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Introduction
The Ponzi Scheme is an investment method that pays dividends from newly came investors to those who invested earlier. The Ponzi Scheme appeared in the 1920s and became widespread among mass media channels. It refers to the financial pyramid, which attracts as many people as possible to the system. This model promises a stable income to everyone involved, but it often fails to pay its members. Moreover, scientists recognize the Ponzi scheme as criminal, as it brings losses to investors. However, there are cases of using this system even nowadays, and it is essential to examine them to understand the consequences and how it relates to the financial system and white-collar crime.
The Ponzi Scheme
The pyramid schemes are based on network marketing; it means that a vast number of people is necessary for the system to exist. Ponzi Scheme usually provides people with investment services, and people consider their income is a result of the genuine investment. Indeed, the investor takes the money of another participant to pay another member, and the scheme results in crime. Many cases occurred within this pyramid; for example, Lou Pearlman and Reed Slatkin swindled banks and investors using Ponzi Scheme out of more than 300 and 593 million dollars (Hare, 2021). Moreover, victims cases existed when people faced fraud in Ponzi Scheme within the 2000s. As a rule, victims received some amount of money initially, trusted the system, and attracted their friends and relatives (Wilkins et al., 2012). People had an impression of reliable investment and were prone to give their money to the pyramid. Consequences were often sorrowful; most people lost their money, as currency went to the leader of the pyramid. Most people lost their real estate and possessions as they sold them to bring more money to the scheme.
Furthermore, it is essential to understand how the scheme relates to the corporate and financial system. The financial system concerns the distribution of financial resources in the economy. In the Ponzi Scheme, money was not distributed equally; the leader and chief investors received profit from other peoples deposits. The corporate system suggests the organizations funding method and enriches the whole company; in Ponzi Scheme, the budget was derived from investors money. Financial crimes done within Ponzi Scheme refer to corporate offenses connected to white-collar crimes. For instance, white-collar fraud is known as money crimes committed by political and business figures, commonly recognized as elite members of society. The similarity is the non-violent approach: nobody makes a person invest money. The financial activity is disguised under formal operational legality, and results become evident only through weeks or months. Moreover, the subject of crime is usually a good-looking and respectable human whom people can trust; here, the psychological factor plays a significant role.
Conclusion
Overall, it is seen that the Ponzi Scheme is a financial pyramid that acts in terms of fraud. It is interesting that the system exists even today, and it is seen through recent examples of financial criminals and their victims. It is vital to attract multiple people for the scheme to live; the system subjected many people to losing their money and property. The income from the system is superficial, and there is only a semblance of real income. Furthermore, Ponzi Scheme refers to corporate and financial fraud in enriching the corporation by aiming to distribute profit among several group leaders. In addition, it has an appropriate general appearance with a voluntary approach, which makes people trust and invest in the pyramid.
References
Hare, B. (2021). 8 of the most notorious Ponzi schemes in US history. CNN. Web.
Wilkins, A.M., Acuff, W.J., & Hermanson, D.R. (2012). Understanding a Ponzi Scheme: Victims perspectives. Journal of Forensic & Investigative Accounting, 4(1), 1-19.
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