# Avoiding the Classic Fraud: Understand the Ponzi Scheme Beyond the Stereotypes

Charles Ponzi may have made the Ponzi scheme more infamous than it ever was before he started with his series of cons, but he was certainly not the first swindler in history to use the idea behind it. More than a century later, financial fraudsters, con artists and tricksters continue to use different variations of the classic Ponzi scheme and victimize thousands of people out of their hard-earned money. Taking a look at certain key aspects of the Ponzi scheme, however, helps us to understand the scam better and much beyond the stereotypical limitations that we have placed on them.

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## Understanding the variables in a Ponzi Scheme is Key

The best protection any party can have against the Ponzi scheme, or any other financial fraud, in general, is to be well aware of what the idea behind a particular sham is. A Ponzi scheme at its core is a scam investment plan that guarantees each investor a high rate of return within a very short time, often made more lucrative with a ridiculously high rate of compounding interest rate on each reinvestment.

However, the interest rate doesn’t necessarily have to be ridiculous anymore, as scammers are well aware of the fact that most people will not fall for that. They will instead simply go with a “slightly better than the market rate” strategy because it feels more believable to everyone, especially when backed by a financially sound, but faux business plan.

## Initial Fulfilling of the “Guaranteed Return” Promise is Not Uncommon

Depending on the success rate and the nature of the Ponzi scheme concerned, the scammer may even provide the earlier investors with the promised returns for a significant amount of time, that is as long as new investors keep falling for it. They simply shell out a portion of the newly acquired funds to some of the earlier investors, in order to establish a false sense of authenticity among its key clients.

Investors who bring in more investors by believing in that false sense of security will also be the ones to usually receive the highest returns. This usually continues until the ones running the operation have dried out a certain location. At this point, they will disappear with everyone’s money, without a trace, or beyond the jurisdictions of a certain constituency, leaving the investors to realize that they were in actuality just victims of a scam.