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What is a Ponzi Scheme?

This is for those who don't believe me when I talk about the dangers of "mystery money" schemes.

The terms "pyramid scheme" and "Ponzi scheme" are used almost interchangeably. However, the scheme for which Charles Ponzi is most remembered was not a pyramid.

If you aren't aware of the story of Ponzi, you'll likely find it familiar. This man promised to double your money in 90 days, and he kept his promise -- until the day he was arrested for fraud. He had created such a personal mystique that he continued to receive money from new investors while in prison.

How could someone with so many satisfied customers end up in prison? Because fraud is fraud no matter the results. Ponzi claimed to be investing peoples' money and giving them the proceeds. What he was actually doing was giving peoples' money to people who had previously "invested" in order to make it seem like everything was OK. Meanwhile, he was living a lavish lifestyle while he was millions of dollars in debt.

He had no trouble getting the ever-increasing numbers of opportunity-seekers necessary to fund his business. He probably would have kept it up for many years if the government hadn't stepped in. Therefore, the lessons learned by those who wished (and wish) to follow in Ponzi's footsteps are...

* Hide the money trail better.

* Improve the illusion of selling a real product or service.

* Don't promise anything.

It's very difficult to prove that a chain letter originated with a certain person. Many pyramid schemes are organized in such a way as to conceal who is at the top. If there is an actual product or service being sold, it's difficult to prove that the main purpose of being in an organization is to recruit others (and their money). Finally, hype it up, but don't get too specific. You can't get sued for disappointing someone.

Are these the lessons that should be learned from Ponzi? No. If Ponzi was good at anything it was lying. A lesser con artist trying to do what he did would have been run out of town long before millionaire mode set in.

Also, things are different now. If you want to set up your own Ponzi operation, you have a lot of competition and a very savvy audience for your sales pitch if you choose to do it online. A simple Google-based investigation of your Internet trail can allow a scambuster to publish your entire history of crime on his home page for the world to see.

Also, the Internet provides ways of making Ponzi amounts of money legally and with less effort. Let's all just stop giving out money to the scammers and trying to emulate them. Make the Web a better place.

Mike Jolley is a writer and programmer who recently turned to Internet marketing and publishing full time, with a big focus on business ethics. Find him and his other articles at http://www.onlinehonesty.com

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