[Internet Safety] Ponzi Schemes

There are many dangers and scams lurking on the internet, schemes designed to snare and entrap even the most tech-savvy amongst us. This is the second in a new series of articles geared towards internet safety, scams and schemes with the aim of spreading awareness about the many different traps around. Many of the discussed schemes are just modern incarnations of age-old scams. This weeks topic is Ponzi Schemes.

In a nutshell, a Ponzi Scheme is a fraudulent investment practise that promises a high Return on Investment (ROI) and little to no risk. The scheme gets its name from Charles Ponzi, who heavily utilised the technique in the 1920s, but examples of Ponzi schemes can be found in books from the 19th Century, so there’s no doubt the scheme has been around a lot longer than 100 years.

Typically how it works is that the operator of the scheme uses revenue generated by new investors to pay older investors. The typical high return rates and low risk promises are what draws in the new investors. Ponzi schemes hardly ever use any legitimate business practises, and will always implode sooner rather than later, if not first caught by the authorities.

There are two high-profile cases of Ponzi schemes from recent years that come to mind; Martin Shkreli The Pharma Bro, and the Curious Case of Fyre Festival. So much has been written about both of these cases, I won’t be able to add anything to the topics, but I strongly encourage you to read up on them. Fyre Festival was a particularly special kind of shit show though. They made promises of luxurious accommodation, food and the possibility of rubbing elbows with celebrities, all while listening to top-tier musical acts and racing around a private island on jet skis. Initial funds were used to pay “social influencers” *shudder* to promote the festival, drawing in it’s customers and then fluffing up all the figures in order to generate more funds from investors, in order to pay for more promotion and so on… until the big day came, there was no festival organised and a large number of people were left abandoned on a tropical island.

Some of the most common Ponzi Schemes of the present time are in the form of Cryptocurrency “mining” operations. If you use Crypto faucets or don’t have your adblocker enabled, you’ll see ads for these all the time. They promise impossibly high daily returns, with no risk, and will even chuck in 100GH/s of mining power for free! What have you got to lose? Well, whatever you put in. I started noticing these scams popping up last year, each one closing down after just a few months of operation with no word to their victims. Vixice was the name of one of them, run from either possibly Russia or worse, North Korea. Even if you are an early “investor”, you are unlikely to make any money from these schemes, in fact it’s pretty much guaranteed you’ll lose.

According to Ponzi Scheme Database PonziTracker.com, between 2008 and 2013 there were over 500 Ponzi schemes prosecuted, that collectively took over $50 billion worth of funds. That is an eye-watering amount for just 5 years. This was all during the Credit Crunch of last decade, when economic times are bad, these schemes are more likely to fall apart or be found out. It’s when the economy is in a boom period that these schemes can go on for some time, as the economic prosperity makes the high-gains seems more likely. More and more people pour in, keeping the early investors happy. As usual, it’s the old saying of “if it’s too good to be true…”.

If you suspect a Ponzi Scheme, or find yourself or someone you know falling prey to them, you can contact Action Fraud in the UK. Don’t let the fraudsters take your money, stay aware and ever vigilant. Unfortunately, many times they will take advantage of those who are too trusting. Have you come across any scams or schemes on your travels? Share your thoughts in the comments down below, and as always make sure to follow me for the latest Crypto, Internet and Pop Culture updates. Peace!

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Sources:
A Ponzi Pandemic from Forbes (https://www.forbes.com/sites/jordanmaglich/2014/02/12/a-ponzi-pandemic-500-ponzi-schemes-totaling-50-billion-in-madoff-era/)

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