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PONZI SCHEMESMurtaza Abidi -10672

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Investment FraudInvestment fraud is any scheme or

deception relating to investments that affect

a person or company. Investment andsecurities (or stock market) fraud

encompasses a variety of illicit activities andstrategies, which generally include the

deception of investors or themisrepresentation by capital market

participants.

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Types of Investment Fraud Ponzi/Pyramid Schemes Corporate Fraud Accounting Fraud Insider Trading Microcap Fraud Boiler Rooms Pump and Dump Abusive Naked Short Selling Short and Distort

http://nukegingrich.com/2010/07/01/types-of-investment-fraud/http://nukegingrich.com/2010/07/01/types-of-investment-fraud/

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Pyramid Scheme

The main characteristic of a pyramidscheme is that participants only makemoney by recruiting more members.

Naked pyramid schemes. Product-based pyramid schemes.

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naked pyramidschemes In a naked pyramid scheme, no product is

sold. Here's how it works: One person recruits 10 other people to

participate in a "no-fail investmentopportunity."

The 10 recruits each pay the recruiter$100.

The recruiter now tells them to go out andrecruit 10 more people to do the same.

If each recruit is successful, they'll all endup with $900 in profit from a $100

investment.

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product-based pyramid schem A product-based pyramid scheme is the

same concept disguised as a legitimatedirect sales opportunity. Here's how itworks:

A distributor recruits 10 salespeople who

each pay $500 for a starter kit of products tosell.

The distributor gets 10 percent of eachstarter kit that's sold.

The distributor also gets 10 percent of each

product that any of his recruits sells,including more starter kits.

The recruits are told that the fastest way tomake money isn't by selling products, but byrecruiting more people to buy starter kits.

The people at the top of the pyramid getcommissions from everyone in their down

http://communication.howstuffworks.com/sales-technique.htmhttp://communication.howstuffworks.com/sales-technique.htm

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Business proposal

Pyramid Scheme

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Pyramid Scheme

Business proposal

Business proposal

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Pyramid Scheme

Business proposal

Business proposal

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Money

Participants

Pyramid Scheme

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Ponzi Schemes

A Ponzi scheme is a fraudulentinvestment operation that pays

returns to separate investors, notfrom any actual profit earned bythe organization, but from theirown money or money paid by

subsequent investors.

http://en.wikipedia.org/wiki/Fraudhttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Fraud

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red flags of potential schemes High investment returns with

little or no risk

Overly consistent returns. Unregistered investments Unlicensed sellers Secretive and/or complex

strategies Issues with paperwork Difficulty receiving payments

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End of Ponzi Scheme

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Money

Participants

Participants

Money

Ponzi Scheme vs Pyramid Scheme

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Key Elements To A Ponzi Scheme

Benefits, The understanding, Initial trustworthiness, Investors receive initial return

and

Communication of success

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Charles ponzi and theoriginal ponzi scheme March 3, 1882 January 18, 1949

He was born in Italy

Ponzi had $2.50 inhis pocket when he

arrived in US in1903

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Charles Ponzi LegendaryScammer Ponzi started business by buying and

selling a type of postal coupon(International Reply Coupon) and promisedinvestors that he could provide a 50%return in just 45 days at a time when the

annual interest rate for bank accounts was5%.

When it was discovered that Ponzi was

paying old investors with money from newones, his scheme collapsed and he wassent to jail for 14 years.

Ponzi ended up in Brazil, where he spenthis last years in poverty and sickness.

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BERNARD MADOFF THE WHITECOLLAR CRIMINAL April 29,

1938 (age 73)

Americanformer stockbroker, investmentadvisor, non-executive chairman

ofthe NASDAQ stockmarket

Founder of WallStreet firm Bernard

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Madoff's $50 Bil l ion Ponzi SchemeThere are four notable facts about his operation:

It was the largest (dollar-wise)

It was the longest-running (known) Ponzi scheme

in history - it went for over 20 years!

It was carried out by one of the pillars of WallStreet - Madoff was a former chairman of NASDAQ

His victims are some of the most financially savvyand rich people in the world (you need at least$20 million to "invest" with him)

150 years imprisonment and penalty of $17.179billion

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Bernie Madoff's Famous Victims Fortis Bank. $1.4 billion

HSBC $1 billion Access International. $1.4 billion Tremont Capital $3.3 billion Union Bancaire Privet: $1.1 billion Mort Zuckerman. Mr. Zuckerman, the

chairman of real-estate firm Boston Properties andowner of the New York Daily News

Santander. The eurozone's largest bank bymarket value, said its clients had an exposure

of 2.33 billion ($3.1 billion) to Madoff'sinvestment funds

J. Ezra Merkin. Mr. Merkin, the chairman offormer General Motors Corp. financing arm

GMAC, is also a money manager at AscotPartners LLC in New York. Ascot, which

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Double Shah In 2005, a Pakistani high school science teacher

Syed Sibtul Hassan Shah went to Dubai. When

he came back to his hometown of Wazirabad,Pakistan, he convinced his neighbors to give himtheir savings, which he doubled in just 7 days,based on a "stock program" that he had learnedin Dubai.

Words soon spread of the "Double Shah" andpeople began investing with him. In 18 months,he took in over Rs. 70 billion (about US$880million) from 3,000 people and was evenconsidered to be the next political leader fromthe area.

He is now in custody and his case is pending.

He has paid Rs 8 Billion to the NAB which will

soon be distributed to the people who goteffected from it.

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Gold Mine International Investment of $60 initially. Bonus of $30 on every 3 members brought

into the company. They promised to give u $450/day. $3150/week. $13,500/month. $164,250/year. The company sends the money to foreign

countries due to this our Economy was alsogetting effected.

Till January 2011 they have sent almost$93 Million.

SECP has given the Public warning for this

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CONCLUSION In a nutshell, If someone promises an

investment return that is unnaturally high

or steady, the warning alarm should startsounding. Too lucrative return on investments must be

checked properly. The idea is too appealingbut one must be careful before investment

in such schemes. One should make sure to dig into the

companys portfolio as much as possibleand check properly with SECP and other

regulatory bodies to make sure thecompany isnt fraud.

If the company is claiming to be aninternational one, then we must check with

SECP whether its actually listed aninternational company with Companies

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