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! The starting point in getting to grips with this reality is to realise 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 men and 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 fueled by greed. If you can accept 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" scam, and the other is the "Ponzi" or pyramid scheme. The first is epitomised by the "Nigerian Letter" fraud - which is essentially a promise of big bucks in exchange for processing fees to retrieve the money. This often involves receiving an email announcing you have either inherited or won a lot of money, and that you need to open an offshore bank account to retrieve it. 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. The promoters then disappear with your cash, 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. Now I have nothing against people playing money games as such (it's their money), provided they know the rules of the game, and understand the risks. You see, I'm very much of the opinion that people should be allowed to do what they like with their own money. However, when you remove regulatory oversight, you have to take responsibility for your own decisions, and realise what you are getting into. If you know the risks, then it's like gambling - where it is clearly understood that there are winners and losers. 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, 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 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, and eventually they run out. The pertinent question is, do these new players fully understand they are funding earlier "investors", and do they realise 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 - 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 judgement before entering into any form of investment - even more so, if exceptional returns and referral bonuses are being paid. So you have gambling, which clearly discloses the risks inherent in participating; ponzi/money games, which usually don't, and are essentially fraudulent offersm 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. So to recap: the essential difference between a scam, gambling and an investment - is 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 of course - 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. And remember, you alone are responsible for the decisions you make. Caveat Emptor! "Let the buyer beware".
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