Beware of Ponzi Schemes: From a Century of Fraud Techniques to Cryptocurrency Traps

Ponzi schemes have never disappeared; they are just constantly changing faces. From the 1920 postal investment scam in Boston, to the $17.6 billion Wall Street scandal in 2008, and to today’s new financing scams under the guise of blockchain—this classic “rob from the rich to benefit the poor” trick continues to harvest investors worldwide.

How Ponzi Schemes Evolved into Modern Financial Monsters

The core logic of Ponzi schemes is actually very simple: use the money from new investors to pay “returns” to old investors, maintaining operation through the illusion of wealth until the funding chain breaks.

The inventor of this scam was Italian immigrant Charles Ponzi. In 1919, amid the chaos of the post-World War I global economy, Ponzi seized the opportunity. He claimed he could profit by buying European postal coupons and reselling them in the U.S., designing a complex investment plan to sell externally. In just one year, nearly 40,000 Boston residents invested, mostly impoverished people lacking financial knowledge, each putting in hundreds of dollars.

Ponzi promised a 50% return within 45 days. When the first batch of investors actually received their money, subsequent investors flooded in, creating a highly contagious wealth demonstration effect. It wasn’t until August 1920, when funds ran out, that Ponzi’s plan collapsed, and he was sentenced to five years in prison. Afterward, this type of scam was officially named “Ponzi scheme.”

Three Major Cases of Contemporary Ponzi Schemes

Madoff Scam: A 20-Year Wall Street Lie

The 2008 financial crisis finally uncovered the mystery of Bernard Madoff, former NASDAQ chairman. This renowned investment broker infiltrated high-end Jewish social circles and successfully raised $17.5 billion into a meticulously designed Ponzi trap.

Madoff promised clients a steady 10% annual return and boasted he could profit regardless of bull or bear markets. Over 20 years, he managed to extract $64.8 billion from investors. When the 2008 market downturn triggered a massive withdrawal wave, the scam was exposed. Madoff was ultimately sentenced to 150 years in prison, marking the largest financial fraud in U.S. history.

PlusToken: A Blockchain Era Variant

If Madoff is the king of traditional financial Ponzi schemes, then PlusToken is its crypto version.

This project, claiming to be a “blockchain wallet,” was heavily promoted in China and Southeast Asia, promising users monthly returns of 6%-18%, claiming to achieve profits through crypto arbitrage. In reality, PlusToken was essentially a multi-level marketing organization disguised as high-tech.

According to a report by blockchain analysis firm Chainalysis, this scam involved about $2 billion in crypto assets, with $185 million already sold off. When the project was unable to process withdrawals in June 2019, hundreds of thousands of investors realized they had lost everything.

Top 10 Signs of a Ponzi Scheme

Investors should learn to identify typical features of Ponzi schemes, which often exist before the scam collapses:

Low risk but promises extremely high returns. Any investment claiming “daily profit of 1%” or “monthly return of 30%” while also claiming “zero risk and guaranteed profit” should raise suspicion. Normal investment returns are always proportional to risk.

Deliberate concealment of investment details. Scammers excel at using obscure jargon and complex structures to package projects as “high-end secrets,” discouraging investors from asking questions. If you inquire about specific strategies but get vague answers, warning signals are flashing.

Withdrawal restrictions. A typical Ponzi feature is making withdrawals difficult—raising fees, changing withdrawal rules, extending payout cycles—all common tricks.

Pyramid-like recruitment model. If the emphasis is not on the project itself but on “recruiting downlines for high commissions,” you’re facing a multi-level marketing Ponzi.

Unregistered projects. Check the company’s registration through official business systems; legitimate investment projects will have complete business registration. Missing this is a major red flag.

Founder idolization. The creators of Ponzi schemes are often portrayed as “geniuses” or “heroes.” For example, Sergey Mavrodi of MMM Financial Mutual Aid was attracted by personal mythology to lure investors blindly.

Vague profit sources. Genuine investment projects have clear business models and profit logic. If the project cannot explain where the money comes from, it’s likely paying old investors with new investors’ funds.

Promises of 100% returns. Reasonable investments always include risk disclosures. No investment can guarantee 100% positive returns.

Sudden attitude change from customer service. When a project faces financial difficulties, customer service often shifts from enthusiastic to indifferent or becomes unreachable. This is a sign the scam is about to collapse.

Enticing stories of overnight riches. Ponzi schemes often come with legendary stories of “someone getting rich overnight through this project.” These stories are usually fabricated by the project team or insiders.

Self-Protection Guide for Investors

In the face of endless Ponzi schemes, investors need to build their own protective systems.

First, overcome greed. The effectiveness of Ponzi schemes lies in exploiting human greed. Maintaining rationality in investment decisions and rejecting unreasonable promises is the first line of defense.

Second, strengthen basic financial knowledge. Ponzi schemes often target those with weak financial literacy. Learning fundamental investment principles and risk management concepts can greatly improve your ability to spot scams.

Third, research project backgrounds. Conduct due diligence before investing—check the company’s registration, founders’ backgrounds, and whether it has regulatory licenses.

Fourth, seek professional advice. When uncertain about a project, consult qualified investment or financial advisors to avoid isolated decisions.

Fifth, be cautious of social sales. Projects introduced through acquaintances or community recommendations require extra caution. Ponzi schemes are especially adept at leveraging trust to spread.

Why Are Ponzi Schemes Difficult to Eradicate?

Ponzi schemes have existed for over a century since 1920 but keep reappearing in various forms. The main reasons are:

They perfectly exploit human weaknesses. During economic booms, investors chase high returns; during downturns, they yearn to turn things around. In either case, Ponzi schemes craft suitable stories and promises.

Additionally, emerging fields often become breeding grounds. Whenever new financial tools or technologies appear—from postal bonds to stocks, futures, and blockchain—Ponzi schemes adopt new disguises. Investors’ lack of understanding of these new areas makes them easy targets.

Furthermore, regulatory lag is an objective reality. Scams often operate for years before being widely exposed, as government responses tend to be slower than scammers’ innovations.

Conclusion

The evolution of Ponzi schemes is essentially a reflection of human nature in financial markets. As long as greed, anxiety, and information asymmetry exist, these scams will keep reappearing in new forms.

The best protection is not waiting for regulation to save us but developing basic risk identification skills ourselves. Remember: There is no investment that guarantees profit without risk, and no project promising high returns without risk. When you hear such promises, you are hearing the door knocking of a Ponzi scheme. Stay vigilant, keep your bottom line, and that is the best weapon for investors.