How to start a Ponzi Scheme

This is hopefully the first post of a long series. I was brought to think about different non-ethical strategies when writing the nasty consultant stories. Now I’d like to put myself in the shoes of deceitful founders and provide instructions on how to start criminal ventures and getting away with it. The first post is about Ponzi! Let’s go!

A Charismatic Leader

First of all, your company needs a leader. Duh. Every great venture needs one. But what you are about to start is a bit special. You are about to spread lies and scam people, yet get people to trust you. You need to convince and inspire your clients. As genius salesman Jordan Belfort (aka the Wolf of Wall Street) describes in his straight-line system there are 3 components that people need to have in mind for a successful sale:

1. They love your product
2. They trust and connect with you
3. They Trust your company

You can imagine that your leader needs to be a pretty good actor to knowingly sell lies and still manage to bring people to align with the 3 components of sales. To trust you and your company, in addition, to be charming, the leader should be perceived as an expert and very knowledgeable about the finance and investing world (Why not an MBA graduate?). If you have the charisma of a mop, nothing is lost. Partner with someone or get to know the Jordan Belfort straight line system by heart. You could also get involved in multi-level marketing schemes to practice your snake oil salesman talent. 

A “Product”

A quick recap on what is a Ponzi scheme:

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for early investors by acquiring new investors. This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers.

Wikipedia

Now that you found the face of your company. You need a product. Ponzi 101: there is no product. The trick is to build a “fake” business opportunity that rewards investors with crazy returns. But there is no investment. The product is, in reality, a very fancy wrapping around a simple bank account. Here are a few examples from Wikipedia. I would try to come up with something new, as all of those were obviously busted.

Try to make your product as confusing as possible. It should be extremely difficult for other people to describe exactly how your system works. In any case, it should be clearly labelled as risk-free and highly profitable.

In order for people to believe that you can actually achieve the promised returns, you need a narrative. That is what Venture Capitalists call a secret sauce. There are a few ways to create perceived expertise and talent.

• Base your product around super new technology: Ideally one that is so new that no one really masters it. Or it would require investigators months of studying to understand the machine underneath. A good example nowadays would be the blockchain or NFTs.
• Get experts to endorse you (real or fake) that know the secrets of Wall Street. Get their name on your product. Have them be on the board. PhDs, MBAs, CFAs, ex-MBBs are your best friends to help build trust in your product.
• Buzzwords buzzwords buzzwords. Nowadays you can get away with almost anything if you master the tech lingo.

Feeling generous, I created a few empty sentences for your own copywriting.

Our fintech technology is the most disruptive on the market. Thanks to Machine Learning we are able to create tokens that reward our users with the best financing technology. By using the power of the blockchain we are challenging the status quo and allowing users to make the best investment opportunities only available to the haves. Thanks to Artificial Intelligence, our algorithms produce amazing ROI. By data mining the history of online trading, and using the best big data innovation we produce trading models that outperform the market every. single. time.

Your Investment Banking Quantitative Modeling Expert

Invest your money in less than 3 clicks!
Invest your money is as easy is ordering a Pizza!
Alexa add 100USD to my Ponzi account!

Some of your business catch phrases

Gullible Inner Circle

Next step is to build a team. There are two schools of thought here. Either you gang up and conspire together to scam as many people as you can. Or, you choose the way of the snake and decide to keep the secret of the investment to yourself. 

In our opinion, there are more possibilities of return if you keep it to yourself.  The issue is then to find a gullible inner circle that will help you scale your business. The first rule of building a malicious organisation is the compartmentalization of roles. The idea is to create very hermetic silos of tasks, where only you have access to the secrets of the investment technology. 

If your team expresses any doubts about the technology, you can always claim that it’s very replicable and too sensitive to share. But that implies you don’t trust them. Thus, we suggest claiming to have fake contracts with experts. Your “NDAs” make it impossible for you to share the intricate mechanics of the investment techniques. It’s a way more subtle and believable excuse. Sweet talking your inner circle with promises of incredible fame/success should obviously be part of your pitch. Templates for fake NDAs available here.

The silos should be focused on getting the word out and tease your potential targets. There are a few ways of doing this and we will try to be as exhaustive as possible in the next sections of this article.

Dubious Marketing Practices

Once the team is solidly seduced by the idea of getting rich while helping the financially stupid, let’s get them to work. We want to spread the word and look as serious and trustworthy as possible. 

The most obvious way is to have someone recruit “ambassadors and influencers”. In exchange for equity or a future spot high-enough in the pyramid (Wait, you thought you’d pay them?!), those people can work for you and share your content across their audience. Try to curate the content a little bit, but ideally, you should let them be free to decide what to say. Your agreement with your influencers should be based on commissions on sign-ups, thus, encourage them to use as many dirty tricks as possible. Influencer marketing is pretty vague and no one will be responsible if they don’t stick exactly to your script and embellish your product. It’s basically word-of-mouth and nothing can be tied to you. Don’t forget you should keep your written communication with them to a minimum. 

Another way of building a reputable fintech is plain digital marketing. Have someone in your team manage your social media accounts and use inbound marketing tricks to build the audience. Again, your target audience can easily be fooled by a large number of followers on Instagram and Twitter or Linkedin employees. There are common tricks to increase numbers by throwing bucks at a few bots (Check out a few options here, here and here.
“Artificial Intelligence” is pretty amazing these days and in addition to beating Wall Street (sic), it can also follow, repost and share your content to convince the less educated of the seriousness of your business proposition.

Mystery/Controversy

Nowadays we only speak about startups that raise money. Obviously, it’s going to be very difficult to find a serious investor willing to put money in your empty shell. It does not mean that you can’t spread rumours about potentially interested parties. When you do this, make sure to spread many rumours at the same time. Make sure to be as vague as possible about outcomes and timelines. Everything should happen next summer, before Christmas, in a few months, etc…

Don’t forget to travel a lot. It is essential to build up the credibility of your product. It shows that you have money to travel and that you have a lot of international connections ready to help you establish a serious business. Here are a few suggestions for your excuses:

• You are meeting with investors in Hong Kong and we’re talking millions.
• An incubator in Amsterdam has heard of you and are wanting to take stakes in your startup.
• You’re pitching a guy from Y combinator in SF
• Someone from Paypal (or N26, Revolut, Klarna) absolutely wants to embed this in their business.
• An early investor in Netflix is looking into reconverting in fintech and has asked you to go to NYC to discuss opportunities.

This will startup (pun intended) conversations about your company and this is what you want. By throwing lots of different rumours, it will also be very difficult for investigators to figure out if any of these alleged investors are real. Again, be as vague a possible. Never throw names nor accurate timelines.

Market Segmentation

You’ve guessed that regular markets might in the developing world be a hard sell. Even though you might be able to find thirsty gullible investors, regulators might get ahead of you and shut you down before you could even start playing the game for real.

We suggest targeting young professionals digital natives based in countries where regulation is loose. Third world countries can ideally provide a large number of those. In most of these regions, the educational system is not great, thus, the masses would probably buy your solution without looking too much into it. This is where cocky tech lingo and your dubious marketing practices will work the best.

In most of those markets, the financial technology on smartphones and involving crypto is probably super new and will seem easy for you to seize the markets opportunities there before anyone else.

Legal comes later

After you start operating your business or at least started making noise people will start to ask questions. Thanks to your successful market segmentation your target will buy it all and won’t want to know how your promises can be real.

But, you’re never protected from journalists or the annoying curious. There is a very easy trick to throw off those threats: You are “in the process” of designing your legal framework. A variant would also be you are also “in the process” of recruiting a Chief Compliance/Legal Officer.

Because you are a super innovative technology, after all, the laws to regulate what you are doing are yet to be created in most jurisdictions. Maybe admit that you don’t really know the regulations of the financial markets regarding your company, but once you’ll land your first round of investment (very soon by the way), you’ll invest heavily in a legal team to protect your company, your clients and your own interests.

Conclusion

This is a very dangerous game. It usually never ends well. My advice would be this: Don’t gamble the money too much. I think the 101 rule of drug dealing applies here. “Don’t use the crap you’re selling”.
You, above anyone else, should know that if returns seem too good to be true, they probably are.

Resist the temptation to bet on risky things, your scheme would collapse pretty badly and the more angry victims, the worse the consequence will be for you. If you really need to invest, make sure you do in non-cyclical stocks. At least, your chances of losing everything in times of crisis will be reduced.

Try to limit the pay-off to your clients as much as possible. The more money you retain in the system, the less risky it becomes for you. For example, you could imagine a scheme, where investors are rewarded when re-investing their winnings in your company.

Scaling is key. New money incoming is the longevity secret of your scheme. You can use the usual tricks like referral systems and investment vouchers for new entrants to make your investments even more appealing for potential victims.

Above all, be ready to live a hard life. Secrecy and deceit can drive some people crazy. As a last note, I will give you a few words from the latest interview of Bernie Madoff, sentenced to 150 years in Federal Prison for Ponzi scheming.

I feel safer here than outside […] I know I will die in prison. But I lived the last 20 years of my life in fear. Now I have no fear because I’m no longer in control of my own life.

Bernie Madoff, from prison