If you’ve ever come across an advert that promises incredible returns on your investment, then it’s possible that you’ve just seen a Ponzi scheme.
The rise in DIY investing in recent years, as well as risky assets such as cryptocurrencies providing some investors with outsized returns, has fuelled a surge in financial investment fraud, with cases rising by 42% year on year, according (opens in new tab) to the Office of National Statistics.
Notably, there has been a 59% increase in Ponzi and pyramid schemes, and with the number of scams rising amid the cost of living crisis, it is more important than ever to be able to identify the risks of such scams to avoid losing your money.
WHAT IS A PONZI SCHEME?
A Ponzi scheme is a non-existent investment that promises large returns, typically well above what a regular investor could expect. Such investments promise to offer returns in a short timeframe.
While many people would be naturally dubious about such a promise, Ponzi schemes hook victims in with a simple premise – a handful of them actually get the promised returns.
For example, a person sees an advert online for a new investment opportunity, promising to double their money within one month. They pay £100 into the scheme, and a month later, receive £200.
The investor then tells friends and family about the opportunity, inflating the scheme’s credibility and encouraging more and more people to invest their money. On paper, the increasing flows of cash into the scam…
