How to protect yourself from pyramid schemes
HAMILTON COUNTY, TN (WRCB) -- Amid allegations that families lost millions in a Ponzi Scheme in Soddy Daisy Channel 3 wanted to learn more about how people fall for such a scheme.
Former Federal Prosecutor Gary Humble helped convict Luis Rivas in 2009 after he scammed nearly $30 million from investors across several states in a Ponzi scheme. "He had everyone snowed, had a lot of people snowed. He had a good con going," Humble says.
The word Ponzi comes from Charles Ponzi, the man many consider the first to successfully pull off the scheme in the 1920's. Now, schemes like this are happening everywhere reportedly in small towns like Soddy Daisy.
"Of course the essence of a Ponzi Scheme is you need a continuous flow of investors, it's basically cash flow type of proposition," Humble explains. "It's really like seed money. You make payments to earlier investors so they think they're getting something, some kind of actual return on their investment, whatever it is. It's really no return on anything, it's just money coming from new suckers."
So how can you protect yourself? "As a rule of thumb, if it's too good to be true it probably is," Humble says.
He also says investors should look out for guaranteed returns and do your homework before you invest. "A lot of times it just comes down to trust, are you willing to trust this person," says Humble.