Ponzi scheme

Some of the first recorded incidents to meet the modern definition of the Ponzi scheme were carried out from 1869 to 1872 by Adele Spitzeder in Germany and by Sarah Howe in the United States in the 1880s through the "Ladies' Deposit".

Howe offered a solely female clientele an 8% monthly interest rate and then stole the money that the women had invested.

[6] In a Ponzi scheme, a con artist offers investments that promise very high returns with little or no risk to an investor.

[13] According to the U.S. Securities and Exchange Commission (SEC), many Ponzi schemes share characteristics that should be "red flags" for investors.

[1] According to criminologist Marie Springer, the following red flags can also be of relevance:[20] Typically, Ponzi schemes require an initial investment and promise above-average returns.

It is common for the operator to take advantage of a lack of investor knowledge or competence, or sometimes claim to use a proprietary, secret investment strategy to avoid giving information about the scheme.

The operator simply sends statements showing how much they have earned, which maintains the deception that the scheme is an investment with high returns.

Operators also try to minimize withdrawals by offering new plans to investors where money cannot be withdrawn for a certain period of time in exchange for higher returns.

[29] The novelty of ICOs means that there is currently a lack of regulatory clarity on the classification of these financial devices, allowing scammers wide leeway to develop Ponzi schemes using these pseudo-assets.

[30] Also, the pseudonymity of cryptocurrency transactions and their international nature involving countless jurisdictions in many different countries can make it much more difficult to identify and take legal action (whether civil or criminal) against perpetrators.

[31][32] The May 2022 collapse of TerraUSD, a stablecoin propped up by a complex algorithmic mechanism offering 20% yields, was described as "Ponzinomics" by Wired.

The main difference is that an exit scam does not involve any sort of investment vehicle with the accompanying promised returns.

Instead, exit scammers either accept payment for product which they never ship (usually after gaining a reputation for reliably shipping of products) or steal funds held in escrow on behalf of third parties (the latter often involves the operators of illegal darknet markets that facilitate the sale of illicit goods and services).