top of page

Ponzi Schemes

What Is a Ponzi Scheme?

A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds.


A pyramid scheme, also called a chain referral scheme, is a fraudulent business model in which new members are recruited with promises of payment tied to their ability to enroll future members in the scheme. As the membership pool expands exponentially, further recruiting becomes impossible and the “business” becomes unsustainable. A pyramid scheme often appears as a legitimate multi-level marketing (MLM) practice. A legitimate MLM uses the profits from downstream sales to pay bonuses to recruiters. However, pyramid schemes involve almost no legitimate sales. They are registered as a business, and they will have terms and conditions you would have to agree to inorder to participate. They will also issue you a 1099 of your earnings for the year.

Why Are They Illegal?

Chances are, if you ever participated in one, you have felt the pain of losing large sums of money and not being able to recoup the loses because the scammer was untraceable, or has spent all the funds they stole from you and others. These scams are illegal because they cause financial harm to individuals and the economy. All investment groups must be monitored and regulated by a governing authority and have to follow SEC laws. The scammers know this and play on your emotions of those who are anti government and taxes as a lure to get you to participate. Most of us hate paying taxes, and you may not always agree with the decisions of government. But when it comes to your personal finances, you would want to make sure any investment groups is registered and monitored. If you think you are paying too much in taxes, get a consult from another tax professional. This is for your SAFETY AND INSURANCE.

Pyramid Scheme Example Give and Take: An English scheme in which a group of operators requested £3,000 as an entry fee and promised a £20,000 bonus for recruiting a certain amount of new members. In the states this scam went by the names of "Blessing Loom, Infinity Loom, Blessing Circle, Giving Circle, etc." Eventually the money runs out for the people at the bottom of the pyramid. You wire money to unknown individuals via Western Union, MoneyGram, Zelle, CashApp, and the like - hoping to receive a wire from others.

Are Sou-Sou's a scam?

Not to be confuse this with a SuSu. SuSu's are legal within a small group of people that YOU KNOW (a closed circle), unlike Ponzie Schemes. A susu or sou-sou or asue is a form of rotating savings and credit association, a type of informal savings club arrangement between a small group of people. The name is used in Africa (especially West Africa) and the Caribbean. The basic principle is that each member of the group makes a standard contribution to a common fund once per some time period. Then each period the total contributions are disbursed to a single member of the group. The recipient changes each period in a rotating fashion such that all the members of the group are eventually recipients. Participants of a susu do not make a profit, but receive their contributions as a lump sum and is a forms of savings clubs. Scammers have set up pyramid schemes which imitate or pretend to be susus. The ring leader(s) will call it Black Economics and convince participants that it is the traditional form of the African Practice.

How to Avoid Scams!

  1. Look up all individuals who approach you with an "investment opportunity." Are they licensed professional or broker? What is their background education or experience wise? Check public records. Do they have a criminal background?

  2. Do they have a registered business in their state of operation?

  3. Do you have to use wire money to a personal bank account? if so, don't do it. Western Union, Money Graham, Cash App, or Zelle ARE NOT FDIC insured. And Zelle is a direct link to your bank account that enables fraudsters to withdraw funds with an authorization code. There is a false sense of security using Zelle as of late. Scammers use Zelle to. Read the terms on their website.

4. Learn your Reporting and regulatory agencies, and subscribe to their newsletters as they give you the heads up on the trending scams and latest arrests. If you are a victim, They will guide on the steps to take to file a report:

5. BEFORE MAKING ANY LARGE FINANCIAL DECISIONS OR INVESTMENTS, CALL YOUR LAWYER, FINANCIAL ADVISOR, or your PROFESSIONAL TAX ADVISOR! They have licenses, know the regulatory practices, and are legally bond to the law of ethics in their fields.

12 views0 comments

Recent Posts

See All


Rated 0 out of 5 stars.
No ratings yet

Add a rating
bottom of page