I have always held that to accumulate decent money, keeping away from danger is very, very important. Regularly we find investors losing money to some glib talker and they part with big amounts of money. Big has to be contextual of course – a maid servant losing Rs. 84,000 is as bad as a senior executive losing Rs. 8,50,000 or a businessman losing Rs. 55,00,000!

The SEC in the USA regularly publishes stories about ponzi schemes where people are collectively defrauded of amounts ranging from a few million to 2-3 billion. Go to their website and do have a look. IN the Indian context I know retirees who lost money in chit fund schemes in West Bengal and those who lost money in Jignesh Shah’s commodity funding schemes.

How do you protect yourself? and of course your Retirement corpus from such fraudsters?

The term comes from Charles Ponzi, who in ’20s stole from fellow Italian immigrants. But his swindle earned peanuts compared to some of the current day fraudsters. From Shapiro’s alleged scam to Allen Stanford’s $7 billion to Bernie’s Madoff’s all-time $65 billion topper, Ponzis come in many shapes, currencies and sizes now.

More frauds will come to light as bull markets mature, interest rates in banks fall, and desperate and greedy investors seek higher returns. These frauds remain undetected in a bull market and come out only when the market crashes – or at least enters a bear phase. Ponziers pay phony “returns” to their earlier investors! Obviously the funding for this comes from the newer ‘prey’ aka investors who are happy to take some money off the market.

 The scammer can’t provide promised payments to the many from fewer new investors. It is exactly then that the cracks appear. Some of the luckier ones are able to bail out. However when some of them bail out and no new money is coming in, the IMPLOSION of the scheme happens. In India the regulators wake up ONLY when the scam reaches Rs. 50,000 crore kind of a number. At the earlier stages the regulator is normally sleeping at the wheel. Trying to wake the regulator is a complete waste of time.

Protecting yourself means knowing/ learning the signs that an “investment” is actually a Ponzi scheme.

The con artist takes “custody” of your money. The claimed past returns are unrealistically high and consistent, maybe between 18-22% every single year. The con artist’s “strategy” is complicated and jargon-packed, using endless terms normal people cannot understand. They get a low end bank employee or a temple trust employee and rope him/her as an early client. Then they give the assured return to that person for a few months.

At this stage they pressurize him into “do you not want your friends and relatives to have the good fortune that you have had”…so this man either becomes an agent with a commission or just a free goodwill ambassador in that community. A banker or a temple employee can get a lot of referrals!! Bernie Madoff used this scheme extremely well.

Excellent years only! 

Most of these conmen show you a 18% consistent year. They try to tell you it is like PPF – except that it has a better return. So what can be better? an assured 8% pa or an assured 18% pa? Please do remember there cannot be any instrument that can give 2x the inflation and have a standard deviation of 1. To get higher returns you need to take higher volatility along! In 2017 mid caps gave 79% return in one fund. I can assure you that this will not be repeated anytime soon. It will catch up with the mean.


Investments should always be explained in a simple way so that you can understand (do I need to say it has to be elucidated well so that you can fathom?). Showing off one’s language or communication skills is a scary thing. One of the famous Khans of the film industry met 2 representatives trying to sell an endowment plan. After listening to them for some time he said “I cannot understand this product, SO I DO NOT WANT IT”. I do not wish to elaborate more, but if he can do it, so can you. Do not invest in products that you cannot understand.

Most people I know would have done much better if they had kept their money in an index fund instead of looking for schemes like Madoff.


I know of some professors of a college who have recently been attracted to a ‘Wealth’ management firm which has slowly started skimming them. Aggressively asking for references works well with people with limited understanding. Professors of math, stats, chemistry can easily be asked to do a ‘sip’ in ‘ulip’ – after all so much is being said about ‘mf sahi hai’ and ‘sip cannot lose money for you’. I have met some professors – and I know they will be in pain. As an outsider / consultant / friend any attempt is seen with suspicion. Frankly I have no stake in their gains or losses. One of them ASKED me after she had invested Rs. 55 lakhs. God bless.

Do not be carried away by references by people who do not understand investments. Of course if their title is ‘Head of finance – A big group’ be more careful!!


Related Articles:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

  1. Thank you for regularly publishing pieces of wisdom. Invaluable information which is hard to find amidst all the noise around.

  2. Ponzi schemes are generally started when bank interests are very low like now. The scheme owners have strong political hold and the schemes are mostly promoted by personal from entertainment world. Also local media (both print and TV) has a bigger role for promotion of those chit funds.
    The common people (also few well educated persons), mostly driven by greed and ignorance fall in the trap and loose everything. I am sure this cycle will continue.

  3. I am expecting Cryptocurrencies scam after some time. I wonder, if they are so proud of their coins, why do they need real money?. They should shun real money and be happy trading with soft code coins. Ex Fed Chair, Allen Greanspan said ultimate worth of CCs will be realised as ‘zero’ in future. Does anyone know better than him and you see people criticizing him that he is a old man and does not have idea about these CCs.

  4. The temple reference was interesting given that there was a huge scam in Bangalore some years ago where a similar assured returns outfit was run by a temple priest. The main problem is for the retirees who are looking for better annuity products with the falling interest rates.

    Co-operative banks used to be pretty decent (atleast the ones I know) and provide above average returns. However, far too many of them have failed and Big Banks’ boorish behavior towards senior citizens means that they became enchanted and turned to these dangerous schemes.

    Our financial sector needs to take care of the senior citizens of our society with simpler products.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>