How do Ponzi schemes repeatedly succeed? The financial trap truths that Taiwanese investors must recognize

What are investors most afraid of? It’s not market volatility, but realizing that they have lost their entire capital and understanding that everything was a carefully crafted lie. The Ponzi scheme continues to unfold around the world, including in Taiwan, precisely because it perfectly exploits people’s innate desire for huge profits.

The True Face of Ponzi Schemes: Why They Never Fail

Ponzi schemes are not complex financial innovations; rather, they are the most blatant form of plunder. The name comes from an Italian named Charles Ponzi, who in the early 20th century designed an apparently flawless plan that, within a year, defrauded millions of dollars.

Ponzi’s method is actually very simple: fabricate high-return investment stories, use new investors’ funds to pay “returns” to early investors, and repeat this cycle until new capital dries up, causing the entire scam to collapse. The key point is that from the very beginning, this plan involves no real investment activity— all “returns” come from the principal of subsequent entrants.

In 1903, Ponzi illegally entered the United States, working as a painter, laborer, and other low-level jobs, even serving time in Canada for forgery and being imprisoned in Atlanta for human trafficking. But after multiple failures, he discovered that the fastest way to wealth was through financial fraud. In 1919, just after World War I ended and the global economy was in chaos, Ponzi claimed that buying European postal notes and reselling them in the US could be profitable, then launched an investment plan promising 50% returns within 45 days.

In just one year, nearly 40,000 Boston residents joined this scheme, mostly working-class people with little financial knowledge, each investing a few hundred dollars. Although the Financial Times had already published articles pointing out that this was a scam, Ponzi rebutted through newspapers and continued to attract new “investors” with huge bait. In August 1920, when he could no longer find enough new funds, Ponzi’s empire collapsed instantly, and he was sentenced to five years in prison.

Repeating History: Classic Cases of Modern Ponzi Schemes

Since Ponzi’s era, the forms of Ponzi schemes have evolved, but their essence has never changed.

Madoff: 20 Years of Lies on Wall Street

If Ponzi’s scam was a test, then Madoff’s fraud was the pinnacle. Bernard Madoff was a renowned American investment broker and former NASDAQ chairman. His name alone represented trustworthiness and professionalism. This was the key to his ability to deceive investors for 20 years.

Madoff carefully infiltrated high-end Jewish clubs, using friends, family, and business partners to develop “downlines,” accumulating $17.5 billion in investments through a snowballing effect. He promised investors a steady 10% annual return and boasted that he could “profit easily in both rising and falling markets”—a hallmark of deception.

What clients didn’t know was that all those impressive investment returns were actually derived from others’ principal. It wasn’t until the 2008 global financial crisis, when market downturns led investors to withdraw funds, that approximately $7 billion in redemptions exposed this enormous lie. In 2009, Madoff was sentenced to 150 years in prison for fraud, in a case valued at $64.8 billion, making it the largest scam in U.S. history.

PlusToken: A New Kind of Ponzi Under the Guise of Blockchain

If Madoff exploited investors’ trust in traditional finance, then PlusToken exploited their ignorance of emerging technologies. This self-proclaimed blockchain wallet app was widely promoted in China, Southeast Asia, and also affected the Taiwanese market, promising monthly returns of 6%-18%.

According to the blockchain analysis team Chainalysis, this scam defrauded about $2 billion in cryptocurrencies, with $185 million already sold off. In June 2019, when PlusToken was unable to pay out and customer service stopped, victims realized they had lost everything.

This case is especially worth warning Taiwanese investors, as many Taiwanese lack sufficient understanding of “blockchain” and “cryptocurrency,” making them prime victims of such scams.

How Taiwanese Investors Can Recognize Ponzi Schemes

Ponzi schemes frequently succeed in Taiwan because most investors lack basic risk awareness and financial knowledge. Here are the core points for identifying Ponzi schemes:

Beware of Promises of “Low Risk, High Return”

This is the most typical feature of Ponzi schemes. If an investment promises daily profits of 1%, monthly returns of 30%, or claims “investment always wins with no losses,” it’s almost certainly a scam. All investments are affected by economic cycles; there are no guarantees of 100% stable positive returns. Madoff’s ability to deceive for 20 years was precisely because he claimed to offer “stable returns,” fooling many experienced investors, let alone ordinary people.

Complex and Obscure Investment Products Should Raise Suspicion

Scammers like to design projects that are complicated, mysterious, and difficult to understand. They use various technical terms, blockchain, AI, quantitative trading, and other concepts to confuse investors, but internally, the project lacks any real business support. If the project team avoids, dodges, or is vague in response to your detailed questions, this is already a clear red flag.

Check the Legitimacy and Transparency of the Project

Verify whether the project company is legally registered through business registration systems, and whether the investment funds are regulated. Ponzi schemes often involve unregistered or unregulated projects. If you cannot find company information or if the registered capital does not match the actual scale of operations, you should be immediately alert.

Difficulty in Withdrawing Funds Is the Ultimate Signal of a Ponzi Scheme

When you try to withdraw funds, scammers will set up various obstacles—raising withdrawal fees, changing withdrawal rules, delaying payments. This is a sign that the Ponzi scheme is about to collapse, as they no longer have enough new funds to meet withdrawal demands.

Identify “Pyramid” Recruitment Models

Ponzi schemes often use referral bonuses to attract investors to recruit others. If a project’s main profit method is not actual investment returns but recruiting new members for commissions, then it is a disguised multi-level marketing scheme. Taiwanese investors should be especially cautious of “enthusiastic” recommendations from acquaintances, as this is often how the scam spreads.

The “Deification” of Project Founders Should Raise Alarm

Ponzi schemers often portray themselves as geniuses or heroes. For example, Sergey Mavrodi, founder of MMM financial mutual aid, was portrayed as a “savior.” If a project excessively mythologizes its founder, you should immediately question it.

Seek Professional Advice

Before making decisions, submit the investment project to professional investment or financial advisors for review. Most Ponzi schemes cannot withstand scrutiny from experts.

Overcome Greed, Protect Yourself

The reason Ponzi schemes always have a market is rooted in human nature’s desire for sudden wealth. Scammers are well aware of this; they do not emphasize investment risks but use high return figures to stimulate greed.

The iron law of investing is: Risk and return are directly proportional. There are no exceptions, and there will be no exceptions. When you encounter an investment opportunity that defies this principle, your first reaction should be to avoid it, not to hold out hope.

True wealth accumulation requires time, patience, and rationality. Investments promising short-term huge profits are often shortcuts to bankruptcy. For Taiwanese investors facing the proliferation of Ponzi schemes today, the best defense is to stay alert, overcome greed, and remember the simple truth: “There are no free lunches.”