A Ponzi scheme is an investment fraud where returns to early investors are paid from funds received from later investors rather than actual profits. As more investors are needed to pay promised returns, the scheme relies on a constant flow of new money to avoid collapsing. When new investor money dries up, as it inevitably will, the scheme falls apart leaving most investors losing their money. Investors can protect themselves by being wary of unrealistic returns, doing thorough research on any investment, and watching out for common red flags of Ponzi schemes like vague explanations of how profits are made.

1. Ponzi scheme
THE INVESTMENT FRAUD

2. 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.

3. Understanding a Ponzi Scheme
Ponzi Promoter
Investor A
Starts to invest money

4. Understanding a Ponzi Scheme
Ponzi Promoter
Investor A
Starts to invest
money
Investor B
Starts to invest
money

5. 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.

6. 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.

7. 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.

8. 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

9. 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.

10. 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

11. Recent Ponzi Cases in INDIA
SAHARA GROUP
 SUBRATA ROY
 Rs 24000 cr
SHARADHA CHITS
 SUDIPTA SEN
 Rs 2500 cr

12. 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?