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Ask Dave

The Ponzi Scheme Explanation

Nancy wants Dave to break down the scam that is the Ponzi scheme.

QUESTION: Nancy asks Dave to explain what a Ponzi scheme is. Dave is happy to break it down.

ANSWER: It’s a pretty simple scam. A slickster says he’s got a great investment program that pays greats rates of return. For example, you’ll make 50% return on your money. He pretends he’s got some angle on the market. People give him $10,000 because he’s a good talker, and pretty soon he hands you a $15,000 check.

You get impressed and give him more money. You go crazy thinking this is great, even though you think in the back of your head that something might be wrong. You get all your relatives together, people cash in their retirement savings and sell stuff, and the schemer takes the money and runs.

Here’s the clue: something that sounds too good to be true IS too good to be true! He gave you money because he took the money of other investors and gave it to you to make you think it was a legitimate investment. There is no real investment. It’s a shell game where he moves your money around to pay others. He used other people’s money to act like he was winning.

It’s very difficult to be conned if you’re not greedy.