How To Avoid a Ponzi Scheme

It sure seems like Ponzi schemes and real estate scams are in the news a lot recently, so I wanted to provide the HOT 97 audience with some quick financial literacy tips to stay safe from scammers.

First things first, what is a Ponzi Scheme?

Ponzi schemes are a financial scam where the organizer takes funds from new investors to pay existing investors. There have been thousands of Ponzi schemes throughout American history, most notably Bernie Maddoff conducted a $20 billion scam defrauding his investors and Lou Pearlman, the money man behind 90’s boy bands ‘NSYNC and the Backstreet Boys.

Oftentimes the creators of Ponzi schemes provide big payouts to their early investors which provides a veneer of legitimacy and generates a sense of envy amongst prospective investors. Once those prospective investors become investors themselves, they’re less likely to make back their investment unless new investors are brought in.

Here are some tips for spotting a Ponzi scheme before you invest.

  • Ask how the company plans to generate revenue, if they mention needing to bring on more investors, that could be a red flag.

  • Apply the same level of scrutiny to ALL of your investments. Far too commonly, people are more willing to give their money to friends or invest in things just because a local celebrity or radio host endorses it. Always do your research. 

  • High returns with little or no risk. Be suspicious of any “guaranteed” investment opportunity. For example if someone asks you to invest in run down New Jersey properties that would be renovated and flipped for money for up to 30% of the profits, that should be a red flag.

  • Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances. (Via

  • Avoid investments if you don’t understand them or can’t get complete information about them. Scammers hide behind things like real estate and crypto that are opaque and hard to explain to keep their lies going. 

When the economy is bad it’s easy to fall into bad faith investments perpetrated by scammers. Be careful whose opinion you value, be careful which radio stations you listen to, and always be diligent with your finances.