell prey, you’re not alone. Pyramiding and Ponzi schemes succeed because people often get greedy. The moment greed takes over a person, all logic and reasoning fly out of the window.
Scam artists know how to play with people’s feelings and emotions because they know that people buy things not because they need to but most of them want to. They use your feelings and emotions to get what they want in life. They know that people are motivated by fear of loss rather than the promise of gain. They will play with your emotions and prey on your greed by tempting you that this is an opportunity of a lifetime, convincing you that you will miss the gold rush if you do not join now and this is something you will regret for the rest of your life. They will make you imagine what this investment can do to help you and your financial needs. And once you allow your emotions to make the decisions for you, you’re gone.
Being a financial consultant, I have heard so many horror stories on how people lost their entire life savings, retirement funds and even their properties (because they use these as collateral to borrow money).
Don’t be the next victim. Before you invest your hard-earned money, allow me to share with you the two rules in investment. First, never invest in something you do not understand, no matter how profitable it may be. Second, the higher the interest, the higher the risk.
By Business Mirror
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