The mechanics
A Ponzi scheme pays "returns" to earlier investors using money from newer ones. There is little or no real investment behind it. As long as new money keeps coming in, the payouts continue and the scheme looks successful.
Why people trust them
- Early investors really are paid, and often recommend the scheme to friends and family.
- Statements show steady growth, regardless of what markets are doing.
- Withdrawals work at first, which feels like proof it is genuine.
Warning signs
- Consistently high returns with little explanation of how they are made.
- Pressure to reinvest rather than withdraw.
- Bonuses for recruiting new investors.
- Delays and new excuses when many people try to withdraw at once.