In last few days, we heard about a new incident in which many people were duped by fraudsters. The victims include eminent personalities like Rahul Dravid (Top sportsmen duped by Vikram Investments). While investigations are still on, 260 complaints have been received and the total amount could be in the range of 400 crore (Rahul Dravid duped of Rs 4crore by Ponzi firm). In past, we have written about tell-tale signs of fraudulent schemes (Five tell-tale signs of a Ponzi scheme).
I am including links to some other schemes where common people have lost money:
Sahara India investor fraud case – Initial estimate of investor loss was around 23500 crores.
Saradha group financial scandal – Saradha group’s own books indicate that it owed around 1700 crores at the time it went bust.
PACL scam – It is estimated that people lost 60000 crores in this scam.
The NSEL scam– People who were lured into this lost around 5000 crore rupees.
These are just some well-known cases of frauds where people lost money. The profile of victims ranged from a farmer, daily wage labourer to celebrities and sophisticated investors.The very fact that despite knowing about previous cases of such frauds, people still get duped indicates the sophisticated manner in which such fraudulent schemes are run. Here I talk about the modus operandi and how you can protect yourself.
The modus operandi of a Ponzi scheme
- Approach you through a credible person or a person well known to you: When such a person approaches you, keeping personal relationship in mind, it becomes difficult to say no. Further, you assume that such a person will have your best interest in mind. In many cases, this could be the case. In fact, the person asking you to invest money might not be aware of the nefarious designs of the mastermind. In most cases, the person who approaches you has no background in finance. Hence, he or she will tell you whatever has been told him. He or she lacks the requisite knowledge to check the veracity of promises.
- Promise a very high return: In the recent case of Vikram Investments, they promised return of around 40%. At a time, when bank FDs deliver 7% pre-tax return, a promise of 40% return is like a dream. The key is to ask yourself a question – How can someone give such a high return which no other product is able to provide. Whenever someone tells you that their product will easily provide more than 15% return, you need to be very very careful.
- Fraudulent schemes always come with good track record and show prominent people as their client: In most cases, such schemes show a track record or cite a person who has made great return from their investments. It makes you trust them with your money thinking nothing could go wrong.
- Longer lock-in or revolving lock-in period: In many such cases, the lock-in period could be 5 years. Furthermore, when the investment matures, they will try to again lock-in with a promise of higher return. As long as they don’t have to give money, they are willing to promise anything.
Finally, whenever someone is:
- Promising risk-free high return, consider that as return-free risk (as Warren Buffett said).
- Selling financial products that are not regulated.
- Selling product that invest in commodity, structured products or things you don’t understand.
- Selling a product that is too good and tells you to make decision in a very short period of time. He tells that the product is available for very short time and you must make your decision fast.
Stay safe and don’t lose money to the fraudsters!
Disclaimer: The above content is just for information and should not be construed as an offer to buy or sell or recommendation. Contact your financial advisor for guidance on any investment related query.
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