A ponzi schemer would follow these rules in order to keep the scheme going for as long as possible:
- Encourage “reinvestment” of income. The less income the schemer pays out, the longer the scheme will last.
- Moderate the amount stolen each year. If he steals a smaller amount each year, the scheme will last longer and he will likely be able to steal more money overall.
- Discourage redemptions. Paying out principal to investors at a high rate will crash the scheme quickly. Therefore institute a large penalty for early redemptions or promise an even higher Rate of Return if the principal is reinvested instead of withdrawn.
- The Rate of Return promised should be higher than alternatives but not so high that paying out income will quickly bankrupt the scheme.
- Recruit new money. New money is key to maintaining a scheme for an extended period.
The calculator above demonstrates the impact of different factors on the life-span of a ponzi scheme. It assumes that that Promised Rate of Return, Yearly Dollars Stolen, Percentage of Income Reinvested, and Net Redemptions/Contributions are the same every year. These numbers would likely fluctuate each year in real-life. It also assumes that there were no actual investments.The Ponzi Scheme Calculator was developed by Dynamic Securities Analytics, Inc.
