PONZI SCHEMES

KHALID SAEED P.E, NEW-2, S.E.S

CONTENT
Definition History Types Of Ponzi Scheme Unraveling of a Ponzi Scheme Case Study 1 Case Study 2 Popular Ponzi Schemes of 21st century

DEFINITION
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from the money paid by subsequent investors higher returns than other investments short-term returns requires an ever-increasing flow of money

 Charles Dickens' 1844 novel Martin Chuzzlewit described such a scheme The scheme is named after Charles Ponzi an Italian business man (1920) 50% profit within 45 days, or 100% profit within 90 days Postal reply coupons in other countries and redeeming them at face value in the United States Robbing Peter to pay Paul Made payments to earlier investors and himself Loss : $20 million in 1920 dollars ($300 million in 2013 dollars)

HISTORY

TYPES OF PONZI SCHEMES: 1- Pyramid Scheme

Who recruit additional participants benefit directly (failure to recruit means no return) New money will be the source of payout for the initial investments Collapses much faster because it requires exponential increase in participants

2- Economic Bubble
Based on the "greater fool" theory Where prices rise because buyers bid more assuming prices are rising One participant gets paid by contributions from a subsequent participant A bubble involves everrising prices in an open market (for example stock, housing, or tulip bulbs) Bubble burst when greater fool become greatest.

Unraveling of a Ponzi scheme

When a Ponzi scheme is not stopped by the authorities, it sooner or later falls apart for one of the following reasons promoter vanishes, taking all the remaining investment money investment slows down, the scheme collapses (Liquidity) external market forces, such as a sharp decline in the economy

CASE STUDY 1: GOLDMINE INTERNATIONAL MULTI BILLION DOLLAR SCAM OR BUSINESS

25 no. of offices in Karachi 5000 investors at each office (Mar. 2007) 4800 or $60 amount invested at the beginning 5000 x 25 x 4800 = 600 000 000 (600 million rupees). $30 commission on completion of next two generation

No matter how large the model becomes before collapse, approximately 88% of all people will lose.

CASE STUDY 2: Double Shah

Born in a small town of Sambrial Tehsil, in Sialkot A teacher who started a financial scam, a Ponzi scheme Approached his colleagues and neighbors, he would return double money in just 15 days As promised, their investments were doubled in 15 days later in 70 days Arrested by the police on charges of Rs. 30,000 robbery Money that he stole during 18 months of business was over Rs.7 billion Sentenced to 14 years Rigorous Imprisonment and fine equivalent to total liability against him (Pak Rs. 5.4 Billion)

 In 2001, the Haitian $240 million was equivalent to 60% of the country's GDP. In 2003, a $1 billion scheme in Florida, affecting 28,000 investors In May 2006, a $311 million Ponzi scheme over a 20 year period in California, USA In October 2006, in Malaysia, known as SwissCash offering returns of up to 300% within a 15-month On April 13, 2007, in Pakistan, Sibtul Shah doubled investment in 15, later extended to 70 days. In April 2013, Republic of Mauritius over 700 million Mauritian rupees. In June 2013, in Tunisia, a fraud 80 million dinars

Popular Ponzi Schemes of 21th Century

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