The phrases “pyramid scam” and “Ponzi scheme” have returned to be installed both in newspapers and journalistic websites and in everyday conversation.
Even the authorities are alerted: the Central Bank has filed a complaint against an alleged Ponzi in Catamarca and the National Securities Commission (CNV) has issued warnings about the actions of Generación Zoé, a company that offers coaching courses and promotes investments with unusual returns. .Even the authorities are alerted: the Central Bank has filed a complaint against an alleged Ponzi in Catamarca and the National Securities Commission (CNV) has issued warnings about the actions of Generación Zoé, a company that offers coaching courses and promotes unusual profitable investments.
Now, how do these financial frauds that originated in the second decade of the 20th century work?
First, it should be noted that any investment proposition that offers insane returns should raise a red flag.
So if someone promises, say, 10% annual profit in dollars and says there is no danger, don’t believe them. And the best thing is to run away.
A detail to keep in mind is that in the beginning, in pyramid or Ponzi scams, the returns are really phenomenal, so that no one is suspicious and the amount of money invested grows. And it is also true that scammers pay handsomely at first. Until it’s over.
Many people fall into this type of scam due to ignorance or lack of knowledge, but no one is safe from being robbed by the “ponzi” of this world. American Bernard Madoff created a $64 billion fraud that harmed banks, insurers and billionaires. Here, more than ignorance, the problem was excessive ambition.
According to the definition of the NVC Guide for Investor Protection, a Ponzi scheme takes place when a fraudster or a hub collects money from investors and uses it to pay alleged profits to investors from previous stages , instead of investing or managing the money as promised .
The scam is named after Carlo Ponzi, an Italian immigrant who arrived in the United States in 1903. Between the late 1910s and early 1920s, he convinced thousands of people to invest in an elaborate system of stamps -job. .
Ponzi schemes require a constant flow of money to stay afloat.
They tend to collapse when the fraudulent hub can no longer attract new investors or when too many investors try to withdraw their money at the same time, for example in times of economic turbulence.
Although the terms “Ponzi” and “pyramid scheme” are often used interchangeably, the CNV guide establishes a difference between the two.
He defines pyramid schemes as follows: “They occur when scammers claim that they can turn a small investment into big profits in a short time. However, the scheme can only grow or reproduce if there are new entrants”.
Also on pyramid scams, the NVC explains, “The fraudsters behind these fraudulent schemes often go to great lengths to make their schemes look like legitimate multi-level marketing schemes or referral schemes. Pyramid schemes eventually break down. collapse when it becomes impossible to recruit new participants, which can happen quickly.
A little history
Carlo Ponzi arrived in Boston in 1903. He worked in different fields and in 1907 he got a job in a bank in Montreal, Canada. There he was imprisoned after forging a check for 400 Canadian dollars with the signature of an old woman.
He returned to the United States, worked in various illegal businesses, such as smuggling Italian immigrants across the border.
But his life would change in 1918, when he received a letter from abroad containing an international proofreading coupon. It was a coupon that could be exchanged for postage stamps, needed to send a letter with air priority to other countries.
With so many immigrants sending money to poor relatives through the mail, Ponzi realized he could send money to a country whose currency was devalued against the dollar, like Italy.
Then buy those coupons there, to send them to the United States, then redeem them for US postage stamps, for a higher dollar value.
The business began to operate and in 1919 he established the Securities Exchanges Company. This company began to attract customers, who were promised a 50% profit in just 45 days.
Investing was all the rage and, according to chronicles of the time, “widows mortgaged their homes and savers took their money out of the banks” to give it to Ponzi schemes. It is estimated that he received $250,000 a day.
Already in 1920, the pyramid began to wobble. The trust crisis began when financial analyst Clarence Barron, on the Boston Post’s cover, published a report that declared that, weighs on those extraordinarily interested in losing it, Carlo Ponzi did not reinvest or a hundred of his enormous profits. the company.
On November 1, 1920, Carlo Ponzi was found guilty of fraud and sentenced to five years in prison. He was released three years later and was sentenced to nine more
He was imprisoned for several years, was deported to Italy, tried to practice the same regime in his country, without success. In 1949, he died in Brazil, mired in poverty.
Ponzi in Argentina
The Ponzi story seems distant, but it is not. Even today in WhatsApp statuses, Instagram stories or Facebook posts we can see people enthusiastic about the system that offers them to put in a sum of money and receive twice as much in a short time.
Like any Ponzi, these types of scams work well at first, growing at the bottom of the pyramid, until it all comes crashing down like a house of cards.
The most recent case in the media was the “Loom of Abundance”, which even involved people from show business, who really trusted the scheme.
There are also scammers who see cryptocurrencies as an opportunity and offer their victims unusual returns to catch them.
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