A ponzi scheme can be thought of as an investment vehicle which promises and seems to make consistently high returns without a clear investment strategy. The returns on investments are mainly made out of the funds put in by new investors. The key words to note when such a scheme is introduced to you is offshore investments, hedged securities, arbitrage and such other words that only a financial expert can clearly explain. Rarely do ponzi schemes invest the money obtained from investors. The money obtained from investor A is paid to Investor B, the money from C is paid to B and so on. Therefore for such a scheme to stay in business it needs one chief ingredient: a steady inflow of new money. The ultimate collapse of a ponzi scheme results from a shortage of new money, disappearance of the scheme's promoter or government intervention.
The difference between a ponzi scheme and a pyramid scheme is that a ponzi scheme does not require you to introduce new members into the scheme while a pyramid scheme requires you to. This is the reason why pyramid schemes collapse faster than ponzi schemes because their obligations are higher and introduction of new members increases the payout from the scheme. Once the scheme can no longer meet its obligations, collapse is inevitable.
The hugest scheme recorded in history was the scheme operated by Benard Madoff. His scheme was operated for over a decade and it paid consistent returns all along. No investment was made with any of the funds put into the scheme. The success of the scheme was pegged on its investors. The fund mainly targeted charities and other elite investors and with incentives to maintain funds in the scheme and strict penalties for withdrawal, liquidity was maintained all along. The fund could therefore consistently pay out profits to investors without having to invest in anything because there were funds available to make such payments. Another key factor for the success of Madoff is that his scheme paid out a return of between 10% and 20% per annum which is very low by the standard of Ponzi schemes.
Kenya has had its fair share of such schemes, starting with DECI (and its flying managers), which made away with a whooping 1.7 billion shillings in investor's cash and a bunch of other smaller schemes that gained public notoriety by taking Kenyans for a ride. The internet has seen hundreds of such schemes come into operation and as always there exists a bunch of gullible investors who decide to put up their money in these schemes before they collapse.
If you do any type of online business, I'm sure you have come across this investment vehicle: Just Been Paid, with its JSS tripler plan that is supposed to answer all your financial troubles. Frederick Mann, the man behind the scheme, is this internet guru, who according to their website has come up with a fool-proof (I detect some pun here) formulae for making anyone rich starting from zero (Because once you join you get $10 of free investment money).
According to their website, JSS TRIPLER pays a return of 2% for 75 days. You don't get your money back but with that return you will have made 150% percent of your initial investment at the end. so with simple interest you make 50% of your initial investment in 75 days. You can either choose to withdraw or reinvest your money at the expiry of this period.
When you are investing, you purchase JSS Positions (which are simply JSS positions, not blue-chip stocks). Each position costs you $10 dollars. So for the enterprising investor you could put up $500, earn $10 everyday and buy a position everyday during the 75 days and earn the interest described above over the 75 day period on these positions. This changes the simple interest into a special case of compound interest. I have calculated the amount of money you would make at the end the 75 days with $500 initial investment and new positions purchased everyday and the total payout would be $1,305, so the profit is $805 which represents a 161% return on investment in 2 and a half months.
This is not a sustainable rate of return by any means. Anyone who has done mathematics knows that compound interest results in exponential growth. The problem with exponential growth is that it moves towards infinity with continous compounding. So with any start point, unless a finite limit is put in place, the system will grow to a very huge number. The fact that JSS triplers earnings can be compounded everyday makes this problem worse because its almost continous. The 75 day investment window is only theoretical because the restart button on the JSS tripler system could ensure perpetual earnings for anyone in the system.
The money earned on this website is totally virtual. They do not specify their trading strategy (which is a legal requirement in many countries for investment funds), the JSS positions sold by the system are unregistered securities, they have no registered office and their website is the world standard of poor workmanship.
The way they have optimised their website is the clear work of some very ingenious search engine optimisation. Just go to google and type Just Been Paid, the first three pages of search results will consist of domains and sub-domains all owned and managed by just been paid. Their website is full of CAPITAL LETTERS, highlighted text and bold wording to ensure that they rank high in any keyword ranking on search engines. The fact that their landing page is totally dis-organised is a proof of the fact that their optimisation was aimed at manipulating search results. This means that whenever you do research about Just Been Paid on the internet you will most likely land on a domain or sub-domain that will lead you to a blog, article, press-release or website managed by Just been Paid. This is the reason why all the reviews you read about Just Been Paid will most likely be positive and yet they still have no registered office.
Currently people are making money on this scheme and they will continue making money. Operating through a website gives you the power to create virtual earnings and earning reports from the comfort of your bedroom. The virtual earnings will be incentives to the people already in the scheme to delay withdrawing their fund hoping to reach $10,000 and higher and then one day the investors will start withdrawing huge sums of money. This is the day when the owner of the scheme will close the gate way and all the investors will have nowhere to run to. They will discover that Fredrick Mann is the ingenious figment of a creative hacker's imagination and that the blurry introduction video on the landing page was shot from a webcam in the basement of the hacker's garage.
I will advice anyone thinking of putting up money in the scheme to put up a sum of money which he can afford to lose. If the scheme collapses before you can withdraw your money, your tears will not be very painful and if it does not collapse you will make a tidy profit. Ultimately, like all Ponzi Schemes, Just Been Paid will collapse and the stupid people who lose their money will blame the government.
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