How to identify Ponzi schemes
Ponzi schemes are fraudulent investments that deceive their investors or pay very little to investors while benefiting a few. These schemes can deplete an investor's funds if they are not detected early and recognized as a loss. There are ways to distinguish a Ponzi scheme from a legitimate business.
To identify these Ponzi schemes, one must understand how to identify the sources of the business's profits. Determine whether the profits come from genuine customers or from other investors. If the source of income will use to pay you is unclear or relies on money from other investors who experience losses, it is likely a Ponzi scheme. In such cases, it is advisable to steer clear, as a loss is inevitable. A legitimate business should be able to generate income from external sources, which they use to compensate their investors.
Ponzi schemes have faced government scrutiny, leading to the arrest of their operators.