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Old 05-14-2007, 11:44 PM
MBI MBI is offline
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Join Date: Oct 2006
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Scams, Gambling & Investments

Scams, Gambling & Investments:
And How to Spot the Difference

The internet is a wonderful source of information - both good
and bad. It's also a playground of profitable possibilities for
would-be and seasoned shysters and scam artists.

Apart from pornography, one of the most prevalent types of
content one can find on the web is in the moneymaking category.
And I guess, like sex, money has universal appeal!

Now, this leads to all sorts of potential problems, especially
when easy money is promised.

To learn how to spot the difference between a legitimate moneymaking proposition
and a scam is not automatically easy.

At least it's not easy if you allow yourself to be mesmerized
by the promise of something for almost nothing.

The starting point in getting to grips with this conundrum is
to realize that greed plays a big part in human nature. Sorry
to be so blunt, but it seems we're wired for it.

You see this played out over and over - whether it's women
battling each other to grab the best garments in a crazy sale,
or crazy people queuing up to get financially fleeced in some
hair-brained pyramid money game.

The motivation is the same. Something for nothing - or almost
nothing. And that desire is fuelled by greed.

If you can accept that you may have a built-in propensity to
seek the easy route, to get your hands on easy money - and
factor that into your decision making - then you will be in a
much better position to more rationally appraise various
moneymaking opportunities.

There are two main generic scams continually circulating on
the internet. One is the "advance fee" scheme, and the other
is the "Ponzi" or pyramid scheme.

The first is epitomized by the "Nigerian Letter" fraud - which
is essentially a promise of big bucks in exchange for some
"help" to retrieve the money. The strategy is to suck you into
the scenario to such an extent that you become emotionally
wedded to it. Then, when you are asked to put up a fee to make
things happen, you are already hooked and part with your cash
without a whimper. Never to be seen again.

The ponzi scam is named after Charles Ponzi who came up with
the novel idea of enticing investors with the promise of very
large returns - and paid them out of new investors' money. In
the end, of course, the last investors lost their money, and
the whole thing was exposed as a complete fraud.

Some ponzi schemes are very crude - like the original chain
letter. You'd think we would have risen above that one - but
it keeps on resurfacing. However, most are now more
sophisticated, often disguising themselves as an
"investment" with unusually high returns.

Over the last few years such ponzis have sharpened their act,
and now present themselves with smart, professional looking
websites - plausible wording and an enticing sales pitch. The
primary hook, apart from the promised returns, is the referral
fee - if you recommend others. In this way, the modern ponzi
can harness the viral marketing power of the internet in ways
impossible in the snail mail age.

But you have to take responsibility for your own decisions, and realize what
you are getting into.

If you know the risks, then it becomes like gambling - where
it is clearly understood that there are winners and losers.
And I certainly don't advocate that the state should
criminalize gambling.

However, it does appear that some people can't tell the
difference between gambling (in all its forms), a ponzi,
and an investment. And this fact is often used by the
authorities as an excuse to enact laws to protect people
from themselves.

For example, it's imperative to distinguish between ponzi
schemes and gambling. And it shouldn't be hard.

Gambling involves taking a stake in a money game where there
are clear rules and directives as to who becomes the winner.
Luck is the usual arbiter in gambling - and this is managed
in various ways. It could be lotto, where numbers are drawn
from a barrel; it could be a lottery where one person has the
lucky ticket number; or it could be horse racing or sports,
where you place a bet on the outcome of the race (where "form"
and luck both play a part).

The point is that in gambling, you know there will be winners
and losers, and you know the means by which this will be
determined. You have full disclosure

Not so with a pyramid or ponzi.

If a ponzi is disguised as an investment, then it is likely
to offer high returns (to appeal to greed), and use referral
fees to get people to spread the word.

Now, the explicit message is that everyone who joins up will
make say 10%, 20% or even 100% per month on their money.
However, the truth is that only the early birds will catch
the worm and walk away with the loot. Why? Because the funds
to pay out the promised returns come from the new players.

So, the pertinent question is, do these new players fully
understand they are funding earlier "investors", and so
they realize they could lose their shirt? Probably not.

If a moneymaking scheme states that it is a "game", makes
no guarantees, and openly declares that your money is paying
those before you, then you know the rules before entering -
and cannot cry over spilt milk if you lose your money.

On the other hand, if money is taken using terminology that
indicates a legitimate investment is being offered - which
later turns out to be a ponzi scam - then clearly the
participants have been defrauded, because they were not
told the true facts.

In a situation like this, one should be able to pursue
legal action to reclaim the lost funds - because such money
was taken under false pretences.

However, such a retroactive course of action does not mean
one shouldn't exercise rational judgment before entering
into any form of investment - even more so, if exceptional
returns and referral bonuses are being paid!

This brings up another dilemma. You've all heard the old
maxim: "If it sounds too good to be true, then it probably
is". It's one of those well-worn slogans that is sometimes
more confusing than helpful.

So you have gambling, which clearly discloses the risks
inherent in participating; ponzi/money games, which usually
don't, and are essentially fraudulent offers; and finally
you have real investments.

Of course, putting your money into legitimate investments
does not eliminate the risk of losing your money - it's just
that such a structure is not set up with the purpose of
defrauding you! When you invest your money you should demand
full disclosure as to the inherent risks of the proposition.

However, no investment is 100% safe. Even government bonds
depend finally on the state's ability to forever tax its
citizens - something I personally wouldn't want to bet on!

And this is where we come across yet another old maxim -
"the higher the potential return - the higher the risk".
Once again, this is a useful indicator - but not infallible,
as there are obvious exceptions.

So, to recap: the essential difference between a scam,
gambling and an investment - is that the "rules of the game"
are known in advance, and you participate in the full
knowledge of the risk you are taking.

A ponzi scam deliberately misleads, whereas gambling and
investing offer disclosure as to the risks.

You cannot avoid risk - it is part of life. You will never
find a truly risk-free investment. Even money in the bank,
in most countries, is deemed "unsecured" - and therefore
at risk, should the bank fall over.

So accept risk as part of life, and concentrate on weighing
up the risk - according to your own requirements and your
psychological response to such risks - against the perceived
benefits you may receive.

Some people literally can't sleep at night if they feel
financially exposed. While others are like adventurers,
wading through shark-infested waters, with their eye on
the end prize.

There's no doubt some people get lucky and make money from
gambling, or get in early and make money from ponzis. But
there's no doubt that most people lose money from such

The challenge for you, is to keep your head on, stay calm,
don't be driven just by the promise of a quick buck, but to
assess the offer in the light of your financial position
(whether you can afford to take a risk or not), and make
a reasoned decision.

Don't be panicked into action - panic is never a good
emotion. The best advice, if being rushed by someone, is
to withdraw and give yourself time to evaluate something
with a cooler head.

Something else will always come along, so don't be fooled
by someone claiming that you will lose out if you don't
say "yes" now!

The world (and the internet in particular) is bursting
with opportunities - and once you have a clear idea of
what you are comfortable with, you will have plenty of
time to participate and profit.

And remember, you alone are responsible for the decisions
you make. Caveat Emptor! "Let the buyer beware".

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Old 05-14-2007, 11:48 PM
Ronster's Avatar
Ronster Ronster is offline
Gold Member
Join Date: Dec 2006
Posts: 714
Re: Scams, Gambling & Investments

why is this in the Mortgage part of the forum?
"If you always do what you've always done, you'll always get what you always got"

National Taxes, National Borders!!


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