Getting to Know Ponzi Schemes: Definition, Characteristics, and Examples, to Avoid Fraud Investments

Some time ago the world of social media was shocked by several applications under the guise of investment which turned out to have fraudulent modes. Investment is actually a very important thing, especially for our future savings. Even so, mistakes in choosing the type of investment can be disastrous. As the saying goes, instead of profit, you become stumped.

Therefore, we as investors must be wary of fake investment modes. Today, fraudsters have a variety of ways to carry out their plans. One type of fraud that is currently circulating is a ponzi scheme. The Binomo application, one of the service applications that yesterday might often perch on your YouTube ads, turns out to be very unfortunate to be involved in this ponzi scheme, lho.

What is a ponzi scheme? Is a ponzi scheme similar to a business? MLM? The following is the definition, characteristics, examples of ponzi schemes, their differences with MLM, along with legal views on ponzi schemes. 

What is a Ponzi Scheme?

According to Bartoletti, M., Carta, S., Cimoli, T., and Saia, R. (2020), Ponzi schemes are financial scams that lure users with promises return or high profits. In fact, users are only given the promise of profit from the money earned by fraudsters from new users who join the program that he runs. Therefore, ponzi schemes will usually last and unfold until no more new users join.

In the absence of new members, of course there is no more capital that can be offered to promise profits to other potential victims. Over time, the money that has been stored by fraudsters can be taken away and finally the secret of this ponzi scheme is revealed. Ponzi schemes have existed since about 150 years ago through face-to-face meetings, then this fraudulent mode under the guise of investment penetrated into the digital world.

Ponzi schemes initially take advantage of platform internet based like website, until now towards platform based crypto currency as Bitcoin so called crypto ponzi. Platform Ethereum smarts provide many new opportunities for fraudsters in the field of ponzi schemes to develop their malicious schemes. Many of the fraudsters are able to ensnare multiple victims even though the victim thinks that 'investation' what they do looks trustworthy.

History of the Ponzi Scheme

According to the book from Kiyosaki, RT (2015), nThe name ponzi scheme comes from Charles Ponzi, an Italian national and also a con man in the 1920s. Charles Ponzi offers business schemes with profits of almost 50% in 45 days or 100% in just 90 days. A thing that is very unlikely in a safe investment in general.

Even so, with his sweet mouth Charles was able to attract victims with a large enough amount that he pocketed the fraudulent funds of around 7 million US dollars. In fact, Charles asked his victims to give positive testimonials so that many new members were interested in joining his fake investment. Until finally there were no more funds that he could turn around so the victim became suspicious and sued Charles.

Features of a Ponzi Scheme

Financial Services Authority (OJK) as an institution that regulates all financial activities in Indonesia, urges the public to be aware of this fraudulent mode that is currently rife. OJK provides various characteristics of the ponzi scheme, namely as follows.

1. Offer return high in a short time and seems to have no risk. 
2. Business processes and investments are not clear. When you are offered you may wonder where this business gets the money to give you return
3. Investment products are usually foreign owned
4. Regular sales staff earn commissions when they can recruit new members
5. When investors want to make withdrawals, investors will be lured into investing again with higher interest
6. Often invites potential investors with community leaders or religious leaders
7. Refunds like to get stuck in the middle

Examples of Ponzi Schemes in Indonesia

Cases of illegal investments that cause losses to their victims have recently become increasingly common. What's even more surprising is that this business is openly promoting its 'business' to make it look convincing but it's fake. Here is an example of a ponzi scheme available on Binomo.

Example of a Ponzi Scheme on Binomo

Binomo is an application trading whose advertisements often appear on the screen devie us. The illegal investments offered by Binomo are done by offering huge profits in a short period of time. Service trading This provides a lure to the community through its affiliate, Indra Kenz.

Indra Kenz invites the public to follow his path in investing in Binomo. He claims that after investing in Binomo he acquired various luxury items such as cars and other expensive items. Until in the end, Binomo was reported by one of the investors who felt that hundreds of millions were harmed in their transactions at Binomo. The Criminal Investigation Unit of the National Police Headquarters finally uncovered Binomo's fraudulent mode and stated that: trading in this application is not registered and is included in illegal services.

Ponzi Scheme Vs MLM

The main difference between a ponzi scheme and an MLM business (multi level marketing) is the existence of a tangible product of a business. Ponzi scheme illegal investments have unclear business processes or products. Meanwhile, a good MLM business usually has a product or service that actually exists.

Ponzi schemes do not require members to invite new members. On the other hand, the main activity of the MLM business is to invite other people to use the products and services that the company offers. If you are offered a job on an MLM basis, you need to make sure that the company is legally registered!

Legal Ponzi Schemes in Indonesia

Ponzi scheme practice and scam friends financial others, such as pyramid schemes, of course, are prohibited and unlawful wherever they are, because they harm the victim materially. However, there is no specific law that regulates fraudulent investments like this in Indonesia. Indonesia has Law no. 7 of 2014 concerning Trade which discusses the prohibition of the Pyramid Scheme in the business world.

The pyramid scheme is almost exactly the same as the Ponzi scheme, but the focus is different. Ponzi schemes and pyramid schemes both provide benefits to existing members when there are new members. However, pyramid schemes focus on providing bonuses and commissions based on the partners the members can invite. For that, the pyramid scheme will make its members look for new victims. Meanwhile, the ponzi scheme does not require its members to invite new members. Ponzi schemes are more focused on member investment, levels return promised will be even greater when the investment money deposited is greater as well.

The case of the ponzi scheme by Binomo with Indra Kenz as an affiliate himself was charged with money laundering and electronic transaction violations. Unfortunately, there are no clear legal rules related to the practice of investing in non-legal ponzi schemes. Therefore, the public needs to always be vigilant when involved with investments whose origins are not clear.

Don't hesitate to report suspicious investment service cases to the Financial Services Authority (OJK) and always enrich yourself with financial literacy. Do not be easily tempted by large profits in a short time. Hopefully this article can add to your knowledge of the fraudulent investment case that is currently on the rise!

Reference: 

Bartoletti, M., Carta, S., Cimoli, T., & Saia, R. (2020). Dissecting Ponzi schemes on Ethereum: identification, analysis, and impact.Future Generation Computer Systems, 102, 259-277.

Kiyosaki, RT (2015). Unfair Advantage Malay Edition. PTS Professional.