Investment Scams and Ponzi Schemes for Nature- myassignmenthelp

Question: Discuss about theInvestment Scams and Ponzi Schemes for Nature. Answer: Introduction A Ponzi scheme named after Charles Ponzi is an investment scheme of fraudulent nature operated by either individuals or a corporation. Under this scheme the operator fabricates the reports and distributes the income to the new investors generated income from the old investors. The operators offer returns which are short term, either abnormally high or consistently unusual (Hobson, 2014). What happened? Pearls Group is an Indian based company which owns real estate and operates in residential construction, property development, infrastructure, commercial and civil, spices and liquor, insurance, tourism, health and education, agriculture, and media. A case was lodged against two Pearls Group real-estate firms namely Pearls Agrotech Corporation Ltd. and Pearls Golden Forest Ltd. by The Central Bureau of Investigation (CBI). Altogether they raised Rs 45,000 crore fraudulently via 5.5 crore investors who were duped in a Ponzi scheme through collective investment schemes for allotment of agricultural land to the investors belonging to Punjab, Delhi, Haryana and other states (Express, 2016) How did Ponzi scheme Attract Money Nirmal Singh Bhangoo the promoter and director of PGFL gave the investors fake guarantees and bogus agreements of providing the plots of agricultural land. One of his bases is in Australia. Further he was surrounded by the tank of opportunities in Australia by Austrade and he began to expand his operation by acquiring the Spa in Gold Coast and Sheraton Mirage Resort in Queensland. The promoters of PGF allegedly floated another company under the name and style of PACL in 1996 and started collecting money again. PACL used the money of the old investors to repay to the new ones to avoid any kind of legal and criminal prosecution. The investors were given false promises of on interest rate @ 12.5% on deposits apart from free maturity on income tax and free accidental insurance (Express, 2016). PACL followed the pyramid system where they hired unemployed people as agents. The first agent would likely to earn commission on investments (Lewis, 2016). The commission so earned was attracted by the second one and so on. The commission went up to 40%. They lured the investors in for fixed income and incentives. On scrutiny of accounts it was found that PACL was incurring losses so it eventually raised a loan from Punjab National Bank worth Rs. 17.40 crore. They also invested in apartments in Brisbane worth $ 19 million (Times, 2016). How did the Ponzi scheme operators allay suspicion / provide reassurance to the investors? The company always framed the investors with the fact that they lack adequate funds and resources to develop the land whereas the group earned Rs. 20035.72 crore by disposing a part of its land bank (Times, 2016). The investors were constantly given the assurance that the cost of land purchased would multiply in near future at a robust pace. These tall claims and promises led investors stuck with the company in rapacity of huge earnings. How was the scam uncovered? The official of CBI started cracking down on schemes and the offices of Pearls Group back in 2002. After which SEBI banned one of the association of Pearls Group from dealing in securities for 10 years. CBI when was instructed by the top court to investigate the matter it began to raid the offices of Mohali, Chandigarh, Jaipur and Delhi on February 23. What they did not realised was the fact that the investment scam would turn out to be so grand and of such a magnitude. Few of the computers were scrutinised and it delivered a result about the group's companies that amassed over Rs 45,000 crore from nearly 5 crore investors (Express, 2016). Were the perpetrators punished? Did the regulators do a good job in this case? The perpetrators included three directors among which one was MD and Promoter Director (PACL) namely Sukhdev Singh, Executive Director Sukhdev Singh and Subrata Bhattacharya ED at PACL/PGFL along with the CMD of the company were taken into judicial custody. They were charged for criminal conspiracy and for money laundering. The documents of 14348 properties were recovered. The chief justice RM lodha was appointed by the Supreme Court to sell the assets of Pearls Agrotech Corporation Limited to settle the claims and refund to the affected investors (Times, 2016). Victims of the scheme launched a class action suit in July 2016 in the Australian Federal Court on account of the interest to recover the funds invested by the Pearls. Regulators like CBI and Supreme Court played an important part in deciphering this investment scam (Times, 2016). Recommendations to avoid future events of similar nature: Avoid entering into huge investments which have a low maturity period, little or no risk and claims to give better returns. Unusual investment seminars and unsolicited contacts are always prone to red flags. Before entering into the investment a complete analysis and research of the broker or financial advisor is to be done with regards to its license and goodwill and background. Never invest your funds in a policy which hide few of the opportunities and potential gains. File a complaint if you have been victimized on account of any investment which turns into a Ponzi scheme. Why didnt they catch him? What could the SEC do to improve its ability to detect Ponzi schemes quickly? Thomas Thanasules investigated all the emails from Renaissance Technologies, also known as successful hedge fund. The complex funds included black box funds which used complex programs. Up till now Thanasules was not aware of anything suspicious until he had gone through the Meritage assets. There he discovered the investments were not normal like hedge funds rather then it was return of swap with funds of funds (Sterngold, 2018). Madoff was cherry picking the trades which itself was a red flag. The mails were eliminated because SEC had examined Madoff and gave them a clean chit. Further the case was handed over to John Nee along with two more examiners Lamore and Ostrow by co-head of SEC. After collecting all of the documents and financial statements they interviewed Madoff who managed to fool them. In October 2005, Harry Markopolos reported Madoff was running Ponzi scheme. SEC launched another investigation and finally case was entered into their database. Madoff was asked to answer few questions raised by Markopolos and in a while he began to contradict with his answers in previous interviews (Ragothaman, 2013). This led to the investigation by FBI officials of SECs failure in detecting the Madoff fraud. They neglected DTC investigations. The staff failed to take necessary measures to determine the Ponzi scheme. SEC officials collective negligence led Madoff set free (Howell, 2017). Steps to catch a Ponzi scheme Make custody arrangements to curtail the mismanagement of assets and its misappropriation (Manning, 2017). Registration of each investment advisers shall be made mandatory. Reporting of assets at multiple levels. Bibliography Express, T.I., 2016. The Indian Express. [Online] Available at: https://indianexpress.com/article/business/business-others/cbi-arrests-pearls-group-chairman-in-alleged-rs-45000-cr-ponzi-scam/ [Accessed 11 April 2018]. Hobson, R., 2014. The Book of Scams. New York: Hariman House Limited. Howell, C., 2017. Tough life lessons from the Bernie Madoff Ponzi scheme. ACFE Community Manager, pp.42-48. Lewis, M.K., 2016. Understanding Ponzi Schemes. UK: Cheltenham. Sterngold, J., 2018. Unraveling the Lies Madoff Told. The wall Street Journal, pp.20-27. Times, H., 2016. Hindustan times. [Online] Available at: https://www.hindustantimes.com/india/rs-45-000-cr-pearls-ponzi-scam-cbi-arrests-chairman-3-others/story-vk02G3bFE9e3t60WKl8vbO.html [Accessed 11 April 2018].