Definition
A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.
The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919.
A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system.
The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919.
A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system.
Saradha Scam
As a multi-agency probe continues in Saradha scam, findings of one official investigation suggests that the group floated at least 279 companies to channelise money collected from gullible investors as part of a vast 'ponzi' network.
Most of these firms have been found to be 'in-operational' and were utilised for the sole purpose of multi-routing of funds to hide the money trail, while close to Rs. 2,500 crore were raised by just four companies.
The probe, conducted by the Corporate Affairs Ministry's white-collar crime investigation agency Serious Fraud Investigation Office (SFIO), also found that these four companies collected 96 per cent money from small investors who deposited less than Rs. 50,000 each. The money was mobilised through a vast network of nearly 3 lakh agents, sources said citing an over 500-page SFIO probe report.
The scam, wherein lakhs of investors in West Bengal and neighbouring states were lured into illegal money pooling activities, came to light early last year amid allegations that a section of Trinamool Congress leaders were involved.
Initially, it came out to be known as 'Saradha chit fund scam' although none of Saradha group entities were registered as 'chit funds'. However, it has become the first major case in India to officially get a 'ponzi' tag after submission of final probe report of the SFIO to the government.
Like a typical ponzi scheme, Saradha was found to be paying returns to older investors from money collected from newer subscribers to its 'bonds and policies'.
Such activities came to be known as ponzi schemes after Charles Ponzi, who became notorious in the US in the 1920s for deploying this technique while promising 50 per cent return on investments in 45 days and 100 per cent within 90 days.
A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop.
The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919.
A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system.
The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919.
A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system.
Saradha Scam
As a multi-agency probe continues in Saradha scam, findings of one official investigation suggests that the group floated at least 279 companies to channelise money collected from gullible investors as part of a vast 'ponzi' network.
Most of these firms have been found to be 'in-operational' and were utilised for the sole purpose of multi-routing of funds to hide the money trail, while close to Rs. 2,500 crore were raised by just four companies.
The probe, conducted by the Corporate Affairs Ministry's white-collar crime investigation agency Serious Fraud Investigation Office (SFIO), also found that these four companies collected 96 per cent money from small investors who deposited less than Rs. 50,000 each. The money was mobilised through a vast network of nearly 3 lakh agents, sources said citing an over 500-page SFIO probe report.
The scam, wherein lakhs of investors in West Bengal and neighbouring states were lured into illegal money pooling activities, came to light early last year amid allegations that a section of Trinamool Congress leaders were involved.
Initially, it came out to be known as 'Saradha chit fund scam' although none of Saradha group entities were registered as 'chit funds'. However, it has become the first major case in India to officially get a 'ponzi' tag after submission of final probe report of the SFIO to the government.
Like a typical ponzi scheme, Saradha was found to be paying returns to older investors from money collected from newer subscribers to its 'bonds and policies'.
Such activities came to be known as ponzi schemes after Charles Ponzi, who became notorious in the US in the 1920s for deploying this technique while promising 50 per cent return on investments in 45 days and 100 per cent within 90 days.
