Recently, I saw many people in the community still discussing various investment scams, and it suddenly reminded me of a classic topic—Ponzi schemes. When you talk about this, it’s truly the “ancestor” of financial fraud. Many scams on the market today are basically built on this same pattern, just with different variations.

The name comes from an Italian fraudster, Charles Ponzi. In 1919, right after World War I had just ended, when the global economy was thrown into chaos, this guy made up a story claiming that investing in European postal notes could make a fortune. In the end, within one year, more than 40,000 people in Boston were cheated—most of them were ordinary people who wanted to get rich, with each person investing a few hundred dollars on average. Ponzi promised a 50% return within 45 days. Once the first group of people really received the money, the later crowd rushed in one after another. Until the plan collapsed in August 1920, he was sentenced to 5 years in prison. From then on, this type of scam—using the money from new investors to fill the gap in the promised returns to old investors—has been called a Ponzi scheme.

You might ask why this kind of scam is so good at deceiving people. Put simply, it preys on human greed. It waves the banner of “low risk, high returns,” paints you a dream of getting rich, but in reality there are no real investment profits at all—everything is just taking from one place to pay another, using new money to cover old payouts.

The most famous case in history is the Madoff scandal. This guy was Bernard Madoff, a former NASDAQ chairman. He moved around in upscale Jewish clubs, developed recruits through friends and family, and in the end defrauded about $17.5 billion. He publicly claimed to deliver a steady 10% annual return and even boasted that he could make money in both bull and bear markets. Then when the 2008 financial crisis hit, investors flocked to withdraw their funds, and the scheme collapsed instantly. Madoff was sentenced to 150 years in prison, with the total amount of fraud estimated to be as high as $64.8 billion.

Let’s also look at cases in the crypto space. The PlusToken wallet has been called the third-largest Ponzi scheme in history. The project, hiding behind the name of blockchain, was promoted in China and Southeast Asia, promising monthly investment returns of 6%-18%. In June 2019, withdrawals became impossible, and only then did people realize they had been scammed—amounting to about $2 billion.

So how can you avoid getting trapped by scams like these? I’ve summarized a few points:

First, be alert to claims of low risk and high returns. Every investment has risks. Anything that promises, for example, “1% per day” or “30% per month,” is very likely a Ponzi scheme.

Second, risk-free investments simply do not exist. Market volatility is an objective law, and no one can guarantee 100% continuous profits.

Third, understand the investment products and strategies. Scammers like to make things complicated and obscure and create an air of mystery, but in truth there is no real business backing behind it.

Fourth, ask for more details about the project. If the project team answers your questions vaguely or keeps making excuses for one reason or another, then you should be careful.

Fifth, use business registration systems to check. See whether this project is legally registered and whether it has real registered capital.

Sixth, difficulty withdrawing funds is a typical feature of Ponzi schemes. If they raise withdrawal fees, or arbitrarily change the rules, those are dangerous warning signs.

Seventh, beware of pyramid-style recruitment “hunting” for people to join. If someone gets you to join using referral rewards, you should raise your guard immediately.

Eighth, ask professionals if you don’t understand. Before investing, consult with an advisory firm or industry experts, and listen to their professional opinions before deciding.

Ninth, find out who is behind the project. Ponzi scheme initiators often package themselves as geniuses or heroic figures—this alone is a red flag.

Tenth, the most crucial point—no free lunch will ever fall from the sky. Scammers exploit greed by drawing you a huge “pie” of enormous returns. When investing, stay clear-headed and curb the greed in your heart—that is the best protection.

In the end, although Ponzi schemes keep changing their tricks, their essence never changes: low risk, high returns; using new money to pay old investors; never emphasizing risk; and attracting people who lack financial knowledge with high returns. Remember one iron rule of investing—risk and return are always directly proportional, with no exceptions. Stay vigilant, and don’t let greed ruin your wallet.