The main culprit of investment scams: A comprehensive look at the tricks and traps of Ponzi schemes

Every year, countless investors fall into the same trap—scam schemes. From the infamous Madoff incident to today’s PlusToken crypto scam, these financial frauds are endless, but the underlying套路 remains the same. Investors are often lured by the bait of “low risk, high return,” only to end up losing everything. Today, we will delve into the essence of scam schemes, how to identify them, and ways to protect yourself.

What exactly is a scam scheme? A dark history of a century-old deception

The name “Ponzi scheme” comes from an Italian con artist named Charles Ponzi. In 1919, Ponzi claimed he could earn high profits by purchasing European postal reply coupons and reselling them in the US, designing an enticing investment plan. In less than a year, about 40,000 Boston residents were attracted to participate, most of whom lacked financial knowledge, each investing hundreds of dollars.

The essence of Ponzi’s scam is simple: not generating returns through real investments, but using the funds from new entrants to pay the “profits” to earlier investors. When it becomes impossible to attract enough new investors, the entire plan collapses, and the scammer flees with the funds. In August 1920, Ponzi’s empire fell apart, and he was sentenced to five years in prison. Since then, “Ponzi scheme” has become synonymous with financial fraud, a term still used today.

How have Ponzi schemes evolved? From traditional finance to crypto transformation

As times develop, Ponzi schemes continue to evolve, becoming more covert and confusing.

Madoff: A 20-year financial illusion

Former NASDAQ chairman Bernard Madoff orchestrated a Ponzi scheme that lasted 20 years. He infiltrated high-end Jewish clubs, leveraging social circles to expand “investors,” ultimately attracting about $17.5 billion. Madoff promised a stable 10% annual return, claiming he could profit easily in both bull and bear markets. In reality, the so-called “returns” were just the principal from subsequent new investors. The scheme was finally exposed during the 2008 financial crisis when many demanded withdrawals. Madoff was sentenced to 150 years in prison, with the total fraud amounting to $64.8 billion.

PlusToken Wallet: A new type of scam disguised as blockchain

In the crypto era, Ponzi schemes have taken on new packaging. PlusToken Wallet is a typical example. This app claimed to generate arbitrage profits through crypto trading, offering users 6%-18% monthly investment returns. Blockchain analysis firm Chainalysis reported that PlusToken scammed about $2 billion worth of crypto assets in China and Southeast Asia, with $185 million already sold off. In June 2019, PlusToken could no longer process withdrawals, revealing the truth—it’s just a multi-level marketing organization disguised as “blockchain.” Many investors unfamiliar with crypto’s nature realized they had lost everything.

Red flags of Ponzi schemes: These warnings must not be ignored

Although Ponzi schemes come in various forms, their exposed features are very consistent. Learning to recognize them can greatly reduce the risk of being scammed.

1. Promising fixed high returns—The biggest lie in investing

If an investment claims daily profits of 1%, monthly returns of 30%, or guarantees a steady 10% annual return like Madoff, be immediately cautious. Any genuine investment involves risks; markets do not have a “sure profit, no loss” myth. When scammers promise “investment guarantees” and “no losses,” they are telling you—it’s fake.

2. Investment products are extremely complex and hard to understand

Scammers like to package their strategies in obscure language, piling up jargon to create a sense of mystery. If the project manager cannot explain the investment logic clearly and concisely, or if every inquiry is met with various excuses, it usually indicates there is no real business backing.

3. Relying on recruitment and tiered commissions to “expand the business”

Ponzi schemes often adopt a “pyramid” investment model, encouraging existing investors to recruit new ones for high commissions. If people around you enthusiastically invite you with “referring friends earns commissions,” this is a classic sign of multi-level marketing.

4. Withdrawal difficulties

Setting up obstacles to prevent investors from withdrawing—such as increasing withdrawal fees, changing withdrawal rules at will, or delaying payouts under various pretexts—is a hallmark of Ponzi schemes. Once funds go in and cannot be easily taken out, the scammer wins.

5. Lack of proper registration and transparency

Check the registration status of the project company through official business registration systems. Unregistered investment projects are inherently suspicious. If company information cannot be publicly verified, the project is likely fake.

How to protect yourself? A must-have scam prevention manual for investors

Understand the fundamental investment principles

“Risk and return are proportional” is a universal rule in investing. High returns inevitably come with high risks; low-risk investments typically yield 3%-8%. Any project claiming to break this rule should be viewed with suspicion.

Thoroughly research the investment target

Before investing, do your homework. Study the founders’ backgrounds, company history, business model, and financial status. Scammers like to portray themselves as “geniuses” or “heroes” to create an aura (for example, Sergey Mavrodi, founder of MMM financial mutual aid). Truly successful entrepreneurs tend to stay low-profile, and their investment logic can withstand scrutiny.

Maintain skepticism and clarity

Human greed is the root of Ponzi schemes. Scammers exploit investors’ desire for “overnight wealth” by painting a picture of huge returns. Always remind yourself: “There are no free lunches,” and controlling greed and maintaining discipline are the best ways to protect your assets.

Seek professional advice when necessary

If you’re unsure about complex investment products, consult professional financial or investment advisors. Listening to experts’ advice before making decisions is far more cost-effective than falling victim to scams.

Conclusion: Spot Ponzi schemes and safeguard your hard-earned money

From Ponzi to Madoff to PlusToken, Ponzi schemes keep reappearing in different forms in the financial markets. But no matter how they are packaged, their core logic remains unchanged—using the money of later investors to pay earlier investors’ “profits,” ultimately leading to collapse.

Investors must remember: genuine investments carry risks, real companies have real operations, and real returns are sustainable. When you see promises of low risk and high returns, complex and opaque investment products, or projects that require recruiting others, do not hesitate to walk away. Staying vigilant is the best protection for your wealth.