WEBVTT

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[MUSIC PLAYING]

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Ponzi scheme has
become an expression

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to describe any
scam or con game,

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but it actually has
a history of its own.

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Its roots go back
to Charles Ponzi

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who pulled off the most
successful example of this type

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of fraud in the 1920s.

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A Ponzi scheme is a scam
where the returns given

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to early investors are paid
for with the investments

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of later investors.

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There is never any actual
business or profit generation.

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The return to investors
consists solely

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of the money obtained
from new investors

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minus a cut for the
criminal running the scam.

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Ponzi operators resemble
legitimate investment

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management operations,
but they often

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claim to use obscure or
secret trading strategies.

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Ponzi schemes attract investors
by promising incredible returns

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that investors can't
find in the market.

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Early investors
in a Ponzi scheme

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are usually unaware
that it's a scam

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and may recommend the
investment to others,

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but they do not benefit
from these referrals.

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In the end, these
scams always collapse,

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either because legal authorities
find them and shut them down

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or because the people
running the scam

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run out of new
investors to defraud.

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Because there is no actual
business or investment

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strategy being followed,
the lack of new investors

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leads to plummeting returns.

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When this happens,
many investors

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will withdraw their money
if there is any money left.

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Sometimes the
operator of the scheme

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takes the remaining
money and tries

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to disappear when he sees that
no new investors are buying in.

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Skepticism is an investor's best
defense against a Ponzi scheme.

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If the returns sound too good
to be true, they probably are.

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[MUSIC PLAYING]

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