PONZI SCHEMES

Muhammad Anas (10628)Talha Rizwan (10016)

INTRODUCTION

“A Ponzi scheme is a fraudulent investment operation because it pays returns to separate investors, not from any actual profit earned by the organization, but from the money paid by subsequent investors."

INTRODUCTION(cont)• No legitimate investment activity.• Returns are paid out of investors own capital.• Early investors re-invest their money.• Positive word of mouth.• Impressive but meaningless verbal constructions.

o Hedges futures trading.oHigh-yield investment programs.oOffshore investment.

CHARLES PONZI

• Scammed thousands of New England residents in the 1920’s.• He started business by trading postal coupon. • Promised high returns on international reply coupons(IRC). • Promised a 100% return in 90 days.• Within a week Ponzi accumulated $1,000,000 in hard cash.

HOW A PONZI SCHEME WORKS

Later Investors

Later Investors

Later Investors

Later Investors

Later Investors

Later Investors

Initial Investors

Initial Investors

Ponzi Organizer/ Scammer

Ponzi Organizer/ Scammer

Initial Investors

Initial Investors

InvestmentsInvestments

Returns to Initial Investors

Returns to Initial Investors

InvestmentsInvestments

END OF A PONZI SCHEME•The scammer will vanish.•The investment will slow down.•External market forces.

RED FLAGS OF POTENTIAL PONZI SCHEMES

•High investment returns with little or no risk.

•Overly consistent returns.•Unregistered investments.•Unlicensed sellers.•Secretive and/or complex strategies.•Issues with paperwork.

PONZI CASES

BERNARD MADOFF

• Co-founder and the former Chairman of the NASDAQ Stock Exchange.

• Ran the biggest ponzi scheme in the history.• Defrauded thousands of investors of billions of dollars.• Sentenced to 150 years in prison with restitution of

$170 billion.• He admitted liabilities of around $50billion.

DOUBLE SHAH

He was a science teacher in school.He started his scam from his own neighborhood.He promised to give 100% returns on

investments in 15 to 70 days.In 18 months, he accumulated Rs. 70 billion

(about US$880 million) from 3,000 people.Rs 8 Billion was recovered from him which were

later paid out to the victims.

Thank You!!!