Yes, indeed! There are “lions and tigers and bears, oh my!” But the Internet jungle is also populated with sneaky snakes. These slimy creatures can sneak up on you and have you wrapped up, tied with a red bow and have your pocket picked before you know it.
The Ponzi scheme is one such sneaky snake ploy that isn’t all that easy to identify. On the surface it appears to be a perfectly legitimate business enterprise.
You may be wondering how the Ponzi Scheme got its name. There was a person by the name of Ponzi….Charles Ponzi. He was born in Italy in 1882 and migrated to the United States as a very young man of a tender 21 years in 1903. He was a poor boy. He had only two dollars and fifty cents in his pocket when he landed on our shores. He was poor but he had big dreams and a whole boat load of ambition…not to mention a propensity for shady dealing. He pulled off one of the worse swindling schemes in history…so bad that the swindle bears his name…the Ponzi Scheme.
He stole some money, got caught, went to prison, met a man by the name of Charles Morse and learned that rich people can get away with almost anything. He decided to become rich.
He married a woman named Rose Gnecco in 1918. He suffered through several failed business ventures. One such failed adventure was a catalog similar to what we know today as the yellow pages. His business failed shortly after he launched this campaign but a few weeks later he received a letter from a company in Spain asking about the catalog. Included in the letter was a ‘postal coupon’. Ponzi didn’t know what it was so he asked. He found out that the postal coupon was way in which a company could send mail to a foreign company and include a postal coupon so that the person could reply at no cost to themselves.
I won’t go into great detail here. If you want to read about the details of the scheme, click here. What the deal amounted to was buying postal coupons in countries with low rates and cashing them in countries with high rates. It was a form of currency trading….which is illegal. He claimed that after expenses he was making a 400% profit and easily attracted investors into his scheme.
The scheme was a complicated but very effective one….albeit illegal. Ponzi, of course, got greedier and began convincing more investors to sink large sums into his company and using those funds to pay former investors.
“A fraudulent investment operation that involves paying returns to investors out of the money raised from subsequent investors, rather than from profits generated by any real business. A Ponzi scheme offers high short-term returns in order to entice new investors, whose money is needed to fund payouts to earlier investors, and to lure its victims into ever-bigger risks” is the way in which Wikapedia defines a Ponzi scheme.
Charles Ponzi died in 1949 but his name lives on in infamy….the scheme didn’t die with him.
This is a modern day Ponzi scheme as quoted from Crimes of Persuasion. Click here to read more about the following scheme as well as many others.
“A man who ran a $300 million Ponzi scheme has been indicted on charges of defrauding more than 500 people in 17 states. He promised to pay interest as high as 36% on investments in companies that make short-term, high-interest loans. Investors were told that the money would be invested in Cash 4 Titles and similar companies that provide high-interest loans to borrowers who pledge their car titles and future payroll checks as collateral.
Almost none of the investor funds went to Cash 4 Titles or to any other company engaged in providing ‘car title loans’ or making ‘payroll check advances’. Instead, he used some of the money to pay off previous investors but transferred the bulk of it to an offshore account at the Bank of Bermuda.
Prosecutors are seeking the forfeiture of more than $25 million that he earned off the scheme, along with titles to his homes. They also seek forfeiture of the title and interest he held in a commercial aviation company.
A settlement between the Bank of Bermuda and victims of the Cayman-based Ponzi scheme received approval of the courts 10/12/01.
While continuing to deny liability, the settlement agreement provides for a payment of up to 50% of actual out of pocket losses to investors in Cash 4 Titles, although the total payment, including all court approved fees and expenses, is not to exceed $67.5 million.”
Ponzi schemes really are crimes of persuasion and those who promote them can be called sneaky snakes. That is what they are.
The people who are duped into investing in such schemes aren’t in any way planning to cheat of profit from another’s misfortune. The investors are not criminals; they are victims.
A Ponzi scheme is comparable to pyramid scheme. You might even call it a very, very elaborate pyramid scheme.
Pyramid schemes aren’t a new con game that was thought up by the sneaky snakes of the Internet. Pyramid schemes can be traced back to the 1950’s when chain letters became very popular. You see rather harmless versions of pyramid schemes in your inbox occasionally. These emails will tell you that if you don’t pass the email along to 10 or so of your closest friends, terrible things will happen to you but there is rarely any money involved.
The kind of pyramids that involve large sums of money are no longer sent through the USPS because they are very illegal and land those who send them in jail and have heavy fines levied against them.
Even if it wasn’t illegal, it would be difficult to find enough people now days that would be willing to participate in such an obvious pyramid scheme. The public did finally become educated about pyramid schemes but that only served to make those who perpetrate them become better able to disguise them.
A real pyramid scheme never involves a real product. It involves money…not things…much like a Ponzi scheme.
An MLM scheme is also much like a Ponzi scheme or a pyramid scheme except that there is always a product involved in an MLM (Multi-Level Marketing) scheme.
The structure of an MLM scheme is a pyramid. The point is at the bottom and the structure grows larger as it progresses. Each ‘layer’ of the pyramid recruits the next layer which is larger than the one before it. Each layer is required to purchase inventory…this inventory is purchased from the underlying layer. Commissions are filtered down through the layers all the way to the bottom layer…or point. Eventually the pyramid collapses under its own weight. The top layer has the longest fall and stands to lose the most.
- Ponzi schemes are illegal.
- Pyramid schemes are illegal.
- MLM schemes are illegal.
The people who promote these schemes are some of the sneaky snakes that live and unfortunately thrive on the Internet but they aren’t the only variety.
If you are out there doing business on the Internet you are visible. You are visible to your suppliers. You are visible to your customers. You are visible to your potential customers. You want to be visible to these people. You MUST be visible to these people. Sadly, you are also very visible to the sneaky snakes.
We’ve talked before about the CAN-SPAM Act and related rules and penalties but that doesn’t mean that there aren’t still spammers out there. There are laws against robbing convenience stores, too, but that still happens and so does SPAM.
These sneaky snake Spammers turn their spiders or robots loose to crawl through the Internet and harvest email addresses. Email addresses can be used many ways…one of them is identity theft.
You must make yourself available to your supplies, customers and potential customers but rather than post your email address on your website for the world to see…and the Spam spiders to find…it is better to embed your address in a graphic or to use contact information that is web based and does not publish your email address.
Another thing that email addresses that are collected by the Spam spiders are used for is to appeal to your generosity and your willingness to help those who are less fortunate than you. Great qualities…but ones that can be used by sneaky snakes to relieve you of some of your hard earned dollars. Here is a typical ploy and one that has been repeated for years:
Hello, my dear Friend,
Please excuse me for any inconvience caused by this message. My name is Valentin. I’m a student and I live with my mother in city Kaluga, Russia. My mother is invalid. She cannot see and she receive a very small pension which is not enough even for medications and food. I work very hard every day to be able to buy the necessities for my mother, but my salary is very small, because my studies still not finished. Due to deep crisis authorities stoped gas supply in our district and we cannot heat our home anymore. I don’t know what to do, because the weather will be very cold in the next months and the temperature outside can be lower than minus 35 degrees Celsius, as it was in the last winter. I am very afraid that the temperature inside our home can be very cold and we will not be able to survive. I don’t know what I can do in this situation.
Thanks to the free internet access in our local library I found several e-mail addresses and I decided to appeal to you with a prayer in my heart for a small help. If you have any old sleeping bag, warm blanket, portable stove, warm clothes and shoes, electric water-boiler, canned and dried food, vitamins, medicines from cold, any hygiene-products, I will be very grateful to you if you could send it to our postal address which is: Valentin Mikhailine, Rileewa Uliza, 6-45.Kaluga. 248030, Russia.
If you think that it would be better or easier for you to help with some money, please write me back and I will give you details for sending it safely if you agree. This way to help is very good because in this case I will be able to buy a portable stove and heat our home during the winter. I hope to hear from you very soon and I pray that you will be able to help us to survive this winter. I also hope very much that this hard situation will get better very soon in our country.
Please excuse me, once more, for any inconvience caused by this message.
Valentin and my mother Elena.
This is a hoax! It is a cruel one that is being repeatedly perpetrated by an Internet sneaky snake. I did not correct the spelling nor did I correct the grammar. This is exactly as it was received via email.
Then the emails that are harvested by the Spam spiders can also be used to send emails that are designed to appeal to your desire to make a lot of money without having to do any work…and be doing a good deed in the process. Wow! That sounds like a real win/win/win situation. It isn’t….stop drooling.
This email is sent to you by somebody in a foreign country that has a lot of money or access to a lot of money and is concerned about crooked government officials getting their hands on his (or his family’s or his church’s) money.
All the sender of this email wants, he says, is to be allowed to use your bank account to protect the money from these crooked government officials…sometimes the money is meant for orphans or building a church or some other noble cause. In return for you allowing him to use your bank account, he will give you a substantial percentage of the funds just for your ‘inconvenience’. This substantial percentage is often times said to be in the millions of dollars.
You may have heard of the Nigerian scam…that is hardly new news. But now there is one going around with a slightly different twist. This sneaky snake wants to give you back the money that his countrymen stole from you…..
my name is usman abdulahi i am the chairman of the financial aid in nigeria.
my aiim of writting this lettrer is to inform you that thje rate which nigerians has been sending scam mail is much and has also been collecting money from people in other countries. we are sending this lettrer to every body who has nigerians must have stolen their money to please send us a mail and the information on how they collected yoiur money and the money will be sent to you.
the number of 1000 m,en has been caught running scams and has been arrested .we also went further on and saw the sum of $32million in their account and now this money has to be shared to every body who has lost their .i want you to send me a mail; if your was stollen so that we refund the money to you and also send us full information on how they collected it .i am expecting to hear from you to refund
Gee, I don’t know….maybe if he could spell? Please….do NOT send your information to the sneaky snake. You can bet that the only thing you have to lose is some more money.
Do you know what the terms ‘pharming and phishing’ mean in Internet jargon? If you don’t you need to know. These definitions are supplied by Search Security.
“Phishing is e-mail fraud where the perpetrator sends out legitimate-looking e-mails that appear to come from well known and trustworthy Web sites in an attempt to gather personal and financial information from the recipient. A phishing expedition, like the fishing expedition it’s named for, is a speculative venture: the phisher puts the lure hoping to fool at least a few of the prey that encounter the bait.”
The best prevention for a phishing scam is to never, EVER click on a link supplied by the sender of an email. It is wiser to always go to the site using either a bookmarked link of typing the address that you know to be legitimate into the address bar on your browser.
Many very reliable sites have been fooled be these snakes…big ones like Yahoo and Paypal. You can be fooled as well.
This definition was also supplied by Search Security.
“Pharming is a scamming practice in which malicious code is installed on a personal computer or server, misdirecting users to fraudulent Web sites without their knowledge or consent. Pharming has been called “phishing without a lure.”
Both of these illegal practices are used by the Internet sneaky snakes. They are designed to rob you of your personal information or to hack into your website.
We will discuss the problem of pharming a bit more in the next chapter.