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Thursday, October 15, 2009

Ponzi scheme

Some unregulated investment products promised a high return to the investors. The promoters pay the attractive return to the early investors by using the money invested by the subsequent investors.

The news spread about the attractive return. New investors joined in. The earlier investors rolled over their investments.

This is a classic ponzi scheme. It is being practiced now under various types of products - land plots, oil seeds, wine and other exotic products. As these investments are not regulated, the investors were not aware about the nature of the operations.

All ponzi schemes will collapse, sooner or later. Apart from the loss due to the attractive return paid to the earlier investors, the promoters of a ponzi scheme will siphon off a large part of the invested money. The accounts will be falsified to show a healthy position.

When the company is investigated and closed down, they will set up a new company with a new name, and find a new place to operate.

Singapore is an attractive place fro these promoters, due to the lack of regulatory control, and the gullibility of the small investors.

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