How do Ponzi schemes work?
The classic Ponzi scheme hasn’t changed much in the last 90 years. The investor is promised an eye-popping return that is far higher than he could get through normal investing routes — say 25 per cent. Since returns like that tend to attract a lot of attention in today’s low-interest environment, the victims are often recruited from among members of the con artist’s family, friends, neighbours, club, religious or ethnic group. Membership in that “select” group gives investors a feeling of security that has no basis in reality. but it works — at first — because the investor who puts up $100,000 is absolutely convinced he’s made a brilliant investment when he gets his first $25,000 “interest” payment. Often the fraudster urges the happy victim to invest even more and to encourage his friends and relatives to join the party. Investigators call this “affinity fraud” because investors are less likely to question the legitimacy of an investment tip from someone they know. And so it goes. In
