Ponzi schemes - how they work

Well it does take a few things. For one thing it takes the ability to present yourself professionally - like with a well-designed website or in-world build. Barring that, all it takes is friends or peers. A lot of people believe in the value of honor - that there are some groups of people you just can't defraud. Your family, for instance, or your closest friends. If you go to church, your fellow churchpeople. Your friends at the Elks lodge. Madoff, for instance, was Jewish; he specifically solicited Jewish investors in his scheme. Why? Because they trusted him not to defraud them, simply because he belonged to their group. Why? That presupposition of honor, that no member of Group A will knowingly, maliciously take advantage of other people who belong to Group A.

Most Ponzi schemes, like Madoff's, prey first on close friends and even family - people who WILL trust you when you ask them for that $1000L. Once these people are on board, they invite their own friends, and word-of-mouth spreads. They're also the people who will most rigorously defend you when the scheme fails - partly because they are your personal friends, but also possibly because they've actually gotten the most money out of the deal, relative to the other investors. Because they're your friends, they will tend not to cooperate with any investigations into your activities, or give any information about the details of the investment system to people whose intentions they are unsure of; thus, the scam can go on for a long time undetected. The term for this is "affinity fraud".

How do I spell Ponzi Scheme? Form 1040.

No - the IRS never guarantees any kind of growth. Only loss.

If anyone has about 12 minutes to spare, I've got a fun video for you to watch.

It's from C-SPAN (waits for the groan to end) but it is entertaining. It's the House's hearing on Madoff's scheme and why it was not detected earlier. It seems the SEC is only now investigating Madoff after his sons turned him in, which doesn't make sense since there were other individuals who detected the scheme as early as 2000 and have made repeated attempts to contact and inform the SEC over the last eight years, and were ignored. The purpose of the hearing (one of many that will be taking place) is to try to identify where the miscommunication or disfunction took place, so that it can be fixed - a law can be made or changed to prevent such an oversight from happening again. Well, the SEC sent some people to the hearing, but aside from general statements about their specific offices' duties within the SEC, they refused to talk about Madoff, or anything to do with his case, at all. After over an hour of the Congressional panel's questions being not-answered, one of the Congressmen got fed up and kinda 'sploded all over the SEC.

The video is here:

http://www.c-span.org/Watch/watch.aspx?MediaId=HP-A-15082

The 'sploding Congressman is from 03:30:00 to 03:42:00. It's funny.