Last one month has been an eventful one with news on "thugs" and cheats like Mr. Jadeja, B.K. Jewellers of Delhi, Mr. Agarwal etc who duped unsuspecting people to the tune of thousands of crores of rupees. Cheat Jadeja alone is suspected to have duped people to the tune of Rs 2000 crores. These are huge sums and have impacted thousands of people who have been robbed of their hard earned savings almost overnight. These are not the first incidents of this nature in India or world. These schemes or frauds have been in there since a long time. The recent Madoff Scam unearthed in US too is a part of this list. Madoff was a well respected investment advisor handling billions of dollars of investment for his clients till his real motive and modus operandi was revealed.
Modus Operandi - So, how do these cheats manage to dupe people so easily and how do people get in their trap. Well , the modus operandi of all of these thugs is to play on the "get quick rich" desire of the common man. Every one wants to get rich quickly and is always on the lookout of such magic scheme or opportunity. These cheats work on this mentality and promise the common man/investor unbelievable returns on their investment. For instance, Jadeja used to claim that he would give 200% return on people investment. B.K Jewellers of Delhi had a scheme where people were promised Rs 26 Lacs on an investment of Rs 13000. Now , you can do your mathematics and find out the rate of return on these investments. These returns are far too lucrative and thus the common unsuspecting man blinded by the lustre of returns gets into their trap.
Now these scamsters , in order to get more and more people to invest with them , do honour their commitments initially for some time. This way they are able to win the trust of more and more people who then invest in large numbers with them. And to answer , your question on how do they manage to pay off such huge returns even for few people initially , then the answer is that they simply pay one person the money they collect from 10 others. This way they keep paying the earlier person by taking deposits from the new investors. This is called "Ponzi Scheme". This is the basic modus operandi that all these fraudsters operate on.
How to Spot these Ponzi Schemes?
1. Stay away from "too good to be true" schemes - We all have heard that "if there is something too good to be true,it probably is" . Remember this. There is no such thing as "get quick rich scheme" without the risk associated with it. We can not get astronomical returns on any investment without taking astronomical risks in it. So, if anyone tells you that you will get huge returns without any risk, then you should just walk away from that deal since it is simply not possible.
2. Always ask the business model - Most of the people investing their money with B.K Jewellers or Jadeja did have no clue as to how their money will get double or triple in such a short time. They felt that these schemes will somehow give them the promised returns. This is where the problem starts. You must never invest in any scheme whose investment or business model you do not know. For anyone to get any return on investment , the money needs to be put to some productive use and only then the returns can be earned. Find out about all of this when you invest with any scheme. Wherever, there is uncertainty or lack of clarity , you must get cautious.
3. Any good scheme offering great return will hardly be unknown - If there is indeed any genuine scheme offering huge returns, then do you think it will be unknown in this world of hyperactive media. Wont the company promoting such scheme itself will go hammer and tong promoting the scheme all over the media? Why will the promoter be cagey about such scheme? Why will this be limited to select few people if indeed there was a way to generate huge returns from money invested? The truth is that most of these scams are successful, because they are not promoted heavily . The promoters tend to target a select few with these schemes, get their money and elope with it.
4. Do proper research about the scheme - As a thumb rule , before putting your money into any investment tool, you must do your research . You must try to find out about the scheme/tool from the company, its present customers, internet, newspapers etc. The best way to find out about any thing these days is internet. Use google to find out all the related news about the firm and its scheme. Chances are that you will get a fair idea of the scheme from the net itself. Any scheme whose details are not there on Internet, you must stay away from them.
And lastly, the onus of putting your money to good use is on you. We all work hard to earn every penny and we should not put our hard earned money in the hands of any person without doing the due diligence.