Why Are Pyramid Schemes of Investment Unsustainable
At a global level the terminology is often imprecise due to different meanings in different legal systems. In this blog series we see “financial crime” as belonging to the broader category of “white collar,” “commercial,” or “economic” crime and explore its linkages to the financial inclusion agenda. We use the term to refer to offences that involve the financial system, payments and transactions. A few recent examples from developing countries and emerging markets: Benin: A number of unlicensed entities that called themselves “microfinance institutions” operated Ponzi schemes. The largest, ICC Services, collapsed in June 2010. By the time the schemes unravelled, they had collected deposits equivalent to about 5 percent of the 2010 GDP of Benin from an estimated 150,000 depositors. According to government data, the average deposit represented 1.5 times the annual GDP per capita.Some assets have been retrieved from the scheme managers and limited restitution is taking place. Colombia: It is broadly estimated that as many as 4 million Colombians invested over US$1 billion in pyramid schemes in the mid-2000s. In 2008, the collapse of one scheme (DRFE) led to rioting and violent protests in 13 cities. The government declared a state of emergency to restore order.
Investors should exercise caution with such schemes or simply avoid them altogether.
Sander, P. (2009). Madoff: Corruption, Deceit and the making of the World's Most NotoriousPonzi Scheme. OM Books International, Noida.