ponzi schemes

Ponzi schemeTHE INVESTMENT FRAUD

What is a Ponzi Scheme?

O The “Ponzi Scheme”,

named after the

1920’s swindler

Charles Ponzi, is a

ploy(CUNNING PLAN) or a

fraudulent investment

operation where

earlier investors are

paid with funds given

by subsequent

investors.

Understanding a Ponzi Scheme

Ponzi Promoter

Investor A

Starts to invest money

Understanding a Ponzi Scheme

Ponzi Promoter

Investor A

Starts to invest

money

Investor B

Starts to invest

money

Collapse of a Ponzi Scheme

As the number of total investors grows

and the supply of potential new

investors dwindles, there is not enough

money to pay off promised returns and

cover investors who try to cash out.

The scheme starts to collapse with

investors losing all or most of their

investment.

Burst of a Ponzi Scheme

The Ponzi bubble bursts when the con artist simply cannot keep up with the required payments.

In many cases, the promoter or

con artist has spent the

investment money on personal

expenses, depleting funds and

accelerating the bursting of the

bubble.

How to Protect Yourself Against Ponzi Schemes

Beware of promises of unrealistic returns.

Don’t rely on reputation or word of mouth alone.

Understand your investments.

How to Protect Yourself Against Ponzi Schemes

O For large investment schemes, ask who the

auditor is and check out the auditors on the

internet.

O Check registration and background of

individual selling the investment by contacting

the SEBI

O Report investment fraud by contacting the

SEBI

Red Flags for Ponzi Schemes

The investment is exclusive for “only” a special group of people.

Poorly written information on the investment product and the business.

Vague or overly complicated explanations of how the business runs and how money is made.

Investments promoting no downside or risk.

Red Flags for Ponzi Schemes

Pressure to sign now and get your copies later.

High or unrealistic returns in a short period of time.

Not registered with the State Office of the Securities Commissioner

Recent Ponzi Cases in INDIA

SAHARA GROUP

SUBRATA ROY Rs 24000 cr

SHARADHA CHITS

SUDIPTA SEN Rs 2500 cr

Beware

O Charles Ponzi

O $10 million

O 1920

Charles Ponzi

$10 million

1920

Bernie Madoff

$65 billion

2008

Who’s next?

How much?

When?