What are Ponzi scams?

Harriet Meyer / 10 March 2016

Avoid falling foul of the latest investment scam with our guide to Ponzi schemes.



Fraudsters are becoming increasingly sophisticated in the scams they use to target unsuspecting victims. Among the more elaborate are ‘Ponzi scams’, aimed at fooling people into thinking they can make a swift profit while conmen plan to drain their funds.

These particular schemes come in all forms, and they aren’t just aimed at wealthy investors. Both well-off older people and those with little to spare have been known to fall victim to ponzi scams.

Top five scams in the UK today.

How do Ponzi scams work?

Put simply, these investment scams promise you’ll make a stack of cash with little risk involved. 

They claim to offer high rates of return, perhaps investing in a little-known new asset, or property.

Working a bit like a pyramid scheme, investors spread the word on the promised returns, gaining the scheme more cash flow. 

There is no actual profit, with any returns paid out from money put in by new investors.

Typically, fraudsters disappear with investors’ money, with nobody who’s paid in receiving a penny back.

This form is scam is named after Charles Ponzi, a clerk in Boston who came up with one of these schemes in 1919. 

Since then, there have been numerous perpetrators, with Berni Madoff among the most famous schemers. He operated the largest fraud in US history, stealing $65 billion from investors.

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How to spot a Ponzi scam

Such a scam may be an advert that pops up anywhere, for an investment scheme that promises astonishing returns in a short space of time. 

Or perhaps you’ve been invited to attend a talk or presentation on an investment opportunity that sounds along these lines.

The simple rule is that if it looks too good to be true, it probably is. Don’t let the need for cash cloud your judgement, as there is no such thing as a ‘risk-free’ investment. 

Beware of being bamboozled with jargon, by fraudsters who are pretending they know the ins and outs of the investment world.

Perpetrators of ponzi scams may have dazzling websites and the charm to go with this, but do the groundwork if you’re looking into investing any money. 

This includes seeing if the Financial Conduct Authority regulates the company, and its current status.

Five signs that you are walking into a scam.

What to do if you’re a victim

If you are approached about such a scam, or have paid into one, here are some steps you can take:

  • Call the Financial Conduct Authority’s helpline on 0800 111 6768.

  • Stop all contact with the fraudsters and don’t put a penny more into the scheme.

  • Keep a record of all communication, whether by email or letter.

  • Beware of being targeted about other scams – as this is likely once you’ve succumbed to one. For example, this could be ‘fraud recovery’, with someone promising to get your cash back if you pay a fee. 

  • Tell your bank about the scam if you’ve given the fraudsters your bank details.

For more tips and useful information, browse our consumer rights articles.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.