Ponzi schemes

Ponzi schemes; what are they?

These types of schemes are fraudulent, usually offering extraordinary returns on investments. Most are made up of vague verbal constructions such as trading in hedge futures which are very high risk, even if not the basis of a Ponzi scheme. I would strongly advise that members do not get involved, unless very well versed in finances and prepared to take the huge risks involved.

Other structures proposed by Ponzi scheme fraudsters are high-yield investment programmes where the vendor sells shares to investors by taking advantage of a lack of investor knowledge, which is where being a Club member can protect you from con artists. The RIO Club has an investment school section where members can brush up on investment terminology and financial knowledge which could greatly reduce the possibility of falling victim to such schemes.

Ponzi schemes sometimes commence operations as legitimate investment vehicles, such as hedge funds. These were illegal in the USA until recently, hedge funds by their nature are less regulated be warned such structures could degenerate into a Ponzi scheme if there are unexpected losses, money and false returns are fabricated and there is a lack of transparency and enforcement.

Initially and usually for a short period of time the vendor will pay out high returns to attract more investors, and to lure current investors into putting in additional money. Then later the "return" to the initial investors is paid out of the investments of new entrants, and not out of profits.

Often the high returns encourage investors to leave their money in a Ponzi scheme, the result being that the vendor does not have to pay out to investors; he simply has to send them statements showing how much they have earned very swiftly the promotor of such schemes is uncovered.

These fraudsters would often use a legitimate reason to invest by stating that one fund is changing or restructuring, and recommending that participants should minimize withdrawals, or alterantively by using a legitimate investment trait where money is frozen for a longer period of time in exchange for higher returns. This is a clever ploy since this is normal practice, which most investment companies use since they are in business to make money from fees levied legitimately in the same way as RIO.

That being the case it is harder to distinguish a Ponzi scheme, unless you are well versed in finance, so I would advise members to use our services we have the expertize and research to avoid being exposed to unpalatable Ponzi individuals, who are often fly-by-night merchants. As such they are forced to move around a lot, constantly changing address or phone number which is a tell tail sign of con men. It is always best to invest with companies or entities who hold a government license for an investment product or products in what ever form, people who are well established with at least a ten years of investment history preferably with many investor testimonials to refer to, and importantly can cliam to have a constant web site address for similar period importantly with continual updates for a similar length of time. Another essential feasture is that the contact e-mail addresses should match the web site domain name. Unknown funds, such as new start-up funds or investment companies or schemes should be avoided! These are easier to camouflage and would favor those involved in or selling a Ponzi scheme.

One way to spot Ponzi schemes is that the vendors always want fresh cash flow from investors. Investors are often told that they cannot transfer money from a first investment to another, which the vendor has invariably offered. I must bring atention to the fact that this is again normal practice within the investment industry, as most investments and investment companies almost always have structures which are designed to favour the long term investor. It takes an institution a long time to build a client bank which they would wish to retain its that simple we are no different.

Written by The RIO Club's primary fund manager William Gray