Recently I finished a short episode of docuseries by Netflix featuring Bernie Madoff who ran a $64 billion Ponzi scheme. It is the largest Ponzi scheme to date & the victims are some of the richest & most influential people in the world including Steven Spielberg. Upon his arrest, he was sentenced to 150 years in prison. I don’t want to spoil it for you, but you guys can watch more of it on Netflix on his full story. I am sure many of you of aware of what a Ponzi Scheme is & for those who are not aware, it is an investment scam that promises investors high profits that are too good to be true.
Whether it is Madoff’s Ponzi Scheme or other local Ponzi Schemes, many people have fallen victim to it based on the reasons below:
1. Trust
Victims are usually relatives, family members, or friends that are introduced to the scheme. They trust those who introduced the Ponzi Scheme to them more than the actual product. It happened to me when I was investing in a Ponzi Scheme years ago. Back then, when I had minimal knowledge of investing, a friend of mine introduced me to a Ponzi Scheme called U Coins. Whether he knew that it was a scam or not, I “invested” in it as I trusted him as a friend & a reputable person in the same industry as mine. The other victims of my knowledge include a well-known politician’s wife & a famous actress.
2. Greed
Greed is another main factor as to why victims fall for such schemes. Even though they could sense major red flags, they are willing to risk their money in hopes of a higher return. Smarter ones will allocate a smaller amount of money to it while the ones with lesser knowledge will pour their life savings into it.
3. Easy Way Out
Ponzi Schemes investors usually have zero knowledge of investing & they often look for the easiest way out to trust their money with. All they have to do is to hand over their money to their “money manager” & it will be taken care of with a high return. Sounds easy but it is too good to be true. It is either you have basic knowledge in investing or you need to at least do your due diligence in the company before you invest with them.
4. Fear Of Missing Out (FOMO)
Whether it is Ponzi Scheme or other legal investments, some investors will have FOMO & they are worried that if they don’t invest now, they will miss out in the future. It is quite true in some ways. Imagine if you manage to invest $1,000 in Bitcoin in the early stage, it will be worth millions by now.
Conclusion:
With the fall of FTX, we are witnessing another red flag that is happening in the market. Despite being regulated & having high-profile investors, the greed of human beings usually will cost scams like this to happen. For our own Malaysian version of the Ponzi Scheme, we have seen the fall of scams such as JJPTR and MBI. I’ve spoken to some of the victims before & despite knowing that it is a Ponzi Scheme, why do they still invest in it? It is purely due to greed. We have seen many people’s life ruined by the Ponzi Scheme & why there are still many people that are investing in it? Anyway, you can refer to my previous post on How To Spot An Investment Scammer & How To Avoid Being Scammed to learn what can you do to avoid being a victim of any potential scam or Ponzi Scheme.
OSS!
You can also check out my latest YouTube video on Why Do You Need Financial Planning?
