The word Ponzi Scheme derives from the name Charles Ponzi who was known to deceive his investors by proclaiming that his business plan was to sell international postal reply coupons. He stated that this would double the money of the investors within a period of 90 days.

A Ponzi scheme is a fraudulent act made by an individual or a group of individuals. It starts off with an individual usually the owner of the Ponzi scheme which uses his current funds to pay new investors, or by paying funds from current investors as a return to new investors. This creates an illusion to prospective and current investors that the business is doing well, however the scheme collapses when there are no new investors wanting to invest in the business.

A Pyramid scheme is similar to a Ponzi scheme. It is where prospective investors are offered a high amount of capital for their investment. However, this capital is given to prospective investors when there is a huge influx of new investors which invest. It is like an ongoing cycle where new investors will be promised a lot of capital up until membership decreases, then it is likely that the scheme will collapse as the promises can no longer be actioned.

Red Flags

These types of schemes can be hard to detect but one way to notice this fraudulent act is by spotting some red flags. For example, one of these would be where the investment returns seem too good to be true, almost euphoric like. Most Ponzi and Pyramid schemes promise low risk and high return where you only invest a small amount of money and are promised to receive a lot more back. However, this is not the case as it is a constant cycle of the owner of the scheme paying investors the money that they collect from new investors.

Another red flag would be if the Investment Statement shows the business will keep on growing, despite what the market trends are. This is highly unrealistic because such an investment statement is not an accurate reflection of the economy and the business world. For example, if there is a recession it is likely that people will be buying less and saving money, which would result in lower performance by a business. A good way to spot if the business you are investing in is in fact a Ponzi or Pyramid scheme is if there is an actual recession, this is because this is where many investors would like to back out from investing or potential investors would not want to invest in the business due to the economic downturn, it is seen as highly risky business. On the other hand, if there is an economic boom then business is more likely to be successful as it is known to be a growth period in the business cycle.

Furthermore, it is highly suggested that investors check if the stated business which they are investing in is registered with the FCA. This is a regulating body which authorise businesses, if the business has not been listed in the FCA register then it is unsafe to invest in them as it is likely a scam.

Recent examples of Ponzi and Pyramid Schemes

One example of a Ponzi Scheme is that of FinCeN files which were leaked. These files include a staggering number of 2,100 fraudulent activity reports/SARs. SARs are usually sent to legal authorities when a company/business sees that their customers are acting somewhat illegally. The leak of the FinCeN files sheds light to the fact that bank monopolies have allowed fraudsters to hide their money by using unidentified British companies. For example, one of the leaked files show that JP Morgan could have permitted a Russian Mafia boss to transfer an enormous amount of $1bn without questions being asked or an investigation being made.

A real-life example of a Pyramid Scheme is the “Give and Take Scheme” which had taken place in England and Wales, where 6 women were the fraudsters. Investors were told that they would receive a staggering amount of £24,000 when they were the top investors within the business. The investors were told to pay £3,000 and were told to ask two more investors they know to pay the same amount. Many investors had lost a huge amount of money and are now paying back the costs. David Gough who had participated in investing states that “it was made out to be completely legal, solicitors and barristers were involved”. This scheme gives the illusion that it is obviously too good to be true. After Ponzi scheme investigation the fraudsters were sentenced under the Unfair Trading Act 2008.

Ponzi Scheme investigation regarding Bitcoin and Cryptocurrencies

A recent concern is that Ponzi and Pyramid Schemes can be disguised through Bitcoin or through Cryptocurrency investments. As mentioned earlier, with banks many systems are put in place to investigate and identify fraudulent activities, such as SARs, KYC checks etc.

However, Bitcoin and Cryptocurrency trading is lower risk for a fraudster as they can get their money quickly. In SEC v. Shavers the fraudster had proclaimed an “investment opportunity” on a bitcoin website, where investors were promised to earn 7% interest each week. In reality, the fraudster used the bitcoins he received from new investors to transfer to prospect investors.

International reach targeting

Due to the easily accessible widespread internet financial transactions have become easier than ever. This has increased the ability of fraudulent investments such as Ponzi and Pyramid schemes worldwide since fraudsters can target investors around the world. For example, the leaders of a worldwide pyramid scheme Huang Dingfang and Cai Keyi had deceived potential investors, by stating that they were going to open Shell companies where the investors were told they’d received high returns. These investors were from Taiwan, Southeast Asia and Hong Kong. This outlines that fact that fraudsters can target investors from different countries as it makes their pyramid schemes more successful.

An example of how fraudsters can target high net worth individuals internationally via international reach targeting can be illustrated with the case of Daniel Fernandes Rojo Filho. Daniel had deceived investors by stating that his business relied upon him managing 50 gold mines. Although, this was merely a lie and in reality, he was running a Ponzi/ Pyramid scheme where he targeted investors in specific countries.

In conclusion, Ponzi and Pyramid Schemes are becoming more common in modern day society as it has become easier for fraudsters to use the world wide web to target investors and HNWs internationally. Due to the increase in e-commerce and bitcoin, Ponzi schemes and Pyramid schemes have become more accessible.

What to do if you find yourself a victim and require Ponzi Scheme investigation

If you suspect you may have been a victim of fraud, Matrix Intelligence can assist you with Ponzi Scheme investigation by identifying the individuals responsible and tracing any assets that may be recoverable. For free advice and a no obligation proposal, please contact us on 0203 873 1089 or email: