PONZI SCHEMES.pptx

7/27/2019 PONZI SCHEMES.pptx

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PONZI SCHEMESKHALID SAEED

P.E, NEW-2, S.E.S



CONTENT

• Definition

• History

•

Types Of Ponzi Scheme• Unraveling of a Ponzi Scheme

• Case Study 1

• Case Study 2• Popular Ponzi Schemes of 21st century



DEFINITION

A Ponzi scheme is a fraudulentinvestment operation that pays returnsto its investors from the money paid by

subsequent investors

• higher returns than other investments

• short-term returns• requires an ever-increasing flow of

money





HISTORY• Charles Dickens' 1844 novel Martin

Chuzzlewit described such a scheme

• The scheme is named after Charles Ponzi anItalian business man (1920)

• 50% profit within 45 days, or 100% profit

within 90 days

• Postal reply coupons in other countries and

redeeming them at face value in the United

States

• Robbing Peter to pay Paul

• Made payments to earlier investors and

himself

• Loss : $20 million in 1920 dollars ($300

million in 2013 dollars)

http://en.wikipedia.org/wiki/File:Ponzi.jpg



TYPES OF PONZI SCHEMES:1- Pyramid Scheme

• Who recruit additionalparticipants benefitdirectly (failure to recruitmeans no return)

• New money will be thesource of payout for the initial investments

• Collapses much faster

because it requiresexponential increase inparticipants





2- Economic Bubble• Based on the "greater fool"

theory• Where prices rise because

buyers bid more assumingprices are rising

•

One participant gets paidby contributions from asubsequent participant

• A bubble involves ever-rising prices in an open

market (forexample stock, housing,or tulip bulbs)

• Bubble burst when greaterfool become greatest.

http://en.wikipedia.org/wiki/File:South_Sea_Bubble_Cards-Tree.png





Unraveling of a Ponzi scheme

When a Ponzi scheme is not

stopped by the authorities, itsooner or later falls apart forone of the following reasons

• promoter vanishes, taking

all the remaining investmentmoney

• investment slows down, the

scheme collapses (Liquidity)

• external market forces, suchas a sharp decline in theeconomy

http://en.wikipedia.org/wiki/File:Gold_Bars.jpg



CASE STUDY 1: GOLDMINE INTERNATIONALMULTI BILLION DOLLAR SCAM OR BUSINESS

•

25 no. of offices in Karachi• 5000 investors at each office (Mar. 2007)

• 4800 or $60 amount invested at the beginning

• 5000 x 25 x 4800 = 600 000 000 (600 million

rupees).• $30 commission on completion of next two generation

No matter how large themodel becomes beforecollapse, approximately88% of all people willlose.



CASE STUDY 2: Double Shah

•

Born in a small town of Sambrial Tehsil,in Sialkot

• A teacher who started a financial scam,

a Ponzi scheme

• Approached his colleagues and neighbors, he would returndouble money in just 15 days

• As promised, their investments were doubled in 15 dayslater in 70 days

•

Arrested by the police on charges of Rs. 30,000 robbery• Money that he stole during 18 months of business was

over Rs.7 billion

• Sentenced to 14 years Rigorous Imprisonment and fineequivalent to total liability against him (Pak Rs. 5.4 Billion)



Popular Ponzi Schemes of 21th Century• In 2001, the Haitian $240 million was equivalent to 60% of

the country's GDP.

• In 2003, a $1 billion scheme in Florida, affecting 28,000investors

• In May 2006, a $311 million Ponzi scheme over a 20 year

period in California, USA• In October 2006, in Malaysia, known as SwissCash offering

returns of up to 300% within a 15-month

• On April 13, 2007, in Pakistan, Sibtul Shah doubled

investment in 15, later extended to 70 days.

• In April 2013, Republic of Mauritius over 700 million

Mauritian rupees.

• In June 2013, in Tunisia, a fraud 80 million dinars



THANK YOU

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PONZI SCHEMES.pptx