If Charles Ponzi were alive today, he would definitely be selling cryptocurrency, NFTs and real estate in the metaverse

November 15, 2022

How notorious a guy do you have to be to have a type of fraud named after you? Most successful frauds run parallel to the truth. Ponzi became fascinated with something called “international reply coupons” (a coupon that can be exchanged for airmail postage stamps from another country). Ponzi realized that he could turn a profit by buying IRCs in one country, and exchanging them for more expensive stamps in another country. Ponzi did in fact manage to make money through the arbitrage of using the IRCs he would buy in one country to buy postage stamps in the U.S. for less than their face value. Not content with the meager earnings from this venture, Ponzi used his postage stamp investment story and turned it into an investment scheme in which he promised investors returns of 50% in 45 days or 100% in 90 days. Although Ponzi did not use investor money to buy international reply coupons and redeem them for stamps, he paid earlier investor “returns” with the new investor money that kept coming in and paid himself very well. At one point, he was making $250,000 a day.

Modern day Ponzi schemes include one of the most notorious crimes in history, Madoff Securities. Bernie Madoff told investors that he would put their investments into a split strike conversion strategy which he described as a diversified basket of blue-chip stocks that outwardly appeared to be safe bets. He elaborated that these stocks were then hedged with stock market index put and call options, which would protect investors in the event of a significant market decline. The volume of money that Madoff took in would have made the trading size comprising his split-strike between seven and 65 times the size of the actual market for those derivative instruments at various points in time. Of all the red flags that portended the eventual collapse of Madoff’s Ponzi scheme, this was the most stunning.

Investor.gov is a website maintained by the SEC to help the investing public avoid being defrauded. It lists the following red flags of possible Ponzi schemes:

High returns with little or no risk.
Overly consistent returns.
Unregistered investments.
Unlicensed sellers.
Secretive, complex strategies.
Difficulty receiving payments.

Do your own research about investment opportunities and the companies and individuals offering the investments. Be skeptical. Don’t succumb to time pressure. Ask a lot of questions and listen carefully to the answers. Ask for corroboration of what is being represented. Be suspicious.

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