Talk:Ponzi scheme

not got caught

Is the anyone that has ever committed ponzi fraud without getting caught ? I do not think such is possible, yet people do them... —Preceding unsigned comment added by 91.152.161.130 (talk) 07:50, 11 November 2010 (UTC)

If they had, how would we know? Actually, one reason confidence tricks in general are often successful is that people don't like to admit to being conned (sometimes even to themselves). AndyTheGrump (talk) 22:21, 12 November 2010 (UTC)

Very true, we had this Egyptian mausoleum scheme in Finland that most victims didn't report to the police and have kept on participating in events organized by the conmen. In fact, the Finnish article on the case has been vandalized repeatedly by someone who feels that the main culprit is a persecuted genius or something. 212.68.15.66 (talk) 07:23, 16 February 2011 (UTC)

Yes It is an everyday occurence. Most people call it the money market but if reading the description of a ponzi scheme closely you will see that it describes the money markets to a tee with the only exception that it is backed by the governments. When the government backed the investors legally they had no idea that they would have to bail out the investors and that is the only reason the US and other governments paid Billions to the investors owning the stopck markets. They can not loose. The small investor looses as the law only covers the market investors. Ponzi schemes make money with hot air which is what the money markets do. Thinking --The Sleeper Awakes (talk) 19:53, 2 March 2011 (UTC)

Social Security?

I'm not sure that social security belongs here. We don't typically include all the things that some unspecified person compared to the topic of the article -- and I'm sure that if we were to do so, we could have a list a mile long. Including this particular comparison strikes me as promoting a point of view. So I'm going to edit that out, if it's alright -- but if anyone disagrees, please let me know and I'd be glad to discuss. Best, --TheOtherBob 21:55, 12 November 2010 (UTC)

It struck me as being off-topic, and arguably POV too. Wikipedia is an international project, and this was a purely US issue ('Social Security' means something entirely different in the UK for instance. If the matter should be discussed, this isn't the place to do it, but in an article on the US Social Security system. AndyTheGrump (talk) 22:17, 12 November 2010 (UTC)

I'm restoring it. You're right that we don't include all such comparisons. One difference here is that criticizing Social Security as a Ponzi scheme is a very popular right-wing talking point. If it isn't mentioned at all, there'll be a procession of ideologues editing the article to add Social Security as an example.

Even aside from that practical problem, I think that the analysis of the difference helps the reader gain further understanding of a Ponzi scheme.

As for AndyTheGrump's point, the discussion should be comprehensible to all because it's expressly referenced to "the Social Security program in the United States". Even UK readers can get an additional perspective on the concept of a Ponzi scheme by seeing how it compares to a program that has some similarities but also important differences. JamesMLane t c 22:22, 12 November 2010 (UTC)

I think you're overstating the extent to which this is a mainstream or popular right-wing point -- it seems to be fringe even for them. But even if we are bombarded with right-wing POV-warriors...well, then we are -- I'd say that it's better to have the article be NPOV. And I do think it's POV to include this -- it's like having an entry in the encyclopedia for "Idiot" and saying under it: "Some people believe that George Bush is an idiot, but he's not for x, y, and z reason." Even including him there makes a statement -- even if we then try to explain why (in our opinion) he doesn't belong.

Moreover, we end up having to take a point of view on the topic if we want to have it be of any value -- we have to explain why Social Security is not a Ponzi scheme. But Governor Rick Perry disagrees -- he has taken the view that it is. Who's right? Well, we are, frankly -- but we can't actually make that decision. We have to present both sides, be neutral, and come to the conclusion that it's disputed. Remarkably, if we don't remove this section, then we need to instead edit it so as to present the point of view of those who do think that it's a Ponzi scheme -- a view which is currently hinted at, but not properly represented. And that certainly doesn't belong on this page.

As to the second point, I also don't agree -- I've read it a couple of times now, and don't have any greater understanding of Ponzi schemes. In fact, it merely confuses the issue by introducing something that some people say is like a Ponzi scheme, and that does share certain superficial characteristics, but that most people think isn't a Ponzi scheme for somewhat fundamental reasons of government and economics. There's a colorable argument that the controversy (to the extent there is one) should be on the Social Security page -- it maybe helps explain what Social Security is and is not. But it doesn't tell the reader anything about Ponzi schemes -- it just confuses them. Given all of that, I can't think of any NPOV reason we'd want to have it here. --TheOtherBob 00:09, 13 November 2010 (UTC)

I think TheOtherBob has made the point well enough. I'd just add that I'm sure UK and other non-US readers are quite capable of understanding the article without needing off-topic explanations based on things they aren't actually trying to find out about. If the article isn't clear enough on what a Ponzi scheme is without this, then the article needs fixing, not extending to cover arbitrary things that aren't in the subject. There is also the issue of what other 'non-Ponzi schemes' might get added by other 'ideologues' out to prove a point. If the US Social Security system is included as a 'non-Ponzi' example, why shouldn't someone add their pet hate national Taxation scheme or whatever? The whole thing could get totally out of hand. Wikipedia already has well-honed methods to prevent 'ideologues' inserting off-topic comments into articles. We don't normally make concessions to them by adding off-topic waffle, so why should we do it here? AndyTheGrump (talk) 00:24, 13 November 2010 (UTC)

The comparison of Social Security in the U.S. to a Ponzi scheme has already been made at Social Security debate (United States). I don't see how it serves any utility here. Gobonobo ^{T C} 03:06, 13 November 2010 (UTC)

TheOtherBob writes, "Who's right? Well, we are, frankly -- but we can't actually make that decision. We have to present both sides, be neutral, and come to the conclusion that it's disputed." I disagree because I don't think that totally unjustified opinions must be given equal weight and respect. "Some people say the Earth is round, some say it's flat, so the only conclusion we can come to is that it's disputed." That's not how Wikipedia treats the shape of the Earth. Our article on Earth unqualifiedly asserts (I almost wrote "flatly asserts") that it's a sphere. The erroneous belief in a flat Earth is mentioned, the refutations of that belief are summarized, and the reader is directed to the Flat Earth article for a fuller treatment.

Our articles can't tackle every possible falsehood, but, as in the case of the flat Earth, we can and should address prominent ones. The Social-Security-as-Ponzi-scheme idea has been voiced by numerous elected officials (Perry being only the latest of a long line), by the prominent TV commentator Jim Cramer ([1]), and by a well-known think tank ([2]). It was considered important enough to merit attention on the Social Security Administration's website. A Google search for Ponzi "Social Security" -wikipedia generates more than two million hits. In sum, this particular falsehood about Ponzi schemes is different from hypothetical other falsehoods. We can provide this information without opening the floodgates to every lunatic theory that some lone blogger advances.

Nor does this topic entirely exclude our UK readers. It seems that the National Insurance plan hasn't come under quite the same level of attack, probably because we in the U.S. have a higher percentage of extreme right-wingers. Nevertheless, the argument is not unknown, having been raised in the Sunday Times ([3]) and elsewhere. The SSA's analysis of the issue would apply equally well to National Insurance and other similar plans, and thus will benefit even the non-American readers. JamesMLane t c 03:52, 13 November 2010 (UTC)

"The SSA's analysis of the issue would apply equally well to National Insurance and other similar plans, and thus will benefit even the non-American readers". Sorry, but that is patronising crap. UK politics does not tag along on the US's coat-tails, and we don't need to have economics explained by analogy with US policy. I'm sure that this is true elsewhere too. Unless you can explain why US 'lunatic theory' should be given more prominence in Wikipedia than that of other lunatics, I see no reason to include off-topic waffle for the convenience of US domestic politics.

Perhaps what is needed for the US context is an article entitled US Social Security described as a Ponzi Scheme or something like that: I see no reason why a link couldn't be provided from this article. It doesn't belong here though. AndyTheGrump (talk) 04:17, 13 November 2010 (UTC)

This is either a totally fringe idea, in which case it serves no purpose here, or it's a "very popular" one, in which case we can't dismiss it as a "flat earth" theory and must give it appropriate weight. And if we're to give it appropriate weight (as suggested by your argument about the millions of hits it receives), this article isn't the place to do it. As Gobonobo points out, there's another article that already handles it in a clearer context. Here the only real questions should be "does this example shed light on Ponzi schemes?" and "would some other example shed more light?" And the answers are "no" and "probably," in my view; I don't see what this adds -- and whatever it might add, I'm pretty sure we could work into a less confusing and discursive example. --TheOtherBob 06:03, 13 November 2010 (UTC)

You guys make good arguements for POV. However, censoring "unpopular" topics seems much like what the comunists due when trying to control the media and what their population is alound to know. The fact of the matter is, YES, social security is looking like a ponzi scheme. The reason for this, is as time goes on, younger generations will continue to pay in, while older generation benefit. Unfortunatly, that younger generation will not benefit from program as the older generation will, as the value of this security continues to drop. The program will eventually collaps, as too many people make claims, and the money isn't there to make the payoff. —Preceding unsigned comment added by 71.232.182.254 (talk) 22:14, 6 January 2011 (UTC)

It isn't a question of censorship (which is hardly confined to 'communist' countries anyway). It is about (a) keeping this article on-topic, and (b) not trying to impose our personal opinions of what might be a Ponzi scheme into the article. If there were mainstream reliable sources which stated that the US Social Security system was a Ponzi scheme (and explained why), and there was serious debate about the issue, it might be worth considering. However, this seems to be very much a fringe viewpoint, and including it would be giving it undue weight. AndyTheGrump (talk) 23:59, 6 January 2011 (UTC)

I'm late to this discussion but I think Social Security was actually an example made in Diamond's Overlapping generations model - with an infinite horizon, provided total output grows faster than obligations, a "Ponzi scheme" of this nature is actually sustainable. I can't recall who it was (Krugman?) that also compared it to the Hotel with an infinite number of rooms. In such a situation NOT running a "Ponzi scheme" is actually inefficient ("dynamic inefficiency") - and this is in fact one of the justifications from economic theory for social security (standard proofs of market efficiency require a finite set of goods - here we have an infinite number of goods, i.e. one at each period). So maybe we should put Soc Sec back in?Volunteer Marek (talk) 08:51, 23 May 2011 (UTC)

Sorry, but I think that is off-topic, if not WP:OR. If systems such as the US Social Security scheme aren't Ponzi schemes (which they manifestly aren't), they do not belong in the article. Frankly, I think economic theory has little relevance to the article anyway - or at least, any theory that assumes 'efficiency' is particularly relevant to human economic behaviour. If you wan't to understand why Ponzi schemes work, study psychology, not economics. AndyTheGrump (talk) 11:20, 23 May 2011 (UTC)

You're misunderstanding the point. But incidentally, the whole article is total OR as it is.Volunteer Marek (talk) 17:35, 23 May 2011 (UTC)

Rational Ponzi Games. 4:54 "Social Security the greatest and only true beneficial Ponzi scheme ever invented", attributed to Paul Samuelson. Volunteer Marek (talk) 18:19, 23 May 2011 (UTC)

Here is another source [4].Volunteer Marek (talk) 18:39, 23 May 2011 (UTC)

Inconsistent

Does 'unusually consistent' just mean 'inconsistent'? (first line) 94.172.114.173 (talk) 19:27, 31 March 2011 (UTC)

I think from the context it means 'exceptionally consistent'. It could be worded better though - I'll take a look at the sources, and see if I can clarify this. I suspect what it means is that a Ponzi scheme will be offered as supposedly giving a (high) fixed rate of return, where one would normally expect it to be variable. AndyTheGrump (talk) 19:34, 31 March 2011 (UTC)

Social Security and not discussing it

If you were a student who came to Wikipedia to learn why Social Security is or is not a Ponzi Scheme, due to the appointed keepers of this topic no such information is available. Why? Are you afraid of presenting the free flow of information and ideas? At the very least, there should be a subtopic that has a paragraph explaining what is going on, and what could form the basis for suggesting SS is one, and why it may not be. Don't hide your heads in the sand. You will make Wikipedia irrelevant by doing so. — Preceding unsigned comment added by 64.185.118.19 (talk) 02:48, 8 September 2011 (UTC)

I suggest you read the section above entitled 'Social Security?'. Wikipedia articles are based on reliable sources, not on the parochial agendas of certain U.S. politicians. And I'd hope that students wishing to learn about the U.S. Social Security scheme would look there, rather than here - or are they supposed to reach a conclusion, and then look for evidence to back it up? AndyTheGrump (talk) 02:55, 8 September 2011 (UTC)

I did read the discussion above. And obviously I am not the only one who thinks Wikipedia should be more informative. Whether one agrees with Perry or not is not the point - Wikipedia should also be the repository of all socially important information, not just what the moderators like you think is important. This is a fundamental flaw of Wikipedia on many topics - censoring of discussion and information. I am sure that you disagree of course since you come across as perfect and incapable of recognizing your flaws. Too bad.

Wikipedia doesn't have 'moderators'. We do however have policies, arrived at by consensus, and administrators given some additional powers to ensure that this consensus is maintained - though as it happens, I'm not an administrator either. As I have already stated, we base articles on external sources, not on political agendas. And by the way, discussions about whether U.S. Social Security is or isn't a Ponzi scheme is probably only 'socially important' to a minority of our readers - this is an international project, and our articles need to be 'informative' to more than a narrow section of the U.S. electorate. As I pointed out above, an article about everything somebody had described as a Ponzi scheme would be rather long... AndyTheGrump (talk) 03:46, 8 September 2011 (UTC)

So someone in Russia who goes to the English version of Wikipedia to find out how the American Social Security system is similar to a Ponzi Scheme will find nothing, and fail to understand a point trying to be made that impacts all governments around the world, i.e., don't promise things you don't have the money for anymore. If you leave out all things political, then why is McCarthyism discussed in Wikipedia? Why are Democratic and Republican Parties topics? Besides, politics are what brought down the Berlin Wall and destroyed the Soviet Union among other things. And unfortunately minority politics destroyed the World Trade Centers. Further, it appears that because something is important only to a minority of readers, you advocate Wikipedia not including any information on it. So just who determines the "minorityness" exclusion? Just as Google killed Yahoo as a search engine, someone will takeover Wikipedia because of its self-appointed keepers reducing the relevancy of the content. — Preceding unsigned comment added by 64.185.118.19 (talk) 03:59, 8 September 2011 (UTC)

You misunderstand: we aren't excluding political topics. We are however asking that they be sourced, and dealt with in a balanced way. So far, All we've seen regarding this article is a few people wishing to label U.S. Social Security as a Ponzi scheme, without providing evidence from reliable sources (i.e. the non-fringe media) that it is a Ponzi scheme, or is even seen as one by anyone but the politically-motivated. Find the sources, and content can be added to the article, but you need to show their relevance first. AndyTheGrump (talk) 04:24, 8 September 2011 (UTC)

I'm thinking, Andy, that we should have a section something like "Ponzi schemes in the news" (needs a better header than that, though). Here we could catalogue where the term Ponzi scheme is used to describe notable events, such as the Bernie Madoff scheme and also that notable folks such as the Governor of Texas (and others I presume) describe Social Security as a Ponzi scheme. We can say that there is disagreement whether this is a Ponzi scheme or not, citing reputable sources.

Your thoughts? Madman (talk) 21:14, 8 September 2011 (UTC)

The trouble is that you are expanding the article topic well beyond the existing subject matter. I'd say that the U.S. "social security as a Ponzi scheme" subject would be better handled as a topic on its own - if there is enough coverage to merit substantial discussion, it doesn't belong here. We already discuss the issue briefly in Us social security#Claim that it is a Ponzi scheme, and expansion of that, or preferably creation of a new article if there is the material for it, would seem a better course. Discussing it here would seem to me to be a POV fork of the social security article. AndyTheGrump (talk) 21:27, 8 September 2011 (UTC)

While I also suggested including something about Social Security in the article above the thing is that: 1) people are going to try to do it in a wrong way (i.e. something like "Soc Sec is a scam like the Ponzi scheme" rather than the right way, based on actual economists' views, which would be something like "Soc Sec may be a type of Ponzi scheme that actually works for the benefit of everyone") and 2) at this point it's not necessary. I'd say clean up the rest of the article first, since it really needs it, then we can discuss putting something like that in there. Volunteer Marek  18:04, 12 September 2011 (UTC)

If there were serious economists (as opposed to political pundits) who stated that the U.S. social security scheme was a Ponzi scheme, it just might merit mentioning in an expanded article - as what is very much a minority point of view. We need to remember that this is an international project, and this particular 'issue' is almost exclusively a U.S. concern. I don't see that it is relevant to this article as it currently stands - which is about criminal Ponzi schemes for which individuals have been convicted. Expanding content to suit the demands of a subsection of the U.S. political right wing looks like undue weight to me though. But yes, this article (and the related List of Ponzi schemes) needs a lot of work. AndyTheGrump (talk) 20:20, 12 September 2011 (UTC)

If a girl hosts a tea party and tells her dolls and stuffed animals the US social security system is a "Ponzi scheme", then this doesn't automatically qualify as reliable source and NPOV... -- 84.142.55.111 (talk) 22:16, 20 September 2011 (UTC)

proper definition of a Ponzi scheme

Although the definition of a Ponzi scheme cited at the beginning of the article is very commonly quoted, it technically is not the complete definition, which is what spawns all the talk of whether Social Security is a Ponzi scheme. The standard economists' definition of a Ponzi scheme requires, in addition to the conditions already mentioned in the article, that a Ponzi scheme promise higher returns than can be obtained in the market. Without that condition, many completely legal financial arrangements would have to be considered Ponzi schemes on top of Social Security, including insurance and annuities companies. Social Security does not promise higher returns than what can be earned in the market, so it is not a Ponzi scheme. Gronteam 129.123.183.12 (talk) 22:40, 12 September 2011 (UTC)

Totally agree. Seems perfectly logical and necessary to me, although I'd be loathe to disrupt the spirit of the discussion. I hope this doesn't subsequently turn into a disagreement over precise definition, though. — Preceding unsigned comment added by 92.20.115.160 (talk) 13:51, 12 October 2012 (UTC)

Makes sense, certainly. What we really need though is a published reliable source we can cite for this. At the moment we are citing the US SEC [5] for the definition, which might not be seen as an ideal source. It says that promises of "High investment returns with little or no risk" are a "red flag" for a Ponzi scheme, which more or less covers the point, but frankly I'd rather see an academic source or similar being cited for the whole definition, just to avoid any suggestion that the definition we use is somehow biased. I'm sure that such sources can be found, and I'll see if I can locate one. Meanwhile, if anyone else finds one, please either note it here, or add it to the article. AndyTheGrump (talk) 18:54, 12 October 2012 (UTC)

Although a recognised technically accurate and complete definition from a citable source would be good, it is not necessary in order to refute the proposition that Social Security and National Insurance are Ponzi Schemes: the current definition will do just fine for that. I just ran across this article and the first thing that came into my mind when I read the first paragraph defining a Ponzi Scheme was, "That sounds just like National Insurance, to me!" (I'm from the UK.) I opened the talk page just to make the point and found that almost the whole talk page is a discussion about it! However, although it sounds like a Ponzi Scheme, National Insurance (and I assume that US Social Security is similarly administered) is NOT a Ponzi scheme if we go by the whole current definition in the first paragraph of the article, because neither UK NI nor US SS include any promise of "short-term returns that are either abnormally high or unusually consistent". The promise is of a long-term provision, that may not even match (in real terms) the level of the 'investment' (especially if you calculate the value of the 'investment' from the beginning of someone's working life until retirement using discounted cash flow). Neither is anyone enticed into investing in it: they are compelled by government edict, although, it is true that in the UK at least, there may be some level of enticement to make "additional contributions". Hedles (talk) 08:39, 18 December 2012 (UTC)

Seems to me that an important part of a Ponzi scheme is that the investors don't know how it works. In the case of Social Security, we know exactly how it works, and often enough, how much money is in the account. I might agree with what Madoff seems to have claimed after he was caught, though: that the national and world economies are pretty similar to Ponzi schemes. Note the assumption that, on the average, the economy should keep growing exponentially forever. As with exponential population growth, it has to stop somewhere. Gah4 (talk) 23:18, 5 February 2016 (UTC)

External links

This article seems to collect spammy external links. I would suggest that people people who wish to add external links first discuss the matter here, especially if the link has already been removed in the past. Keep in mind that we have a guideline on what constitutes a valid external link; Wikipedia is not a platform for promotion or an indiscriminate collection of links. External links must offer a unique resource – that means that some person's blog is generally not suitable. NinjaRobotPirate (talk) 04:48, 10 January 2015 (UTC)

fractional reserve banking

How does fractional reserve banking relate to Ponzi Schemes? --197.228.46.75 (talk) 19:49, 16 September 2016 (UTC)

Cryptocurrency

The consensus is that this is not a well-formed RfC. Editors recommended starting a new RfC that identifies the content in the article that is disputed and what sources are involved. See Wikipedia:Writing requests for comment for guidance.

Editors noted that reliable sources have compared cryptocurrencies to Ponzi schemes but that whether the content in the article complies with WP:DUE weight could be discussed further.

Cunard (talk) 06:01, 14 January 2018 (UTC)

The following discussion is closed. Please do not modify it. Subsequent comments should be made on the appropriate discussion page. No further edits should be made to this discussion.

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Recently among pop-finance reporters it's become in vogue to describe cryptocurrency as "Ponzi-like" without any clarification of how or why Ponzi schemes are a useful apparatus for understanding cryptocurrency - which seems to be chiefly to be a speculative asset bubble.

I would refrain from editing this article to suggest equivalency between Ponzi schemes and crypto because while the two may have some superficial similarities - and I certainly don't endorse cryptocurrency as an asset! - understanding one does not significantly aid in understanding the other.

Thanks for your time and consideration. — Preceding unsigned comment added by 129.255.1.141 (talk) 19:23, 6 December 2017 (UTC)

Hi, you need to understand that you are removing content that has been supported by reliable sources and only providing your opinion as a reason why. If you can provide some reliable sources of your own here on the talk page to support your concerns, then perhaps some re-editing of the article would be in order. Until then, if you just continue to repeatedly remove the same content, you may find yourself blocked due to edit warring. - ^theWOLFchild 20:06, 6 December 2017 (UTC)

Happily, I'd like to you to take the time and read the original uncited edit written by aerojmac - specifically the section reading "Cryptocurrencies, with no functioning, tax collecting government to back up their value, are also considered Ponzi schemes. They offer abnormally high returns, need a continuous flow of new investors to prop the price up, transaction costs prohibit the sale of these "commodities," and there is no legitimate business function behind the market value. For instance, the market capitalization of Bitcoin on 11/22/2017 surpassed that of McDonald's." This edit has been flagged and pulled by several contributors before having the text re-added with the following citation: http://money.cnn.com/2017/09/21/investing/bitcoin-ponzi-scheme/index.html - a citation which in no way justifies the language added by aerojmac. — Preceding unsigned comment added by Jathomas (talk • contribs) 20:21, 6 December 2017 (UTC)

RfC

It's clear that speculative asset bubbles are an appropriate lens to view some Ponzi-like vehicles but two users are insisting on adding a formal, uncited reference calling crypto a Ponzi scheme with no clear citation, explanation or POV. Jathomas (talk) 15:54, 13 December 2017 (UTC)

I suggest you withdraw the RfC, rewrite it, then start again. --Ronz (talk) 22:13, 13 December 2017 (UTC)

First, clearly identify the content in dispute and it's sources. Is it this or the larger content? --Ronz (talk) 22:18, 13 December 2017 (UTC)

I've added two references referring to cryptocurrencies being bubbles: 1, 2. Jonpatterns (talk) 17:32, 14 December 2017 (UTC)

(Invited by a bot) This RFC is poorly formed. Please read WP:RFC and restate the request with a simple NPOV question. Jojalozzo (talk) 04:45, 16 December 2017 (UTC)

Counter Punch is not a reliable source, but the Financial Times, Bloomberg, and government press releases that warn of crypto ponzis are reliable. I support adding commentary to this article calling cryptos ponzis if it is from a reliable source, but if the source is not a normal channel of communication for financial news, then it's probably not a reliable source. Waters.Justin (talk) 19:53, 9 January 2018 (UTC)

As others have said, this isn't a well-formed RFC, but I can say with certainty that reliable sources referencing the idea of cryptocurrencies being a ponzi scheme at least exist (and people seem to be linking some above.) The question you probably want to be asking is whether those sources pass WP:DUE weight for inclusion on this page, which I think is slightly more complicated (IMHO a sentence might not be undue, but probably isn't required, either. More than that would probably be excessive.) --Aquillion (talk) 20:13, 10 January 2018 (UTC)

Continuing discussion

I'm also concerned that the source doesn't verify the information. --Ronz (talk) 00:21, 19 December 2017 (UTC)

Please see:

• U.S. Attorneys Office for the Southern District of New York (September 21, 2015) "Texas Man Pleads Guilty In Manhattan Federal Court To Operating Bitcoin Ponzi Scheme",Press Release.
• U.S. Securities and Exchange Commission Office of Investor Education and Advocacy (June, 2013) "Ponzi schemes Using virtual Currencies", Investor Alert, SEC Pub. No. 153.
• Murphy, E.V.; Murphy, M.M., and Seitzinger, M.V. (October 13, 2015) "Bitcoin: Questions, Answers, and Analysis of Legal Issues", Congressional Research Service CRS Report R43339.
• The Viking Cop (October 28, 2017) "Assessment of Cryptocurrencies and Their Potential for Criminal Use", Divergent Options.
• Jacquez, T. (2016) "Cryptocurrency the new money laundering problem for banking, law enforcement, and the legal system", Utica College dissertation.
• Klimasinska, K. (June 12, 2015) "Terrorists Eyeing Bitcoin, Social Media to Fund Jihad, U.S. Says" Bloomberg News.
• Last but by no means least, User:David Gerard has a book about the topic: Gerard, D. (July 24, 2017) Attack of the 50 Foot Blockchain, (London: CreateSpace) ISBN 978-1974000067.

EllenCT (talk) 14:46, 25 December 2017 (UTC)

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The discussion above is closed. Please do not modify it. Subsequent comments should be made on the appropriate discussion page. No further edits should be made to this discussion.

Try to explain Ponzi schemes to my natives in Yakutia

We had lately super popular investment firm here in Yakutsk where people lost all of their saving to make a 600% return, how I tried hard to convince some of my fellows not to do that, they did. Humans sometimes are irrational. — Preceding unsigned comment added by Albertiealik (talk • contribs) 02:31, 7 February 2019 (UTC)

NYU journal article about trustee actions in relation to ponzi schemes

Found this journal article https://www.law.nyu.edu/sites/default/files/upload_documents/NYU-Annual-Survey-68-2-Axelrod.pdf

The whole issue is at https://annualsurveyofamericanlaw.org/wp-content/uploads/2015/01/68-2_full_issue.pdf

WhisperToMe (talk) 17:43, 25 December 2019 (UTC)

starting

The article doesn't say anything about how Ponzi schemes start. I suspect that many don't start out that way, but slowly turn into one, after which it is too hard to get out. Of course one would need a WP:RS, but I suspect one can be found. Gah4 (talk) 04:30, 1 May 2020 (UTC)

No history section

Why does this article lack and kind of history section? Who started the first Ponzi scheme? Who coined the definition? Is there a list of historical ponzi schemes? — Preceding unsigned comment added by 124.182.193.231 (talk) 10:09, 13 February 2021 (UTC)

Was Baldomera Larra Wetoret (Madrid, 1833 - Havana, 1915) the author of the first Ponzi scheme?

Hello all, this is my first contribution to a Talk in Wikipedia so excuse me if I'm using it incorrectly.

In the Spanish, Catalan and Polish Wikipedia, there is an article about Baldomera Larra, daughter of the famous Spanish writer Mariano José de Larra. There, they claim (with some references, mostly from Spanish outlets) she was the first person to successfully pull of a Ponzi Scheme. There are news articles from the 26th of May of 1879 talking about her sentencing in Madrid and extradition from France, where she had escaped to. Does anyone know anything about this? Should it be included in this article?

Baldomera Larra's article is not yet translated to English. I am more than happy to do so if you think it is useful UtopianIsland (talk) 13:51, 20 July 2022 (UTC)

FTX as a Ponzi scheme

The cryptocurrency exchange FTX has just collapsed. Sam Bankman-Fried's promised 8% yield, based on his promotion of his ability to exploit a price differential between crypto exchanges hearkens right back to Charles Ponzi and his postage reply coupon scheme. This is not meant to suggest that all cryptocurrency markets are Ponzi schemes -- but FTX certainly seems to have been one. I suggest adding FTX to this article as the situation develops. 75.101.104.17 (talk) 08:25, 14 November 2022 (UTC)

I haven't followed it that close, but in any case you need a WP:RS. Gah4 (talk) 08:37, 14 November 2022 (UTC)

Sarah Howe example just looks like theft

The way Sarah Howe's "earliest recorded example of a Ponzi scheme" is written it just seems like theft rather than a scheme. 82.1.172.230 (talk) 08:08, 26 February 2023 (UTC)

Ponzi or ponzi?

The article almost consistently spells Ponzi with a capital P, even when it is not a direct reference to Chales Ponzi. However, in four cases it didn't, so I've change these. For the record, they were:

1. Cryptocurrency Ponzi ... Another example of a well known ponzi scheme ...
2. Ponzi finance The term "ponzi finance" generally designates ...
3. Ponzi game In economics, the term "ponzi game" designates ...
4. References ... For further examples of ponzi schemes involving cryptocurrencies see ...

(Arguably, 2. and/or 3. could be lowercase while the rest are upper case.) Nø (talk) 08:42, 2 December 2024 (UTC)

They should all be lower case. The word is being used as a normal English adjective or noun. Its origin as someone's name is not relevant. Roger 8 Roger (talk) 09:10, 2 December 2024 (UTC)

I don't think it is that clearcut; see e.g. Eponym#Capitalized versus lowercase (with the following quote from Chicago MoS: "Authors and editors must decide for themselves, but whatever choice is made should be followed consistently throughout a work.").

If there had been a significant number of lower-case "ponzi"s in the article, I would have changed it to that - but there wasn't (less than 10%), so I changed it the other way, for consistency. Nø (talk) 11:26, 2 December 2024 (UTC)

For schemes that promise rewards based on enrolling ever larger numbers of people, see Pyramid scheme.

A Ponzi scheme (/ˈpɒnzi/, Italian: [ˈpontsi]) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, this type of scheme misleads investors by either falsely suggesting that profits are derived from legitimate business activities (whereas the business activities are non-existent), or by exaggerating the extent and profitability of the legitimate business activities, leveraging new investments to fabricate or supplement these profits. A Ponzi scheme can maintain the illusion of a sustainable business as long as investors continue to contribute new funds, and as long as most of the investors do not demand full repayment or lose faith in the non-existent assets they are purported to own.

Some of the first recorded incidents to meet the modern definition of the Ponzi scheme were carried out from 1869 to 1872 by Adele Spitzeder in Germany and by Sarah Howe in the United States in the 1880s through the "Ladies' Deposit". Howe offered a solely female clientele an 8% monthly interest rate and then stole the money that the women had invested. She was eventually discovered and served three years in prison. The Ponzi scheme was also previously described in novels; Charles Dickens's 1844 novel Martin Chuzzlewit and his 1857 novel Little Dorrit both feature such a scheme.

In the 1920s, Charles Ponzi carried out this scheme and became well known throughout the United States because of the huge amount of money that he took in. His original scheme was purportedly based on the legitimate arbitrage of international reply coupons for postage stamps, but he soon began diverting new investors' money to make payments to earlier investors and to himself. Unlike earlier similar schemes, Ponzi's gained considerable press coverage both within the United States and internationally both while it was being perpetrated and after it collapsed – this notoriety eventually led to the type of scheme being named after him.

Characteristics

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In a Ponzi scheme, a con artist offers investments that promise very high returns with little or no risk to an investor. The returns are said to originate from a business or a secret idea run by the con artist. In reality, the business does not exist or the idea does not work in the way it is described or the extent of returns is made up or exaggerated. The con artist pays the high returns promised to their earlier investors by using the money obtained from later investors. Instead of engaging in a legitimate business activity, the con artist attempts to attract new investors to make the payments that were promised to earlier investors. The operator of the scheme also diverts clients' funds for the operator's personal use.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes collapse. As a result, most investors end up losing much or all of the money they invested. In some cases, the operator of the scheme may simply disappear with the money.

Red flags

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According to the U.S. Securities and Exchange Commission (SEC), many Ponzi schemes share characteristics that should be "red flags" for investors.

• High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Any "guaranteed" investment opportunity should be considered suspect.
• Overly consistent returns. Investment values tend to go up and down over time, especially those offering potentially high returns. An investment that continues to generate regular positive returns regardless of overall market conditions is considered suspicious.
• Unregistered investments. Ponzi schemes typically involve investments that have not been registered with financial regulators (like the SEC or the Financial Conduct Authority (FCA)). Registration is important because it provides investors with access to key information about the company's management, products, services, and finances.
• Unlicensed sellers. In the United States, federal and state securities laws require that investment professionals and their firms be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
• Secretive or complex strategies. Investments that cannot be understood or on which no complete information can be found or obtained are considered suspicious.
• Issues with paperwork. Account statement errors may be a sign that funds are not being invested as promised.
• Difficulty receiving payments. Investors should be suspicious of cases where they don't receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.

According to criminologist Marie Springer, the following red flags can also be of relevance:

• The sales personnel or adviser are overly pushy or aggressive (may involve high-pressure sales).
• The initial contact took place by a cold call or through a social network, a language-based radio or a religious radio advertisement.
• The client cannot determine the actual trades or investments that have been carried out.
• The clients are asked to write checks with a different name than the name of the corporation (such as an individual) or to send checks to a different address than the corporate address.
• Once the maturity date of their investment arrives, clients are pressured to roll over the principal and the profits.

Methods

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Typically, Ponzi schemes require an initial investment and promise above-average returns. They use vague verbal guises such as "hedge futures trading", "high-yield investment programs", or "offshore investment" to describe their income strategy. It is common for the operator to take advantage of a lack of investor knowledge or competence, or sometimes claim to use a proprietary, secret investment strategy to avoid giving information about the scheme.

The basic premise of a Ponzi scheme is "to rob Peter to pay Paul". Initially, the operator pays high returns to attract investors and entice current investors to invest more money. When other investors begin to participate, a cascade effect begins. The schemer pays a "return" to initial investors from the investments of new participants, rather than from genuine profits.

Often, high returns encourage investors to leave their money in the scheme, so that the operator does not actually have to pay very much to investors. The operator simply sends statements showing how much they have earned, which maintains the deception that the scheme is an investment with high returns. Investors within a Ponzi scheme may face difficulties when trying to get their money out of the investment.

Operators also try to minimize withdrawals by offering new plans to investors where money cannot be withdrawn for a certain period of time in exchange for higher returns. The operator sees new cash flows as investors cannot transfer money. If a few investors do wish to withdraw their money in accordance with the terms allowed, their requests are usually promptly processed, which gives the illusion to all other investors that the fund is solvent and financially sound.

Ponzi schemes sometimes begin as legitimate investment vehicles, such as hedge funds that can easily degenerate into a Ponzi-type scheme if they unexpectedly lose money or fail to legitimately earn the returns expected. The operators fabricate false returns or produce fraudulent audit reports instead of admitting their failure to meet expectations, from which point on the operation can be considered a Ponzi scheme.

A wide variety of investment vehicles and strategies, typically legitimate, have become the basis of Ponzi schemes. For instance, Allen Stanford used bank certificates of deposit to defraud tens of thousands of people. Certificates of deposit are usually low-risk and insured instruments, but the Stanford certificates of deposit were fraudulent.

Unraveling

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Theoretically, it is possible for certain Ponzi schemes to ultimately "succeed" financially, at least as long as a Ponzi scheme was not what the promoters were initially intending to operate. For example, a failing hedge fund reporting fraudulent returns could conceivably "make good" its reported numbers, for example by making a successful high-risk investment. Moreover, if the operators of such a scheme are facing the likelihood of imminent collapse accompanied by criminal charges, they may see little additional "risk" to themselves in attempting to cover their tracks by engaging in further illegal acts to try and make good the shortfall (for example, by engaging in insider trading). Especially with investment vehicles like hedge funds that are regulated and monitored less heavily than other investment vehicles such as mutual funds, in the absence of a whistleblower or accompanying illegal acts, any fraudulent content in reports is often difficult to detect unless and until the investment vehicles ultimately collapse.

Typically, however, if a Ponzi scheme is not stopped by authorities it usually falls apart for one or more of the following reasons:

1. The operator vanishes, taking all the remaining investment money. Promoters who intend to abscond often attempt to do so as returns due to be paid are about to exceed new investments, as this is when the investment capital available will be at its maximum.
2. Since the scheme requires a continual stream of investments to fund higher returns, if the number of new investors slows down, the scheme collapses as the operator can no longer pay the promised returns (the higher the returns, the greater the risk of the Ponzi scheme collapsing). Such liquidity crises often trigger panics, as more people start asking for their money, similar to a bank run.
3. External market forces, such as a sharp decline in the economy, can often hasten the collapse of a Ponzi scheme (for example, the Madoff investment scandal during the market downturn of 2008), since they often cause many investors to attempt to withdraw part or all of their funds sooner than they had intended.

In some cases, two or more of the aforementioned factors may be at play. For example, news of a police investigation into a Ponzi scheme may cause investors to immediately demand their money, and in turn cause the promoters to flee the jurisdiction sooner than planned (assuming they intended to eventually abscond in the first place), thus causing the scheme to collapse much faster than if the police investigation had simply been permitted to run its course.

Similar schemes

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Pyramid scheme

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A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:

• In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. Failure to recruit typically means no investment return.
• A Ponzi scheme claims to rely on some esoteric investment approach, and often attracts well-to-do investors, whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments.
• A pyramid scheme typically collapses much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive (at least in the short-term) simply by persuading most existing participants to reinvest their money, with a relatively small number of new participants.

Cryptocurrency Ponzi

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Cryptocurrencies have been employed by scammers attempting a new generation of Ponzi schemes. For example, misuse of initial coin offerings, or "ICOs", has been one such method, known as "smart Ponzis" per the Financial Times. Most schemes have a low recovery rate with investors losing their funds permanently.

The novelty of ICOs means that there is currently a lack of regulatory clarity on the classification of these financial devices, allowing scammers wide leeway to develop Ponzi schemes using these pseudo-assets. Also, the pseudonymity of cryptocurrency transactions and their international nature involving countless jurisdictions in many different countries can make it much more difficult to identify and take legal action (whether civil or criminal) against perpetrators.

The May 2022 collapse of TerraUSD, a stablecoin propped up by a complex algorithmic mechanism offering 20% yields, was described as "Ponzinomics" by Wired. Another example of a well known Ponzi scheme involving cryptoassets was the ICO of AriseBank or AriseCoin, involving claims about founding the world's first "decentralized bank". The SEC successfully recovered the funds stolen in the ICO. A similar scheme was perpetrated by the founders of the fraudulent cryptocurrency Bitconnect.

In September 2022, Jamie Dimon, CEO of JPMorgan, described cryptocurrencies as "Decentralised Ponzi Schemes".

Economic bubble

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Economic bubbles are also similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant until inevitable collapse. A bubble involves ever-rising prices in an open market (for example stock, housing, cryptocurrency, tulip bulbs in the case of the first, or the Mississippi Company) where prices rise because buyers bid more, and buyers bid more because prices are rising. Bubbles are often said to be based on the "greater fool" theory. As with the Ponzi scheme, the price exceeds the intrinsic value of the item, but unlike the Ponzi scheme:

• In most economic bubbles, there is no single person or group misrepresenting the intrinsic value. A common exception is a pump and dump scheme (typically involving buyers and holders of thinly-traded stocks), which much more closely resembles a Ponzi scheme than other types of bubbles.
• Ponzi schemes typically result in criminal charges when authorities discover them but, other than pump and dump schemes, economic bubbles do not typically involve unlawful activity, or even bad faith on the part of any participant. Laws are only broken if someone perpetuates the bubble by knowingly and deliberately misrepresenting facts to inflate the value of an item (as with a pump and dump scheme). Even when this occurs, wrongdoing (and especially criminal activity) is often much more difficult to prove in court compared to a Ponzi scheme. Therefore, the collapse of an economic bubble rarely results in criminal charges (which require proof beyond a reasonable doubt to secure a conviction) and, even when charges are pursued, they are often against corporations, which can be easier to pursue in court compared to charges against people but also can only result in fines as opposed to jail time. The more commonly-pursued legal recourse in situations where someone suspects an economic bubble is the result of nefarious activity is to sue for damages in civil court, where the standard of proof is only balance of probabilities and where the plaintiff need not demonstrate mens rea.^{[citation needed]}
• In some jurisdictions^[which?], following the collapse of a Ponzi scheme, even the "innocent" beneficiaries are liable to repay any gains for distribution to the victims^{[citation needed]}. In this context, "innocent" beneficiaries can include anyone who unwittingly profited without being aware of the fraudulent nature of the scheme, and even charities to which perpetrators often give to relatively generously while a scheme is in operation in an effort to enhance their own profile and thereby "profit" from the resulting positive media coverage. This typically does not happen in the case of an economic bubble^{[citation needed]}, especially if nobody can prove the bubble was caused by anyone acting in bad faith, moreover a person whose own participation in an economic bubble is not particularly notable is not likely to enhance participation in the bubble and thus personally profit by donating to charity.
• Items traded in an economic bubble are much more likely to have an intrinsic value that is worth a substantial proportion of the market price^{[citation needed]}. Therefore, following collapse of an economic bubble (especially one in a commodity such as real estate) the items affected will often retain some value, whereas an investment that is part of a Ponzi scheme will typically be worthless (or very close to worthless). On the other hand, it is much easier to obtain financing for many items that are the frequent subject of bubbles. If an investor trading on margin or borrowing to finance investments becomes the victim of a bubble, he or she can still lose all (or a very substantial portion) of his or her investment capital, or even be liable for losses in excess of the original capital investment.^{[citation needed]}

Exit scam

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A Ponzi scheme which ultimately terminates with the operator absconding is similar to an exit scam. The main difference is that an exit scam does not involve any sort of investment vehicle with the accompanying promised returns. Instead, exit scammers either accept payment for product which they never ship (usually after gaining a reputation for reliably shipping of products) or steal funds held in escrow on behalf of third parties (the latter often involves the operators of illegal darknet markets that facilitate the sale of illicit goods and services).

Related concepts

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Ponzi finance

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The term "Ponzi finance" generally designates non-sustainable patterns of finance, such as borrowers who can only meet their debt commitment if they continuously obtain new sources of financing, often at an accelerating pace and/or ever-increasing interest rates until the borrower cannot secure more financing at any interest rate and becomes insolvent. The term was first coined by economist Hyman Minsky.

Ponzi game

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In economics, the term "Ponzi game" designates a hypothesis where a government continuously defers the repayment of its public debt by issuing new debt: each time its existing debt arrives at maturity, it borrows funds from new and/or existing lenders in order to repay its existing debt.Ponzi DBGamer (talk) 21:31, 19 March 2025 (UTC)