Ponzi scheme, an investment scheme born in 1920, is always consistent with the goal of making money quickly. However, the offered scheme harms its investors. This scheme is taken from the name of Charles Ponzi who invented and practiced this scheme.

The perpetrators pay the old investors with money from the new investors and take some big part of the money as their profits. Of course the perpetrators will need more and more new investors if they want the scheme to continue to run and to gain profits. However, at one point the perpetrators would steal the investors’ money and run or they lose the ability repay the investors fully because the investors’ money is not actually being developed.

One famous case of the Ponzi Scheme is the one by Bernie Madoff’s controversial figure in 2008 where he was sentenced to 150 years in prison for harming his investors. The resulting loss is estimated at USD 17.5 billion.

There are many cases of Ponzi Scheme practice. In Indonesia we remember there is a case of First Travel. The fraud case of hajj and umroh tour that stucked out in August 2017 resulted in a total temporary loss of Rp 848 billion. The latest case of Ponzi Scheme in December 2017 conducted by Pandawa Lima Cooperation resulted in losses of up to Rp 50 billion.

Based on many cases of investment fraud occurred, we can identify or suspect an investment practicing the Ponzi Scheme if:

1. Offer huge benefits with small risks. The basic principle of investing should be high profits followed by high risk. If any investment offers the other way, then we should be suspicious. Madoff promises a consistent return on investment, when it is clear that stock markets are always volatile. In the case of the Pandawa Lima Cooperation, the company offers 10% interest – much higher than the deposit rate – paid monthly to the investor.
2. Unexplained source of money. Perpetrators often explain the elusive and unclear sophisticated plot to generate huge profits. For example, they say the investment involves many businesses that cannot be explained in detail about how the development work and the flow of money investment.
3. No products / services sold. Even if there is a cover only and there is no guarantee for the purchase.
4. Often pretends to say that they do not to take investors’ money to ease suspicion. They also often call words like ‘bank’, ‘stock exchange’, ‘voucher’, ‘warranty’ or ‘trust’ even though the scheme of money turns they explain is unclear and many things are covered.

Sources:

https://www.npr.org/sections/money/2012/07/30/157606305/four-signs-your-awesome-investment-may-actually-be-a-ponzi-scheme
http://analisis.kontan.co.id/news/belajar-dari-kasus-investasi-madoff