Why Ponzi schemes and investment frauds continue to be rampant

livemint.com:

Over the years I have started reading the inside pages of newspapers more carefully, given that the news that’s published on a front page is typically available on digital media much before it is published the next morning.

The inside pages still have very important stories, especially when it comes to local journalism. While going through the inside pages recently I came across a very important story on a Mumbai-based chartered accountant, Amber Rameshchandra Dalal, who is accused of defrauding more than 2,000 investors of ₹1,100 crore.

Dalal had promised investors a return of 18-22% per year by investing in a whole host of commodities, everything from gold and silver to crude oil and natural gas. But he was basically running a Ponzi scheme—paying off older investors by using money being brought in by the newer.

A report in The Indian Express points out that there were 2,009 investors in this Ponzi scheme, who were duped of ₹1,100 crore, implying an average investment of around ₹55 lakh, meaning that those investing in this scheme were largely high networth individuals (HNIs). As The Indian Express reported: “Among those who were duped… were artists working in Bollywood, businessmen, lawyers and even chartered accountants."

Now, the Ponzi scheme gets its name from Charles Ponzi, who, in 1919, in the American city of Boston, ran a fraudulent investment scheme promising to double investment in 90 days.

As Dan Davies writes in Lying for Money: “The single feature that unites all subsequent frauds bearing the name of Charles Ponzi is the attempt to defeat the runaway nature of fraud by raising new money faster than you pay out old." While the scheme gets its name from Ponzi, similar frauds occurred before 1919 as well.

So,