Ponzi schemes
Ponzi schemes are ‘get rich quick’ investment scams which pay returns to investors from their own money, or from money paid in by subsequent investors. There is no actual investment scheme as the fraudsters siphon off the money for themselves.
What is a Ponzi scheme?
A fraudster places an advertisement for a non-existent investment that offers extraordinary returns in a short space of time.
After receiving the promised returns on their investment, the first investors start to spread the word to family and friends. In this way, the scheme gains credibility.
Because the money isn’t invested in any kind of investment vehicle, there are no profits. Instead, the first investors are simply paid out from the money paid in by new investors.
Ponzi schemes are created for all levels of income, and have taken in investors in the top bracket as well as those on middle and low levels.
Typically, the fraudster will vanish with investors’ money, so the system eventually collapses with later investors receiving nothing - including their initial investment.
Because Ponzi schemes are unauthorised and make no profits, you are very unlikely to recover any lost money.
Are you a victim of a Ponzi scheme?
- You have been offered the opportunity to take part in a new investment scheme, or to attend a presentation or meeting with “key investors” about the scheme.
- You have subsequently invested money in this new scheme.
How to protect yourself from Ponzi schemes
Investment opportunities: Don’t be rushed into making an investment. Remember, legitimate organisations will never pressure you into investing on the spot.
You should treat investment opportunities with extreme caution if there’s:
- pressure to invest (eg time-limited offers)
- downplayed risk of losing your money
- promised returns that sound too good to be true
Seek advice first: Before making significant financial decisions, speak with trusted friends or family members, or seek professional independent advice.
FCA register: Use the Financial Conduct Authority’s (FCA) register to check if the company is regulated by the FCA. If you deal with a firm (or individual) that isn’t regulated, you may not be covered by the Financial Ombudsman Service (FOS) if things go wrong and you lose your money. For more information about how to invest safely, please check out this FCA guidance
What to do if you have been a victim of Ponzi schemes
If you have made a payment: Inform your bank as soon as possible, they can help you prevent any further losses. Monitor your bank statements regularly for any unusual activity.
Identity theft: If you have shared personal or financial information, and suspect your identity may have been stolen, you can check your credit file quickly and easily online. You should do this every few months anyway, using a reputable service provider and follow up on any unexpected or suspicious results. You can also sign up for Cifas services which can help to protect you against fraud.
You could be targeted again: Fraudsters sometimes re-establish contact with previous victims claiming that they can help them recover lost money, this is just a secondary scam. Hang up on any callers that claim they can get your money back for you.