FISCAL AGENTS: Financial Services Group


Open the QuickNav window
Home
Search
Site Map
Contact

The Knowledge Bank

The Money Centre

The Learning Centre

Financial Tools

The Money Management Newsletter
General Interest
GICs / Fixed Income
RIF Planning
RSP Planning
Savings
Managing Money
Choosing Fin.Services
Insurance Products
RESP Savings
Taxes / Estate Matters
Home Ownership
Companion Advisor
Product Reviews
E-Newsletter Archive
Front Page Archive
Subscription Services

Products and Services

About Us




Google

FiscalAgents.com
World Wide Web

Glossary of
Financial Terms
  The Companion Advisor: General Interest
Regulator warns investors to steer clear of Ponzi-style investment schemes; many con artists use this process to get your money

The first known Ponzi scheme was operated by Carl Ponzi himself. In 1920's Boston, Ponzi collected $9.8 million from 10,550 investors, including 75% of the Boston Police force. Ponzi then delivered $7.8 million to his investors as "return" on their investments and spent the rest of the money. Ponzi's original investors were so pleased with their "returns" that they happily helped him find more investors. The Ponzi scheme thrived until the media took notice; Carl Ponzi was finally arrested and ended up in bankruptcy court. In the end everyone lost money; the bankruptcy trustee sued the individuals who made gains from the Ponzi scheme so Carl Ponzi's debts could be paid to his creditors.

How did Ponzi lure so many people into his scheme? Investors were attracted to Ponzi's plan because he guaranteed high returns over a short period of time - profits of 50% every 45 days. Unfortunately these returns were not from the success of a real investment. Instead, the returns were paid from the investors' own money and the contributions of other investors. The essence of the Ponzi scheme is that money is 'borrowed from Peter to pay Paul'.

Today's Ponzi schemes look like real investment opportunities. These schemes work well because:

  • Investors receive "interest" cheques (which are really the return of their own money), and they encourage their friends and family to invest;
  • Investors regularly receive account statements that show profits (which are not real);
  • Investors rarely research the investment, or check the background of the person offering the investment.
  • The Ponzi operator often convinces investors to put their 'profits' back into the Ponzi; ultimately they lose their original investment plus any profits they may have earned.

Ponzi schemes spread by word of mouth. As more people hear of the apparently profitable investment, more investors want to get in on it. Early investors are paid out of money from new investors, at times for many years until the Ponzi collapses. The Ponzi scheme comes to an end when the number of new investors inevitably falls. With fewer new investors, there is no new money to pay the returns. If you lose your money to a Ponzi scheme, chances are you will not get your money back.

Although a Ponzi scheme can be difficult to spot, the following tips will help you protect your money from con artists:

  • Watch out for investment promotions that offer guaranteed high returns and low risk. If an investment has a high return, you are taking a large risk with your money.
  • Check the registration of the investment, and the person or company offering it. Many Ponzi operators are not registered to sell securities, nor is the investment itself registered. To check, call the OSC Contact Centre toll-free at 1-877-785-1555.
  • Get a second opinion from your financial adviser, lawyer or accountant.
    You can learn more about fraud and other investment topics on-line at www.InvestorED.ca.

The Ontario Securities Commission administers and enforces Ontario's securities law. Its goals are to provide protection to investors from unfair or improper practices and to foster fair and efficient capital markets. The OSC offers a range of educational materials to investors free-of-charge. To obtain an Investor Education Kit call the OSC Contact Centre at (416) 593-8314, toll-free 1-877-785-1555, email inquiries@osc.gov.on.ca or review the materials on www.osc.gov.on.ca.

* * *
Use this link to load a printer-friendly
version of this document.

Do you want to share this page with someone else?
Send this page to
Sending
Format
Text
HTML
Your email address

Have a question regarding this article? Use our feedback form to send us a note.
BACK

© , Fiscal Agents Money Management Newsletter
25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700

 





Fiscal Agents Home

Knowledge Bank Money Centre
Learning Centre Financial Tools
Newsletter Products & Services
About Us    

Legal | Site Map | Home | Search

Copyright © 1984 - Fiscal Agents Financial Services Group


Questions? Comments?
Use our Feedback page to contact us.

 
Companion Advisor
General Interest
Debt you say?

Losing a family member provides an Inheritance

How can mortgage rates be going up when prime is coming down?

Regulator warns investors to steer clear of Ponzi-style investment schemes

Focus on the whole, not the parts

Women and finance: An ever-changing world

Revisit your financial plan when you inherit

Financial considerations when remarrying

Death, disability and the family business

The ex-spouse, child support and the Insurance policy

Can you afford to send your children to college?

Start counting your paycheques

Substitute Decisions Act

Boomernomics: How baby boomers' savings might boost financial assets

A tale of two booms

Myths and misconceptions in Ontario Family Law

The Cottage: Keeping it in your family



The Money Management Newsletter:
w
General Interest