Red flags! Seven ways to identify a Ponzi scheme

Investing is one of the best ways to grow your money, but it also comes with risks, especially when scammers are involved. One of the most dangerous and common scams today is the Ponzi scheme. 

It looks like a normal investment at first, but it’s a trap that uses people’s money to pay old investors, until everything collapses. Here are some ways to identify a Ponzi scheme before it steals your hard-earned money.

1. High Returns with Little or No Risk

One of the biggest red flags of a Ponzi scheme is that it offers huge profits in a short time and claims there’s no risk at all. Real investments always have some level of risk. If someone tells you that you’ll get 40% returns every month with “zero risk,” that’s a lie and a likely sign of fraud.

2. Not Registered with Any Financial Authority

Legit investment companies are registered with government bodies like the SEC in the U.S. or the Corporate Affairs Commission (CAC) in Nigeria. A Ponzi scheme avoids regulation so that it can operate under the radar. Always check if the company is officially registered before giving them your money.

READ ALSO: CBEX: Ponzi scheme promoters face 10 years jail term, N20m fine

3. Little or No Information About the Business Model

A common trick used by Ponzi scammers is to be vague about how the money is actually made. They may use complicated words like “crypto arbitrage” or “forex auto-trading” without explaining the process clearly. If you don’t understand how the business works after asking questions, it’s likely a Ponzi scheme.

4. Payments Are Made Using Money from New Investors

In a Ponzi scheme, early investors get paid with the money brought in by new investors, not from actual profits. This makes the system look like it’s working at first. But once new investors stop joining, the scheme crashes, and everyone loses their money.

5. It Relies Heavily on Referrals and Downlines

If the company pressures you to bring in more people and promises to pay you based on the number of people you recruit, be cautious. This setup is very similar to a Ponzi scheme. Real investments don’t depend on bringing in new investors to stay afloat.

6. You Have Trouble Getting Your Money Out

When it’s easy to put your money in but difficult to withdraw it, that’s a serious warning sign. Some Ponzi schemes delay or deny withdrawals with excuses like “system upgrades” or “high traffic,” especially when many people try to collect their money at once.

7. It Has a Strong Cult-Like Following

If everyone in the group blindly defends the investment, shuts down questions, and treats the founder like a hero, that’s another red flag. Ponzi schemes often use hype and emotion to trap people.

A Ponzi scheme can happen anywhere, online or offline, in any country or currency. The key to protecting yourself is to stay alert, ask questions, and never be in a rush to invest.