How to Protect Yourself from the Ponzi System?

The ponzi system can be defined as a fraudulent investment program. Payouts collected from new investors are based on the use of the organizers of this system to pay off previous investors, the organizers of this system usually promise to invest the money they have collected to achieve extraordinary profits with little or zero risk. But these organizers do not actually plan to actually invest the money. Paying the initial investors to make their system look convincing is their goal. This system requires a constant flow of funds to sustain itself. When the organizers of the system are unable to recruit more members, or a large part of the existing investors decide to cash out their investments, the system turns upside down. If you want to get detailed information about methods such as private fund management and this system, you can read the rest of our article.

What is the Ponzi System?*

A ponzi system is a type of investment fraud in which investors are promised significant returns. Companies that participate in this illegal system focus all their attention on attracting new customers. After new entrants invest, the money is collected and used to pay as a refund to the original investors. In this system, where constant cash flow is required to maintain, fraudsters promise to invest the money they collect to achieve extraordinary profits, usually with little or zero risk. Of course, this promise will not come true. Moreover, when the founders of the system are unable to include more members in the system, or a large part of the existing investors decide to convert their investments into cash, the system turns upside down. The system, which takes its name from Charles Ponzi, a fraudster in the 1920s, is actually a system that progresses in a chain, rather than being an investment, and as a result does not have any return for investors.

The Red Flags of the Ponzi System**

The ponzi system manifests itself with some red flags. By paying attention to these red flags, it is possible to be vigilant against the system and to be protected from the harms of the system. With the 5 red flags in the continuation of our article, you can become aware of the ponzi system and take measures against this system.

1.The promise of high returns with minimal risk

When you become a realist, every investment has a certain degree of risk. In addition, investments that offer high returns usually carry more risk. Therefore, if someone offers a high-yield and low-risk investment, it will probably be a deal that is too good to be true. Probably, the investor will not see any return on this investment. This promise is also in the first place among the red flags of the ponzi system. Dec.

2. Overly consistent returns

Investments always experience fluctuations. These fluctuations are quite normal. For example,

Imagine that you are investing in the shares of a particular company. There are times when the share price of this company rises, and sometimes a decline can be observed. However, investors should always be skeptical of investments that provide consistently high returns regardless of fluctuating market conditions, because these investments are not realistic.

3. Informal investments

Before you rush to invest in a plan, it is very important that you verify whether the company you are going to invest in is registered with the Exchange Commission or state regulators. If the plan is registered with the commission or state regulators, an investor may have access to information about the company to determine whether the company is legitimate. This simple step will give you a chance to protect against the Ponzi system.

4. Unlicensed sellers

Under the law, sellers must have a specific license or be registered with a regulatory authority. Many of these systems deal with unlicensed individuals and companies. They think these companies are easier prey. Therefore, both individuals and companies need to be vigilant against unlicensed sellers.

5. Secret strategies

Investments that consist of procedures that are too complex to be understood should be approached with suspicion and these investments should be avoided as much as possible. At the same time, care should also be taken if there are missing documents or statements.

The History of the Ponzi System ***

The term ponzi system was created in 1920, inspired by the name of a fraudster named Charles Ponzi. The methods of the method known as the ponzi system were described by Charles Dickens in his novel Martin Chuzzlewit in 1844 and Little Dorrit in 1857.

Charles Ponzi's original plan, made in 1919, was focused on the U.S. Postal Service. The postal service, at that time, had developed international response coupons that allowed a sender to purchase the postage in advance and include it in their correspondence. The recipient would take the coupon to a local post office and exchange it for the airline postage stamps required to send a response. This type of clearing is known by the name of arbitrage, which is not an illegal practice. However, Ponzi has acted greedy and has almost reached the level of fraud.

Ponzi promised a 50% return in 45 days or 100% in 90 days under the name of a Stock Exchange Company. Ponzi, who immediately attracted the attention of investors due to his success in this scheme, redistributed the money instead of actually investing it and told investors that they were making a profit. The plan lasted until August 1920, when the Boston Post began investigating the Stock Exchange Company. August 12, 1920, Ponzi was arrested by the federal authorities and charged with mail fraud as a result of the newspaper's investigation. In November 1920, Ponzi was sentenced to five years in prison.

Examples ;

Examples of ponzi schemes are Bernie Madoff and JSG Capital Investments.

Bernie Madoff is the largest investor fraud in the United States and the most famous chain of felicity in recent history. This chain has been Bernard L for more than a decade. It was managed by Bernard Madoff, who defrauded investors at Madoff Investment Securities LLC.

Madoff built an extensive network of investors from whom he collected cash, collecting it in an account from which he withdrew the money of about 5,000 of his clients. However, he never actually invested the money. When the financial crises of 2007-2008 broke out, he could no longer maintain his fraud. During the 2008 Global Financial Crisis, investors began withdrawing money from Madoff's firm, which revealed the illiquid nature of the firm's actual financial statements. Madoff has stated that his firm has about $50 billion in debt owed to about 4,800 clients. Madoff, who was sentenced to 150 years in prison for the confiscation of $ 170 billion in assets, died in prison on April 14, 2021. The total loss caused by this fraud is estimated to be about $ 65 billion.

In the JSG Capital Investments case, the U.S. Attorney's Office for the Northern District of California said two people were indicted for electronic fraud by a grand jury in 2016. Jaswant Singh Gill and Javier Carlos Rios of JSG Capital Investments were accused of promising investors that they would buy the shares of private companies before the IPO. Jaswant Singh Gill and Javier Carlos used the money for their own use and paid interest to them to prevent individuals from becoming suspicious. These people are accused of collecting $ 9.3 million from their investors, while more than $ 5.5 million of the money was diverted using the system. The ponzi system continued to exist, changing as technology changed.

How Do You Protect Yourself From the Ponzi System? ****

To protect against possible fraud, just as an investor investigates a company in which he will buy shares, a person should investigate everyone who helps him manage his financial situation. The easiest way to do this is to contact the SEC and question whether its accountants are currently conducting open investigations (or investigating previous cases of fraud). In addition, before investing in any plan, it may also be useful to ask for the company's financial records to verify whether they are legitimate or not, to protect October from the Ponzi system. With these two methods, it can be easily protected from problems that may arise from the system..