Ponzi schemes are now outwitting even the smartest investors

Fraudsters across the globe take advantage of ever changing jurisdictions and legal loopholes

The easy thing to do is point the finger at victims and declare they deserved it. But this is too simplistic an approach, and not entirely fair. Gary Clement / The National
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Principal versus principle is the reason crime often pays.

It pays because in the unraveling of theft, deceit, fraud and the like, principle often overrides principal: the focus can easily become convictions and sentencing versus the return of money. Ergo crime pays. It pays the perpetrator, their family and other benefactors.

It’s 10 years since the most infamous Ponzi case of our time came to light - and Bernie Madoff is set to stay in jail.

The great news is that creditors have so far been paid 75 cents to the dollar – which is an incredible recovery rate for fraud like this. Unfortunately, it’s the exception.

Recovering money ‘invested’ is not always the aim of prosecution in cases like these – why? Because the rule of law, and punishing a perpetrator, is the main aim for many official organisations; getting any money back is a gift of the gods.

You see, there are things working against money being recovered: there being any money to recover, the cost of pursuing recovery, and how to go about it – and having lots of stamina; it’s emotionally draining for those concerned.

The easy thing to do is point the finger at victims and declare they were greedy/stupid/ deserved it. But having looked into this type of deception in quite some depth, this is too simplistic an approach, and not entirely fair.

There are situations I know of where companies have a mix and match approach; some of the business they undertake is legitimate, and covers up the Ponzi part of the outfit. I know of one set up where it started out ‘real’, but when things went south, they replicated their products/ offering, but it was pure Ponzi. The product never existed, but they had the track record, and physical reality of what they were doing elsewhere in the business. People trusted them as a result.

The point I’m making is that Ponzi-type scams have come a long way since the infamous Charles Ponzi.


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The bad news is that these sorts of schemes will never vanish. In fact, they’re flourishing, with lawyers and regulators struggling to deal with them. The fraudsters often take advantage of a borderless existence or ever-changing jurisdictions and legal loopholes.

If you want to find out more about the state of the Ponzi-world, log onto ponzitracker.com. Its role is to enlighten people , and make them aware that thousands such schemes have been uncovered over the past few years.

To explain the basics, a Ponzi scheme is a form of fraud that pays profits to earlier investors by using funds obtained from more recent investors.

The standard signs that alert to the possibility of a fraudulent ‘investment’ include high returns versus low risk and consistent returns over a period of time.

Another thing to watch out for is a lack of transparency, for example being asked to sign a non-disclosure document, or if the system is complex and does not make sense.

Some of the ways fraudsters instill trust in their often highly educated victims includes associations with known and trusted brands – educational institutes and sporting events. Having their brand on a sponsorship board of a global event does not mean they are legit.

Again, it’s easy to blame the victims for being – well, human; human because they trusted someone, because they liked someone. These are some of the reasons money was given over. Yes, there are the greedy ones too. At the core of the operation is a slick ‘sell’ that pivots on psychology and methodology that makes it tough to say no – or to pin-point what’s ‘off’ about it. Yes due diligence is key – but as mentioned earlier, there are schemes so clever, that they have peppered the web with information that indicates they’re legit, or they have real parts to their setup.

It's a problem that's not going away. The Ponzi Scheme Blog (http://theponzibook.blogspot.com/) outlines the situation for 2018. Have a look - it runs through cases that have come to light around the world. It's by no means a comprehensive list – but it gives you a flavour for what's going on. Shockingly, the number of guilty pleas or convictions stands at four.

The worst thing is that the truth about these schemes usually come to light when people need their money most – say during a market downturn – because two things converge: the fraudster cannot keep up the payments, and the ‘investors’ want to take more out – to cover losses elsewhere, or to shore up capital. This is when it comes tumbling down.

It’s tough work making money – and even tougher keeping it. Now imagine a world where we can have both principal, and principle – is that too big an ask?

Nima Abu Wardeh is a broadcast journalist, columnist and blogger. Share her journey on finding-nima.com