Ponzi schemes are fraudulent investment schemes that promise high returns by using money from new investors to pay earlier backers, ultimately collapsing when new investment stops. Historical examples include Charles Ponzi's Securities Exchange Company in the 1920s and Bernie Madoff's scheme in 2008, which defrauded investors of $64.8 billion. Warning signs include promises of high returns with little risk, emphasis on recruiting new investors, and lack of transparency about operations.

1. Ponzi
Schemes
“ROB
PETER
TO
PAY
PAUL”

2. TableofContents
• Ponzi Schemes
• Introduction
• How Ponzi Schemes Work
• Key Features of Ponzi Schemes
• Historical Examples
• Charles Ponzi - Securities Exchange Company (1920s)
• Bernie Madoff and the Madoff Investment Scandal
(2008)
• Warning Signs of Ponzi Schemes
• Regulatory measures
• Ponzi scheme vs pyramid scheme
• Conclusion
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3. PonziSchemes
Understanding the Fraudulent Investment
Scheme :
• A Ponzi scheme is an investment fraud in
which clients are promised a large profit at
little to no risk. Companies that engage in
a Ponzi scheme focus all of their energy
into attracting new clients to make
investments.
• This new income is used to pay original
investors their returns, marked as a profit
from a legitimate transaction. Ponzi
schemes rely on a constant flow of new
investments to continue to provide
returns to older investors. When this flow
runs out, the scheme falls apart. 3

4. Introduction
• The Ponzi scheme generates returns for older
investors by acquiring new investors, who are
promised a large profit at little to no risk.
• The fraudulent investment scheme is premised on
using new investors' funds to pay the earlier
backers.
• Companies that engage in a Ponzi scheme focus
their energy into attracting new clients to make
investments, otherwise their scheme will become
illiquid.
• The SEC has issued guidance on what to look for in
potential Ponzi schemes including guarantee of
returns or unregistered investment vehicles with
the SEC.
• The largest Ponzi scheme was carried out by
Bernie Madoff, conning thousands of investors out
of billions of dollars.
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5. How Ponzi SchemesWork
• A Ponzi scheme begins with the scammer luring an initial
circle of investors with some asset or complicated investing
plan that promises incredibly high returns with very little
risk. These investors give their money to the scammer
thinking they've just made an investment, when their
money is actually just going directly into the scammer's
pocket.
• As the scammer lures additional investors into the scheme,
the original group of investors is often paid dividends with
the new investors' money. Sometimes the operator might
invest the money at the normal market rate, which will still
be significantly lower than whatever rate they promised.
• In order to sustain a Ponzi scheme, the fraudster needs to
continue finding new investors to continue paying their
current investors. These schemes usually fall apart when
the fraudster can't find new investors
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6. Key Features of Ponzi Schemes
1. There is an Application of Membership or Registration Fees When Joining
As previously mentioned, the profits obtained from this business are sourced from the circulation of money. This money
is obtained from each new member and then given to the old members as profit and part of it is taken to the business
owner.
Existing members also have the opportunity to earn additional profits or commissions if they successfully recruit new
people.
2. Promising Fantastic Profits with Minimal Risk (High Return)
The main characteristic of a business using a Ponzi scheme is that the lure will be promised big profits. The amount of
profit that exists is also very unreasonable, not infrequently there are also those who dare to offer profits above 50%.
Business owners with this scheme are generally very talkative and offer lucrative dreams. Unmitigated they also often
show positive testimonials from previous members in order to attract the curiosity and interest of new members to join.
3. Unclear or Gray Business Activities (Without Legality or Credibility)
Ponzi schemes are fraudulent methods in which there is no definite clarity regarding how this business can run including
financial reports from investors, strategies, and other things.
Despite telling the business scheme they are running, these scammers continue to sell dreams and sweet promises by
inviting more people to join.
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7. 4. Do not have a definite product to sell as a source of profit
• As with the ambiguity of existing business activities, the products sold in this
business can be said to be equally uncertain. If there is a product, usually
the business owner only makes up stories so that members or members
who are affiliated are willing to find new members.
• Therefore, existing businesses also do not have a Direct Selling Business
License (SIUPL) from the Investment Coordinating Board (BKPM).
5. The lure of higher profits when you want to quit
• Business owners with Ponzi schemes are always trying to keep their
members out or quit the business. When there are members or investors
who will resign, they usually immediately lure high profits.
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8. And Here we
Discuss some
Historical
Examples Of
Famous Ponzi
Schemes 8

9. Charles Ponzi - Securities Exchange Company (1920s)
In 1920, Ponzi organized a company called Securities Exchange
Co. in which he sold stock (promissory notes) advertising 50%
interest after 90 days. The funds obtained from investors were
supposed to be used to buy IRCs to redeem in the U.S.3 Instead,
Ponzi used funds obtained from new investors to pay off old
investors.
By way of explaining why he did this, Ponzi blamed the Universal
Postal Union for suspending the sale of IRCs once it learned about
his coupon redemption scheme. After attempting to get around the
suspension, Ponzi shifted to his “Rob Peter to pay Paul” scheme.
For a while, it worked. He raked in $15 million ($220 million in
2022 dollars) in the first eight months of 1920. He kept the
scheme going by telling investors he had created an elaborate
network of agents buying IRCs for him overseas that he could
redeem in the U.S. for a tidy profit. In fact, there was no elaborate
network of coupon buyers; he was using new investments to pay
off old investors.
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10. Bernie Madoff and the Madoff Investment Scandal (2008)
• Bernie Madoff, a well-known financier, was involved in the Madoff
Investment Scandal in 2008.
• Madoff operated a Ponzi scheme, promising high returns to
investors.
• The scheme collapsed when Madoff confessed that it was a fraud.
• Investors were defrauded of an estimated $64.8 billion in total.
• Many individuals, charities, and institutional clients were affected
by the scandal.
• Madoff used new investors' money to pay off earlier investors,
creating an illusion of success.
• The revelation of the scheme caused shockwaves in the financial
industry.
• Madoff was arrested and later pleaded guilty to various charges.
• He received a 150-year prison sentence for his role in the fraud.
• The Madoff scandal led to increased scrutiny and regulatory
reforms in the financial sector. 10

11. Warning Signs of Ponzi Schemes
• Promise of unusually high returns with little or
no risk involved.
• Emphasis on recruiting new investors rather
than focusing on legitimate investment
strategies.
• Lack of transparency regarding the investment
operation, strategy, or financial documentation.
• Difficulty or delays in receiving payments or
withdrawals.
• Unregistered or unlicensed individuals or entities
offering investment opportunities.
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12. Regulatory Measures
• Mandatory registration and licensing of investment firms and
financial professionals to ensure they meet specific criteria and
adhere to legal standards.
• Enhanced investor education programs to raise awareness about
the risks and warning signs of Ponzi schemes.
• Stringent reporting and transparency requirements for financial
institutions, including regular audits and disclosures, to detect
suspicious activities.
• Whistleblower protection measures to encourage individuals to
report Ponzi schemes without fear of retaliation.
• Collaboration between regulatory bodies, law enforcement
agencies, and financial institutions to share information,
investigate potential schemes, and take legal action against
perpetrators.flags that point to investment fraud, tools to facilitate
research on the Internet as well as through other mass media, and
mechanisms to receive and act on complaints from the public.
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13. Ponzi Scheme vs. Pyramid Scheme
PONZI SCHEME
• A Ponzi scheme is a mechanism to attract investors
with a promise of future returns. The operator of a
Ponzi scheme can only maintain the scheme as long
as new investors are brought into the fold.
PYRAMID SCHEME
• A pyramid scheme recruits other people and
incentivizes them to further bring along other
investors. A member within a pyramid scheme only
earns a portion of their proceeds and is "used" to
generate profit by members higher along the
pyramid.
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14. CONCLUSION
• Ponzi schemes are fraudulent investment scams that promise high returns
to investors by using money from new investors to pay off older ones.
• These schemes are named after Charles Ponzi, an infamous swindler who
used the technique in the early 20th century.
• Ponzi schemes rely on a constant influx of new investors to sustain the
illusion of profitability and pay out returns.
• Eventually, the scheme collapses when it becomes unsustainable to attract
new investors or when existing investors try to withdraw their funds.
• Ponzi schemes often result in substantial financial losses for the majority of
participants, while a few early investors may profit.
• Authorities and regulators actively work to detect and shut down Ponzi
schemes to protect investors from falling victim to these scams.
• Investors should exercise caution, do thorough research, and be wary of
investment opportunities promising unusually high returns, as they may be
indicative of a potential Ponzi scheme.
• Understanding the characteristics and warning signs of Ponzi schemes can
help individuals avoid becoming victims of financial fraud.
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