How to identify a Ponzi scheme

Many people fall victim to Ponzi schemes every year. They rarely work out for the perpetrator, as one Florida man discovered when police arrested him for conducting an elaborate case of fraud.

Older individuals are typically targets of these schemes because perpetrators believe that they can more easily convince seniors to give them money. It is vital to be aware of the warning signs of a Ponzi scheme before you or someone you love loses a lot of money.

Ridiculously high returns

The adage “If it sounds too good to be true, then it probably is” certainly applies to Ponzi schemes. Some schemes claim to provide people with a 20 percent return on their investment within the first year. No investment is that good, and you should be equally as cautious if the person claims the investment is “risk-free.” All investments come with a certain amount of risk. You need to be skeptical of such claims and know when to walk away.

High commissions for sales personnel

Many Ponzi schemes hire sales personnel to meet with potential investors face-to-face. If you want a good look at the inner machinations of the company, then ask what kind of sales commission these employees receive. At some places, they offer a 20 percent commission. That means the owner has to pay the employee 20 percent of the investment and still invest the money in such a way that the investor makes a 20 percent profit. Nothing is that profitable.

A vague business model

For any investment, you need to ask questions so you know precisely where the money comes from. Any reputable organization will be more than happy to walk you through the process in a way you can understand. However, Ponzi schemes keep things intentionally vague. You may receive an explanation only for it to be overly complicated. You need to know precisely how a company generates returns before giving someone else money.