HISTORY OF PONZI SCHEMEFinancial fraud is any investment Essay


Financial fraud is any investment related scheme or misleading activity that persuades investors to make false financial data-based decisions. This fraud is perpetuated by what some call “financial serial killers” and often results in losses and violates money laundering laws (Baker & Puttonen, 2017). Financial fraud is a problem that affects both finance and daily life in great depth. Fraud could reduce business trust, destabilize economies and affect human livelihoods (Jarrod & Bhattacharya, 2015). One of the Financial Investment fraud is a Ponzi scheme.

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Ponzi Scheme which was called trickster after Charles Ponzi (Amoah,2018; Uppiah, 2017; Zhu et al 2017; (Steven et al 2011; Bensonn & Chumneynn, 2011). Charles Ponzi was an Italian and immigrant to the United States. Via his company Securities Exchange Co., Ponzi conducted an investment scheme in the 1920s (Amoah,2018; Uppiah,2017; Steven et al,2011) and promised investors up to 50% of their profits by making investments in and arbitrating reply coupons for postage stamps (Amoah,2018; Bensonn & Chumneyn;2011). Ponzi Scheme it is an allure where earlier investment funds are paid by subsequent investors.

The writer quoted Frankel (2009) written, which were claims for underlying securities are difficult to identify in a Ponzi Scheme. That seems very few in terms of physical or financial assets issues. According to Frankel (2009), the investments of investors are pooled together and handled by the scammer, whose self-satisfaction ends up using the investor capital.

According to Baker & Puttonen (2017), Ponzi Scheme is a form of investment fraud involving payment of suspected returns from funds provided by new investors to existing investors. Investing money in the chances expected to generate high returns with little or no risk is what Ponzi scheme promoters are demanding new investors. In many different contexts, the basic framework of a Ponzi scheme can be implemented and reapplied (Baker & Puttonen,2017). The scheme focuses on the transfer of the money received from new investors by old investors. Steven et al (2011) also have same perception towards Ponzi schemes which are unlawful investments that use funds received from subsequent investors to pay dividends to previous investors rather than to allocate real incomes. Steve also mentioned in his article the investors are often persuaded by Ponzi schemes by offering high return rate over relatively short periods and the idea that investors continue to receive guaranteed returns may enable new investors to contribute their funds and promote reinvestment in the scam by original investors. These schemes that endure for a while.

In Papua New Guinean, they called Ponzi Scheme as Fast Money Schemes (Cox, 2014). This Ponzi schemes spread through PNG and Solomon Islands in the late 1990s in Papua Guinean country. They have been defrauding people for over a decade. This form of scheme leaves no reliable paper trail and statistical impact assessments are therefore unreliable (Cox,2014). While in Malaysia such scams are known as or “get-rich-quick” schemes and were once marketed by multi-level marketing (MLM) advertising by member-get-member (Aiman et al, 2016).

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