How can you spot a Singapore ponzi scheme? (photo by ArrrRTeDUarD)

Ponzi schemes are when funds obtained from new investors are used to pay off existing investors in a continuously growing "pyramid" type structure. Named after Charles Ponzi, who promised a 50% return on $150 in 90 days ($225), these schemes have been around for almost one hundred years. With the low interest rates earned from deposit accounts, many Singaporeans are looking for "alternative investments" that guarantee huge returns. Thus in the past few years, ponzi schemes, many of which promise no-risk double digit returns, have been on the rise. There are definitely big profits to be made in ponzi schemes (not just for the organisers/originators); those who were the early investors and participants who had already exited with their money (their original principal plus any interest or dividend) will benefit from the scheme, so long as they exit before the scheme becomes unsustainable. Many ponzi schemes can go on for several years,  so there’s certainly ample opportunity to cash out and exit before the scheme implodes. What then is the problem with investing in a ponzi?

The short answer: Greed, and failure to recognise that it is a ponzi. Too many people will stay invested in them for way too long. Because it’s "easy money", it becomes addictive. The other major problem with them is that those who benefit from ponzi schemes do so at someone else’s (unknowing and nonconsensual) expense. In these schemes, someone is always left "holding the bag" of empty promises at the end. And with the way these things are set up, more people will be devastated by ponzi schemes, than those who actually benefit from them. Read further to learn the telltale signs of a ponzi scheme.

1. The Caucasian. A local emcee gives a raving introduction on the accomplishments of the company and of the speaker, who is usually a male foreigner. The emcee makes it a point to tell you that it is on this very special occasion that this foreigner is able to come speak to you (making you feel like you were one of the exclusive lucky few who were chosen to be part of the "in crowd").

2. The Fake Cheque. The foreigner talks about all the money the company has paid out. To further prove this point, he might spend the next 10 to 15 minutes issuing fake cheques (those really big ones you see whenever there is a jackpot winner) to early investors.

3. The Model Investor. A couple of early investors might give their testimonial. These also follow formulas. Some start with a story of doubt (e.g., "I was skeptical at first, but my agent assured me that there were no risk so I put my money in, and now today I stand here richer than before. You, my friends, can be like me."); others talk about dreams (e.g., "I now can send my kids to uni") or how the money saved them from disaster (e.g., "Now I can pay for my mother’s nursing care"). My favourite stories are from housewives (e.g., I’m a stay-at-home mum and this has allowed me to make passive income and still be able to take care of my kids). They want you to see these early investors, and have you fantasise about being in their shoes. They will pick people who are relatable, but not too savvy and not too good looking (otherwise, you might be intimidated). They want you to think, "If this ordinary guy can do it, I surely can do just as well, if not better". This is the bait they want you to take.

4. The Random Accolades & Awards. Before the companies get into the details of the investments, they want to tell you how their company has a proven track record and they will show you a list of awards. When you carefully examine these awards, you’ll realise that many of them are unheard of, they are not backed by industry standards, or they are simply bogus and are "bought" so they don’t mean a damn thing.

5. The Presentation. After you become a bit envious that your name wasn’t on that fake cheque, they begin their sales pitch. They start by telling you that they’ve identified a new market and that they are letting you in on this once-in-a-lifetime opportunity, while your underprivileged peers remain unaware. They will then show you a slideshow or video of their projects, and explain in a very simplistic way on how they make money for their investors (but only if you act now). These slideshows always have lots of photos of smiling people. What they don’t have, however, is details – details about exactly how these projects make money. This is not to say that the company doesn’t do anything and the photos are fake. The company may actually have real working projects, but what makes it a ponzi is that the bulk of the money they make is from the influx of new investors, and not the result of their real estate projects. And it is because of this that you will never see an audit report or cash flow statement. Instead, the numbers they will show you are your guaranteed rate of return, the minimum amount you need to invest, and the minimum investment period. Sometimes they will tell you how much others have invested in the company and how many investors there currently are. These numbers may be useful in telling you how far from the top of the pyramid you would be if you chose to invest.

6. The Meal. Because the presentation lacks details, you might have questions at this point, but instead of taking questions, they immediate proceed to serving dinner. You know how we Singaporeans get when it’s makan time. Food is comforting to us; it can assuage and ease our doubts. We break bread with people we love and trust, so a meal is the perfect way to earn our trust. Plus, there is a sense of reciprocity when we are given a free meal, and we might feel the urge to give something back.

7. The Special Offer. Someone will inevitably announce that there is a special limited-time offer for investing a certain amount today. This usually comes in the form of additional returns. They might say, you get 12.5% if you invest $30,000 or 13% if you invest $50,000. They have to do this because funds in the ponzi need to grow almost exponentially in order to pay off the existing investors, whose numbers are also increasing.

8. The Brainless Contracts. This occurs after we are well-fed and the blood flow is now to our gut and not our brains. The sales reps and agents go around with pre-filled contracts and all you have to do is sign. This seals the deal.

It was at this time that I decided to corner one of the sales agents and ask him all the questions that I jotted down during the presentation. Here were some of my questions:

1. Do YOU invest in this? Why not?
2. Does YOUR FAMILY invest in this?
3. What happens if the company defaults, or the projects fails?
4. Who audits your company? Can I see your annual report?
5. What is your commission?
6. Who pays the taxes, marketing fees, management fees, transaction costs, etc.?
7. How do you protect against currency exchange risk?
8. This is a very elaborate seminar. How much did this venue and dinner cost?  How is your company paying for these costs?
9. If these investments are so good, why aren’t local people (i.e., people in Michigan and in Germany) investing in them? Why did your company come all the way to Singapore to find investors?

My agent could not answer most of these questions. He also confessed that neither he nor his family have invested in these projects. I looked at this hands, and they were shaking. So I thanked him and left.

Further Research
I discovered that there were several companies in the recent past that have been busted for being ponzi schemes – Sunshine Empire, Profitable Plots, Geneva Gold, and SureWin4U. Many of these companies were listed on the MAS Investor Alert List, which provides a listing of unregulated companies, many of whom give the false impression that they are authorised and licensed by MAS. Both Shenton Wealth Holdings and Dolphin Capital are on that list. Other big players include Capital Asia Group, Walton International, and Wealsol.

Out of curiosity, I wanted to know what it takes to be a sale rep for these companies. What I found in my research was that these companies have very high turnover rate and the sales Previewagents are under an extreme amount of pressure. One former employee said that the company was "not very transparent" and that he had to tell "white lies" to push sales. Another actually reported in Glassdoor that the company was "one step away from a real estate ponzi scheme" and "the worst career mistake" of his life.

There are plenty of posts that tell you to stay away from ponzi schemes. But this is not one of them. You can certainly make huge profits on them, so long as you are an early investor and you exit in a timely manner. However, investing in ponzi schemes do come with big risks (there are far more losers than winners) and also the knowledge that your gain is someone else’s nonconsensual loss. I personally am not comfortable with these so I tend to stay away from them. But now that you know what a ponzi scheme selling seminar is like, you can make a more informed decision on whether you want to take the risks. When I was at the seminar buffet queue, I heard this one lady say,

"This company is great: they will help me to earn more passive income and they even gave us a free meal." I thought, "No lady, you just paid $10,000 for your meal! You can only call it a free meal once you’ve exited with all your money and your dignity intact."