Discussion on Pyramid/ Ponzi Schemes

Report
ROYAL MONETARY AUTHORITY OF BHUTAN
RESEARCH AND STATISTICS DIVISION
(FINANCIAL
LITERACY PROGRAM)
MARCH 15, 2010
Discussion on Pyramid/Ponzi
Scheme(s)
GOPAL GIRI
Research Officer
1
Outline
 Background
 Pyramid/Ponzi
Schemes in
Bhutan
 Implications
 Correctives Measures
 General tips
2
Background
Pyramid scheme (also generally referred as Ponzi
scheme)- named after Charles Ponzi (1882)
 Difference between Ponzi-Pyramid??

PONZI SCHEME
PYRAMID SCHEME
A ponzi scheme (chain marketing
A pyramid scheme (sales scheme)
scheme/plan) is an investment scheme in
involves the exchange of money
which the returns are paid to earlier primarily for enrolling other people into
investors, entirely out of money paid into the scheme. It is also known as "endless
the scheme by the later investors. There is
chain"," binary compensation", or
no real investment opportunity. The ponzi
matrix marketing". The pyramid
masterminds gathers all relevant funds schemes involves hierarchy. The success
from new investors and then distributes of pyramid scheme rest solely on the
them. Similar to pyramid scheme, the
exponential growth of new members.
ponzi scheme requires continuous recruits
and involves no physical products to sell.
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Background
How Pyramid/Ponzi works? Eight balls modal OR Airplane game
The "eight-ball" model contains a total of 15 members. Note that unlike in the picture, the
triangular setup in the cue game of eight-ball corresponds to an arithmetic progression 1 + 2
+ 3 + 4 + 5 = 15. The pyramid scheme in the picture in contrast is a geometric progression 1
+ 2 + 4 + 8 = 15.
No matter how large the model becomes before collapse, approximately 88% of all people
will lose.
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Background

1.
2.

Types of pyramid schemes
Sales or product-based schemes (Eg. Amway)
Financial-non-product schemes, variously known
as cash only scams or “naked” pyramid schemes.
(Eg. Skyquest Com, Internet scams)
Many variations of the basic pyramid scheme
and often try to pass themselves off as
legitimate “multilevel marketing” (MLM) or
"direct selling".
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Forms of Pyramid/Ponzi
Schemes
List of Pyramid/Ponzi scheme banned in Bhutan
* Basil International Limited
* Skyquest Com
* Goldquest
* Dhealth
* Sahara
* Rose Valley
* Suraksha
* Astha
* Royal Vision Care
* K-Link
* Amway
* LIC
* RCM
* Royal networks
* EVM
* Tainse
* Caniby
* Biodisc
* Vanson
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Spread of Pyramid/Ponzi

Pyramid/Ponzi are illegal in the following
countries:
Albania
Iceland
Nepal
Philippines
Australia
Italy
Malaysia
Poland
Brazil
Germany
Canada
Colombia
Bulgaria
Hungary
Portugal
Thailand
China
Japan
South Africa
UK
France
Mexico
Sri Lanka
USA
Iran
Netherlands
New Zealand
Romania
Norway
Switzerland
BHUTAN
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Targets of Pyramid/Ponzi
Schemes

Mostly in developing countries, where
- People are unfamiliar of market
economy
- FIs are undeveloped and inefficient
- Limited or no regulatory capability
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Implications

Affects banking system- operations and
banks safety and soundness

Currency drain and loss of savings

Cases of violence, bankruptcy,
divorces, loss of credit, ruin of
relationships and even suicides
9
Promoters of Pyramids/Ponzis
and their Strategies

Great promises and fascinating success stories

Brainwash on easiest way to make money and
fortune- ‘Get-Rich-Quick’ schemes. The schemes
works because “there are gullible people who want to
make a fast buck without sweating for it.”

Camouflaged in the language of religion, personal
freedom, or fun and games-
Only Winners TALK and Losers DO NOT
10
Corrective Measures

Public education and awareness campaign
- both Government and Media can play a vital role

Call on Law enforcement agencies and
Justice Department

The RMA’s concern- A number of notifications has
been issued in the recent past to general public and FIs.
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General tips to
public/businessmen
Step 1
 Beware of any scheme that requires you to invest money in a franchise
that gives you commissions for recruiting other distributors. Any "job"
that depends on your making money based on how many people you
sign up is most likely a pyramid scheme and should be avoided.
Step 2
 Avoid any plan that requires you to spend money on high-priced
products offered by the company which hires you. Make sure that
keeping inventory of these products, beyond necessary items such as
order forms or catalogs, is not a requirement.
Step 3
 Find out if the plan involves a training program. Legitimate companies
offer training materials and classes. If the plan involves simply being
handed a "kit" and having you start on your own, it most likely falls
under a pyramid scheme.
Step 4
 Take your time when making a decision about getting involved in a
plan. Do not be pressured into making an instant decision. Research
the company involved before signing a contract, if one is offered.
Step 5
 Consult with the local authorities about the company offering this
plan before engaging into such activities. If it sounds too good to be
true, it usually is.
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Home To Take
BEWARE! Public/businessmen/investors
REMEMBER all Pyramid/Ponzi schemes
are considered illegal in Bhutan- subject to
PERSECUTION for fraud under the Law of the
Kingdom of Bhutan
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Further Queries: [email protected]
OR dial it to: 323111 (218)
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