Reporting on Ponzi Schemes
In all the news releases from AG's who are prosecuting Ponzi style frauds, there is a common emphasis on how high the promised rate of return was.
For example, in Global Online Direct, "depending on the amount invested, Global promised effective annual returns of more than 1,800%." , and in Your Money's Worth, "by promising annual returns of up to 96% in connection with the unregistered offer and sale of YMW securities."
Virtually every press release has the same implied theme: these investors were idiots to believe in such a high rate of return and in some sense deserve their financial fate.
However good this makes us feel, that we would never be such a sucker, let me pose a single question. When some one claps loudly at a music performance, do you feel any pressure to also clap? If the crowd rises on its feet, do you stubbornly sit seated? Can you resist because apparently, according to Valerie Scher
"there's a malady sweeping the nation that's highly contagious to concert goers. It doesn't have a name yet, so let's call it Excessive Ovation Syndrome (EOS for short). Those suffering from it stand and applaud at performances that aren't good enough to deserve such enthusiasm. In extreme cases, they shout "Bravo!" during events that are best forgotten.The more people pay for tickets, the more susceptible they are to EOS, because ovations confirm that their money was well spent. Even those in bargain seats can easily catch it from their neighbors. The urge to stand and cheer may be irresistible if everyone around you is doing it."
If you have felt this pressure, a simple example of social proof, then you can begin to understand how a Ponzi fraud works its magic.
Here is a stylized version of the type of thinking that ensnares a Ponzi victim.
First, we start with extreme skepticism, it is too good to be true. But maybe, on the other hand, this fellow is a genius. It could be, so why don't I risk a small amount to invest. At worst, I will simply lose my money -confirming what I already knew, that it was too good to be true.
Second, disaster strikes: the Ponzi criminal doesn't take our meagre offering and vanishes -magically it is transformed to a new and higher "amount". Or least according to the spreadsheet printout that I received.
Everyone else is busy clapping, yelling "Bravo, bravo". I must be missing something, and after all I have seen the proof with my own eyes. Quick, quick invest more money and start clapping with everyone else. Hurry, hurry.
