Financial pyramids are deceptive projects that mimic profitable investments, while funds are credited to the company's account by attracting new participants who contribute their money, then attract other people who also contribute their money and invite new users.
Due to this, pyramids grow with more progression. The biggest earnings are received by the founders of this pyramid. Essentially, only the one who founded these financial pyramids becomes enriched.
Ponzi Scheme
The Ponzi scheme, or as it is called, the Ponzi scheme, consists of fraudsters committing to pay clients profits not from real income, but from attracting new participants into the fold of the pyramid. The profit in the scheme grows due to the constant attraction of new clients with constant payments to the fake organization. This scheme got its name from Charles Ponzi, who in the 1920s founded a firm conducting legitimate arbitrage. But over time, Ponzi began using the money of the attracted clients, fulfilling obligations to previously attracted investors. After the scheme was uncovered, it became known throughout America, which gave this method its name - the Ponzi scheme.
It should be understood that the scheme only works if a person allows themselves to be convinced of super-profits. The main ways to avoid falling into this scheme are vigilance and critical thinking.
How to recognize a financial pyramid
To recognize a financial pyramid, you should remember a few of its signs:
- guarantee of high income without additional risks,
- high level of advertising with exorbitant incomes,
- attracting new members to the organization,
- constant financial investments,
- absence of a bank license,
- no audited financial reports,
- absence of a license for attracting capital.
Financial pyramids are banned in many countries around the world, this is fraud and is punishable by law.
To avoid getting caught in the nets of financial pyramids, you should remember one main rule, if a company promises a high income that exceeds the real market value - this is the main sign that they are luring you into a financial pyramid.
Signs of pyramid schemes
Wherever a pyramid, a financial fraud, is organized, the signs of pyramid schemes are almost identical. Often the victims of pyramid schemes are representatives of the middle and lower income classes, who want to quickly get rich and improve their financial situation in society. If a person applies critical thinking, they can easily determine that they are being dragged into a financial pyramid, promising quick receipt of large income in a short time. At the same time:
- the company does not produce or sell anything,
- there are no specific goals about investments and the company structure,
- information about the founders and legal issues is hidden.
As soon as the attraction of additional investors, friends, acquaintances who will invest money is proposed, one should think about the fact that this is similar to the main signs of financial schemes, that is, pyramids. One should not forget that profit comes from production, resale, or stock market operations. If a company has no specific production of goods - it is most likely a financial pyramid.
Investing in pyramids will not lead to a good result, most people do not receive their profits, only the founders of this scheme or those who started this scheme at the initial stage become enriched. Swindlers attract people with finances, they are interested even in those with small incomes, they are not afraid of anything, they are not ashamed of anything. They only think about income and the fate of people who are at the lower level of the pyramid does not interest them at all, especially, their income is simply taken away by fraudsters, who promise exorbitant incomes.
At the same time, people remain dissatisfied, but they cannot return their money. Involving themselves in a financial pyramid, investors promise to contribute a certain amount from their regular incomes, which ties them to this scheme for a long time.
Investment fraud
Investment fraud can lie in wait anywhere. Now fraudsters have become more active on the internet and, thanks to social networks, phone SMS messages, and e-mail newsletters, they quickly find investors for illegal earnings.
Communicating by phone or social networks, fraudsters often pose as financial analysts of large enterprises or financial brokers, who attract investors to their platforms. While promising high profits in a short time. The main sign that a scammer is calling is that he is initially very friendly and positive, but during the conversation, he studies the victim and becomes more assertive and firm. He demands quick decisions.
Vigilance and critical thinking are the main points to avoid being deceived by fraudsters.