How to run a ponzi scheme

Charles Ponzi, an Italian, who migrated to the United States in the first decade of 20th century, was a broke guy who came to US to live the American dream. After a lot of misadventure and spending a prison stint he came up with a business idea to double the money in 90 days by investing in securities. The initial investors were paid promptly and the word quickly spread out. People were soon queuing up in front of his office to invest. The initial investors were paid by the money pouring in from the future investors. If you think carefully such business model actually needs no business. You can keep paying the top investors by the folks who are investing at the bottom. The only way the business can fail is when the bottom runs out of steam. And that is precisely how the company failed. Eventually there will be no new investors to invest in the business and the whole model would come crashing down and in a very short time. 

What exactly is a Ponzi scheme? It is basically a business model where the profits are realised by a larger entrant force and their money instead of making or selling a product of service. 

Ponzi schemes and businesses are ILLEGAL in most countries.

This post doesn't encourage you to open one, rather will help you understand how that scheme works and how you can steer clear of it.

So, let's get started. You open a company called - youareabafoon.com (as of 1-Aug-2019 no one has claimed the site). Make sure you prepare a very good looking webpage. You need to spend some money so that it appears really exciting. Nothing can befool people than a very expensive looking website with lot of vague cross references to other companies and businesses. Of course, you needn't take permission from them. Who cares? In fact you can get the website done by without paying anything but shares of your company to the person who is willing. Give him dreams not money.

1. Get a Story

First you need a story, a protagonist, an ideal to look up too - who was poor and is now filthy rich, thanks to your company - youareabuffoon.com. The story of this person - Mr. Smart - should be pompously floated around. The only catch, is that Mr. Smart doesn't exist in the real world. He is a man in a far off land where none of your to be 'victims' can go. Never make the mistake of making a real person impersonate as Mr. Smart. People can quickly hunt the person down and and will easily see through your ruse. Advertise the story. Make people believe that Mr. Smart was actually Mr. Bafoon not so long ago. And if he can make it big then your victims a.k.a. your customers can make it even bigger.

2. Create a "red herring" business

Remember Ponzi schemes are illegal. You must have a product to sell. Don't worry about the product. You can sell rubber saplings that will grow up to give you 1000 times returns on your investment. Or your company is investing money in the special economic zone (SEZ) in Rwanda, that you can cash out in 10 years with 500 times profit.  Or maybe by filling survey forms that is in demand in US for research purposes. None of your business addresses should be a real location. Use Post-Box addresses for physical transactions. Better still. Only use emails. Do not share personal details. Open the business in another city where people do not know you.

3. Choose your clients correctly 

The clienteles are usually less educated and do not understand the basics of economics. They are usually housewives and daily wage laborers with money to spare. Never should you involve highly educated professionals like high ranking police officers, judges, economists, lawyers, etc. in your business. They will quickly figure out about your intentions. Once they do, you are doomed. If they come to you anyway, discourage them. Or pay their money back. You do not want an angry cop behind your back. 

4. Encourage people to reinvest in the business

Never let people withdraw their money. After all, if they withdraw, you will get less of it. Bring in further greed to encourage them keep invested. Show them that Mr. Smart made real money by being invested in your scheme for 3-4 years at the least. After all, you are sure that your business will certainly close much before that time. At the same time also return some money back on demand. Your clients will have sleepless nights thinking that they withdrew too early. It will not be late when they come back with the same cash and maybe more and beg you to invest again. This time lock in the money for a longer duration.

5. Don't be greedy, close shop at the right time

Do not keep the shop open for a very long time. You must close it within 2-3 years. The longer you keep your shop open, the longer you are in the danger of getting caught. Keep siphoning off the money at short and regular intervals. After all you never know when the agencies are closing in on you. You just need to elope with cash one fine morning. Sometimes much earlier than what you initially planned.

Now that you know how a Ponzi schemer's mind works, you are smart enough to defend yourself against it. Always ask the question - How is the business making money? If the business is paying you by taking money from others, without a proper business model then never put in your money. If the return on investment is too good to be true, then probably it isn't good for you.