Why do Ponzi schemes "never fade away"? Insights into their tricks from these classic cases

Have you ever encountered such an investment “pie in the sky”—claiming “low risk, high return,” often promising monthly yields of 30% or even more outrageous figures? If so, you are very likely facing a Ponzi scheme disguised under different banners. Why do these scams keep reappearing despite being banned repeatedly? Because they hit the most vulnerable point of human nature: greed.

How a Ponzi Scheme “Explodes” for a Century

In 1903, an Italian named Charles Ponzi sneaked into the United States. This guy had worked as a painter, a laborer, and had served time in Canada for forgery, as well as in Atlanta for human trafficking. But under the lure of the “American Dream,” he discovered that the fastest way to make money was not through legitimate business, but through finance.

In 1919, just after World War I ended, the global economy was in chaos. Ponzi seized this opportunity, boasting that “buying European postal notes and reselling them in the U.S. can earn big money,” then designed an absurdly complex investment plan promising high returns to sell to the public. The crazy part was that in just over a year, about 40,000 Boston residents fell into the trap, most of whom were ordinary poor people, each investing a few hundred dollars. These people had almost no understanding of finance.

At the time, financial newspapers exposed this as a scam, saying it was impossible to make money this way. But Ponzi played a clever game: he published articles in newspapers to refute these claims while setting even bigger bait to continue deceiving people. He claimed that “investors can earn 50% in 45 days.” Once early investors tasted the profits, subsequent investors started to follow wildly.

Finally, in August 1920, Ponzi’s plan collapsed. He was sentenced to five years in prison. From then on, “Ponzi schemes” became a term exclusive to financial fraud—using the money from new investors to pay dividends to earlier ones, cycling until the accounts ran dry and the boss ran away.

How These “Earth-Shattering Cases” Set Their Traps

Madoff Case: Deceived for 20 Years Before Being Exposed

Former NASDAQ chairman Bernard Madoff is arguably the “master” of Ponzi schemes. Using his Wall Street elite status, he infiltrated high-end Jewish circles, leveraging friends, family, and business partners to develop a layered “downline,” attracting about 17.5 billion yuan into a meticulously arranged scam trap.

He promised investors a “steady 10% annual return” and boasted that he could “easily make money in both bull and bear markets.” But what investors didn’t know was that those attractive return figures were actually taken from the principal of investors and others. As soon as someone wanted to withdraw, the scam was immediately exposed.

This scam ran for 20 years until the 2008 global financial crisis, when investors collectively demanded about 7 billion yuan in withdrawals, leading to its downfall. In 2009, Madoff was sentenced to 150 years in prison, with total fraud amounting to 64.8 billion dollars. This scale is considered the “ceiling” of financial scams.

PlusToken Wallet: A Blockchain-Themed Pyramid Scheme

In June 2019, a wallet app called PlusToken was unable to process withdrawals, alerting users that they had been scammed. This project claimed to be “blockchain innovation” and promoted in China, Southeast Asia, and other regions, promising monthly returns of 6%-18%, claiming these profits were achieved through arbitrage in cryptocurrency trading.

But the truth was: PlusToken was not a genuine blockchain project at all, but a pyramid scheme disguised with high-tech packaging. According to a report by blockchain analysis firm Chainalysis, scammers stole about 2 billion dollars worth of cryptocurrencies from investors, with 185 million dollars already cashed out. For investors with limited understanding of “blockchain,” this loss was a total wipeout.

How to Avoid Getting Scammed by These Schemes

First Level: Recognize the “Low Risk, High Return” Lie

There’s a golden rule in investing: risk is proportional to return. Any project claiming “low risk but high return” should be suspicious. If an investment promises outrageous figures like earning 1% daily or 30% monthly, but never mentions risks, it’s a hallmark of a Ponzi scheme. Legitimate investments always carry risks; there’s no such thing as “guaranteed profit.”

Second Level: Spot the “Withdrawal Impossible” Flaw

The biggest feature of Ponzi schemes is “hard to withdraw money.” Scammers set up various obstacles—raising withdrawal fees, changing rules at will, delaying payouts—to prevent you from taking your money out. If you encounter withdrawal difficulties, it’s a red flag.

Third Level: Recognize “Pyramid-Style” Recruitment

Many scams like to use recruitment and downline-building to “snowball.” If someone enthusiastically recommends you join a project and emphasizes “inviting friends yields high commissions,” be very cautious. This pattern is 100% a variant of multi-level marketing.

Fourth Level: Check the Background and Qualifications of the Project

Doing thorough homework before investing is crucial. You can check the project company’s registration through official business registration websites to see if it’s properly registered and what its registered capital is. If a big project lacks basic business registration, it’s a blatant scam. Also, be wary if the founders portray themselves as “geniuses” or “heroes”—these are red flags.

Fifth Level: Be Skeptical of “Mysterious and Complex” Investment Strategies

Scammers excel at creating confusion, designing projects and investment strategies that are extremely complicated and obscure, making ordinary people unable to understand. But in reality, these projects often lack any real products or business support. When you ask for explanations and get vague or evasive answers, it’s a sign of fraud.

Sixth Level: Don’t Be Lazy with Information Verification

If you’re unsure about an investment project, seek advice from professional consultants or financial advisors. Listening to experts’ opinions before deciding is always better than being scammed.

Final Words

From Ponzi to Madoff to PlusToken, over the past hundred years, Ponzi schemes have taken on countless disguises, but the tricks are always the same: promising impossible returns, using new investors’ money to pay old investors, setting withdrawal barriers, and finally, the boss running away.

The reason scammers succeed is rooted in one thing: human greed. There’s no such thing as a free lunch. Those ultra-high profits are just carefully crafted traps. Always remember: “Risk is proportional to return.” Stay alert, keep a clear mind, and be vigilant—this is the best defense against Ponzi schemes.