A Ponzi Scheme Defined

This was originally in a MSN article, but I could not copy and paste the slide show into this blog, so I have recreated it. It highlights many salient points that are appropriate with the travel MLM/Card Mills that are operating today.  As you read through this, most likely you will be nodding your head in agreement. Is it no wonder that Jerry Brown and Lisa Madigan have taken notice and taken action? With the California and Illinois Attorneys General either prosecuting or investigating, are others far behind?

How Ponzi Schemes work

Since Charles Ponzi defrauded thousands in the 1920s, investors have continued to fall prey to such schemes. Here's why.  --Source: The North American Securities Administrators Association

# 1 Ponzi's allure

• Ponzi schemes work by paying old investors "dividends" from new investors' principal.(YTB pays the lion's share of bonuses from money received by new RTAs. This is substantiated by their SEC filings)
  

# 2 Variety and confusion

• A flood of new investment vehicles has made it difficult to identify frauds. (While not dealing with investments, yet, YTB is adding all sorts of ancillary products. In addition, with the other MLM outfits like Traverus and GTI, it does become confusing to determine legitimacy. YTB counts on this.)
  

# 3 Greed

• High rates of return and "guaranteed" low-risk strategies lure even conservative investors. (If anyone has attended a YTB "Opportunity Meeting" they flash the success stories like Julliet St. John and Ron head, but neglect to mention that their own income disclosure indicates that the vast majority of participants earn nothing. The low risk is the minimal investment and no investment programs.)
  

# 4 The appearance of success

• Early investors receive "proof" through high initial returns. (Undoubtedly the top people in any pyramid scheme will receive the high initial returns. Look at Ron Head, Rick Ricketts, Andy Lakey, Bill Hoffmann and others who are always highlighted and paraded as "proof" of success.)
  

# 5 The herd instinct

• Those investors then promote the scheme to friends and others. (When you have tens of thousands of people all led by financial earners, they will take that success as an indicator of theirs and promote it to anyone and everyone. As a matter of fact, one of the key "tools" in MLM is to promote the opportunity to everyone within a three foot radius of you. It is called the Three Foot Rule.)
  

# 6 Fear

• As the scheme unravels, some still promote it for fear of losing out amid mass withdrawals. (YTB is currently experiencing this right now. In March of 2008, they had 138,000 RTAs and right now they are just about to go under 90,000 and are losing about 300 RTAs per day. Yet there are many, the majority, who do not see the warning signs--IATAN, RCCL, dropping RTAs, lawsuits, falling stock prices, and most recently the decision by NCL to terminate them. These people will continue to believe and promote hoping for success that is out of reach and they will continue to do so until the company eventually collapses. One onlly needs to look at the loyalty some of the Joystar agents exhibited who are now in dire straits.)
  

# 7 The Tooth Fairy syndrome

• Some refuse to relinquish their faith in the business acumen of the alleged mastermind. (Well, I am not sure there is ANY business acumen in ANY of the alleged masterminds. None of them have ANY experience in travel and they all have experience in questionable MLM outfits. AL Williams, selling fuel additives, etc. Their acumen is suspect when they deal only with Board insiders and make sweetheart deals with privatelyheld sister companies. However, they ALL talk a great talk and have amassed a large loyal following. The followers of YTB management are quite literally zombie-like.)