Case study ponzi scheme
Maria invests through a friend
First-time investors Maria and Jason
borrowed $70,000 to invest in the overseas money market after a
recommendation by their friend of 40 years, Steve. They were both
shop assistants getting close to retirement and had never owned
shares before as they could never afford it.
Steve told them that their investment would involve no risk at
all as it was guaranteed by the Bank of America. He said they could
withdraw their capital at any time after the first 12 months. The
return promised on the investment was fantastic. Even after Steve's
commission (40% of their return) they would still make 26% per year
on their initial investment. Steve helped Maria and Jason arrange
to borrow the $70,000 that they would invest.
But the scheme was not real - they were caught up in a
ponzi scheme. Part of the money they and other early investors
deposited was used to pay their first dividend cheques. When the
money for dividends started to dry up, Steve said that it was due
to the interference of ASIC. This was one of many false stories fed
to the investors by Steve, to keep them onside.
Jason and Maria were angry with ASIC as they thought the
organisation was ruining their chances of making some money from
Maria and Jason hung in there with Steve through all his many
excuses. They wanted to believe him as they didn't want to think
they had lost all their money, and he was an old friend.
When the truth eventually came out that the scheme wasn't real,
Maria and Jason, along with the other investors, assisted ASIC's
investigation and prosecution of Steve and his business
Maria and Jason lost their $70,000 and ended up having to pay
off the loan. When Jason's mother died, his inheritance was
completely swallowed up by the $70,000 debt plus interest. This
money would have been put to good use in their retirement.
Jason and Maria are very wary these days. They warn others to
get a second opinion from a licensed financial adviser before
investing in anything.
ASIC successfully prosecuted Steve and his business partner and
they spent more than 2 years in jail.
This is a true story - only the names of
the investors have been changed at their request.
Last updated: 18 Apr 2017