Vivek Kaul: Financial frauds evolve fast but it’s not as if we’re helpless

livemint.com:

Subscribe to enjoy similar stories. As someone who primarily writes on money, I’m often approached for advice on resolving financial fraud. Unfortunately, I’m unable to assist, given that once money has left a bank account, it’s difficult to get it back.

Before affordable smartphones and widespread internet access became the order of the day, financial fraudsters had to interact with their prospective victims in person, involving assembling people in a hall or visiting their homes to pitch a scheme convincing enough to make individuals part with their hard-earned money. The classic example has been a Ponzi scheme. The fraudster would promise a very high rate of return to prospective investors.

Carried away by greed, these investors would invest. The fraudster would use the money being brought in by newer investors to pay off the earlier ones. Once early investors were paid, they would talk about their huge return, making others envious.

This envy would get more money into the scheme and keep it going until the fraudster decided to scoot. This approach made the acquisition of potential victims expensive. Physical space had to be hired.

Employees had to be kept on payrolls to keep the fraud going. Affordable smartphones and cheap internet have lowered the cost of acquiring those who can be defrauded, if not made the operation itself easier. Consider all the unsolicited phone calls promising quick riches we receive these days.

Typically, this involves transferring money to some bank account. Fraudsters can take this initial amount and disappear, or they can keep the fraud going by turning it into a Ponzi scheme by returning some of the investors’ money and encouraging them to invest more. Then there are fraudsters (read