Here’s Wikipedia’s definition of a Ponzi scheme …

A Ponzi scheme (named after Charles Ponzi) is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments to investors. Usually, the scheme is interrupted by legal authorities before it collapses … (more)

We knew the scheme was popular, but were amazed at the number of Famous Ponzis including “520 Percent” Miller, Ivar Kreuger The Match King, and Dona Branca, Protector of the Poor of Portugal! They’re all colorful characters, and quite entertaining until you send them your life savings.

So how do you avoid getting tangled up in a Ponzi scheme? Your best defense is your common sense.

1. If it sounds too good to be true, it probably is!

Back in 2004, we stumbled into a couple of ‘surfing’ programs that promised huge returns on our investments. We bought ‘advertising packages’ in increments of $50, submitted our website, and then clicked on a certain number of websites every day. After three weeks of surfing the websites of others in the scheme, we could redeem our credits for cash or re-invest. The return was 1.3% per day, or 475% per annum!

Words fail here because we are embarrassed! If this were legitimate, Donald Trump, Warren Buffet and Bill Gates would be doing it. We, like thousands of others, suspended our logic and spent hundreds of dollars in desperation and ignorance. Luckily, we broke even and got out in time, but several of our friends lost thousands.

You can read more in our article Surfing Programs Are Ponzi Schemes!

2. Check the reputation of the owners.

Do a Google search with words like scam, bankruptcy, criminal, legal, court, along with the names of the owners of the company. Promoters of Ad Surf Daily claimed that Andy Beaudoin never had more than a parking ticket in his life. For the real story, click here.

3. Check the location and age of the company.

Beware of PO boxes, offshore registrations, dubious addresses and missing phone numbers. We’ve used Google Maps several times to find companies located in vacant lots!

A search with WhoIs will tell you how long the website has been registered. Most Ponzis last just a few months, so look for recent registrations expiring soon. Well-established legitimate companies will have been around for years, and will have registered their sites for years into the future. An extensive WHOIS database download is a great way to protect yourself from people who seek to scam you.

4. Check the product.

All legitimate commissions are paid when goods or services are sold to an end consumer. What are you getting paid for selling how much to whom? If any of the answers make no sense, you might be looking at a Ponzi.

5. How do you pay and get paid?

Legitimate companies will use accepted credit cards like Visa, Mastercard, and American Express. Shady deals will force you to use lesser known online payment services that do not allow chargebacks. A Ponzi will not send you a check, but will deposit funds into your online transaction service. Worse, it may only award you credits to be re-invested.

To learn how to tell the difference between pyramids and Ponzis and legitimate MLM companies, you’ll want to read Big MLM Truths.

PS How many Ponzis in a Madoff? Bernie Madoff’s scam has been described as the biggest ever. How many times bigger than Ponzi’s scam was Madoff’s? A Google search will give you the surprising answer! Please post your findings here as a comment.

Thanks from Bob and Anna

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