There's an old saying that if it sounds too good to be true, it probably isn't. That way of thinking applies to Ponzi schemes.
Create a free account to read this article
$0/
(min cost $0)
or signup to continue reading
According to the Australian Taxation Office, a Ponzi scheme is "a form of fraud that attracts investors by promising high returns with little to no risk. New investors bring in money which pays dividends, or other types of payments, to existing investors. There is no actual investment offered by scheme operators."
Existing investors in a Ponzi scheme receive money from new investors - but don't know that this happening, and are unlikely to suspect anything suspicious is up as long as the money keeps coming in. As such, investors may encourage others into the scheme, thinking it's a good deal.
"Ponzi schemes need new investors and their money to survive. When scheme promoters fail to attract new investors, the scheme will collapse, leaving most new investors out of pocket and with little to no recourse to recoup their losses," the office said.
Here are signs to look for:
- the rate of return looks too good to be true
- a promise of consistent returns regardless of market conditions and other external factors
- the logistics of the investment are too complicated to explain
- someone you know tries to recruit you
- the recruiter encourages you to make a quick decision, and
- the recruiter has already invested in the scheme.
If you suspect you or someone you know is involved in a Ponzi scheme, refer to the ASIC MoneySmart websiteExternal Link for how to report the scheme. You can also confidentially report fraudulent activity by making a tip-off or phoning 1800 060 062.
Click here for more information.
