As promised in my previous post, (this is my last post on Ponzi schemes) this is from guest writer Samson Falade CFE, CAMS.
I remember vividly the first time my friend tried convincing me to join the popular MMM scheme. Several red flags popped up when he told me the workings. I wondered “What is in it for the sponsors, Are they really charitable, Do they really want to connect individuals in a bid to redistribute wealth?” My curiosity was kindled.
These guys build a website, host it, and maintain it. They have administrators, they even recruit customer care consultants; well paid consultants. They disburse money to guilders for seminars and training. I asked; where do they get the funds to foot all these bills? Initially I thought Google pay them for site traffic. But again they do not run adverts on their site. What is the end game?
Of course I know what the end game is. What I needed to know was how they intend to cash out when they eventually pull the plug.
The idea of participants “providing help” for each other by paying into each other’s account, and the absence of a central account, seems to have given the scheme some air of legitimacy and transparency.
To solve this riddle, I decided, for a moment, to put myself in the sponsors’ shoes. After several hours I came up with these interesting possibilities;
1) Since the platform “randomly” matches an investor with an individual or several individuals he does not know, to provide help to them. (Of course we believe we are paying money to a fellow “member” who has invested and is trying to recoup his capital and profit). The administrator can pair anyone to pay any other participant in the database; a database he controls. All I need to do as an administrator is to open several dedicated accounts. I will thereafter match several thousand participants due to provide help, to pay into these dedicated accounts. The paired participants will be none the wiser. That’s how much power the administrator has. They need just a few days to pull this stunt, thereafter they can vanish into thin air.
Of course they can almost pull this off undetected, except for the anti-money laundering software in banks that could flag those accounts for unusual behavior and subsequently trigger an investigation. That is probably why most of these schemes are switching to bitcoins as the preferred mode of payment.
Now, bitcoin is a digital/crypto-currency totally independent of a central bank. It’s like running your own bank with complete anonymity. With bitcoins, sponsors of these schemes can pair thousands of investors to pay into these bitcoin wallets, thereafter vanish without a trace.
2) Another way, actually a smarter way, the sponsors can cart away so much funds in these schemes is by employing the salami technique. Salami technique is a type of computer fraud in which small amounts of money are transferred from numerous customer accounts into an account held under a false name.
How can the organizers successfully employ the salami technique? Do not forget that referrers get a certain percentage accrued to them on every donation made by their down lines. Guilders have a certain percentage on donations made by a larger number of participants. The guilders and the referrers are known by the participants, and their identity clearly displayed.
What will stop an administrator to generate dedicated accounts/participants, designate them as “super guilder” or whatever name he chooses to give these accounts, tie millions of participants’ account to these super guilders, such that for every donation any member makes, one of the dedicated accounts gets a percentage. It can be as low as 0.5%. Think about the multiplier effect, just 0.5% on several thousand donations in several millions daily, over a sustained period of time. Sustained until the base can no longer hold and the scheme dies a natural death. For this method, cashing out started right from the day the scheme started. Remarkably easy isn’t it?
The sponsors of these schemes are very intelligent, they have studied the psychology of Ponzi, they have employed the advantage of wide internet coverage in the country, and they have feasted on our vulnerability. They sure are in it to make profit, not stipends. I mean mega profit.
Personally I am not advising you against participating in these schemes but I owe you the duty of educating you about this “hidden” trap.If it’s too good to be true, it may be wrong.
Enjoy the rest of the week and look out for the next piece. I promise it will be an interesting one and wont be on Ponzi schemes.