Dividends but no real investment
One of the simplest yet most effective investment scams is the
ponzi scheme. The promoter promises investors a return on
investment and says it is secure, but there is no real
The promoter convinces people to invest with their scheme. They
then use the money deposited by early investors to pay the first
'dividend' until investors feel comfortable and decide to invest
more. Some investors then encourage their family and friends to
join. Eventually the scheme falls apart because the promoter starts
to spend the money too quickly or the pool of investors dries
Here are tips on how to pick a ponzi scheme from a real
Warning signs of a ponzi
- The rate of return is sometimes suspiciously high (maybe as
high as 10% per month or 120% per year) - but it can also be
just the usual rate of return
- The person who tries to recruit you is someone you think is
trustworthy, like a neighbour or someone in your church or
- The recruiter may have already invested in the scheme and
received great dividends
Read ASIC's media releases about the conviction of ponzi operator Chartwell
Enterprises, and a penalty and ban issued to ponzi 'mastermind' David
Case study: 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.
Steve told them 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 (26% per year on
their initial investment). Steve helped the couple arrange to
borrow the $70,000 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 dried 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 money from their
investment. They wanted to believe Steve, 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 partner --
who spent more than 2 years in jail.
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
Jason and Maria are now very wary, and warn others to get a
second opinion from a licensed financial adviser before investing
This is a true story - only the names of the investors
have been changed at their request.
Where do ponzi schemes
Operators of unlawful investment schemes sometimes target
community groups, like churches, to find victims. In some cases,
members of the community group innocently encourage others to put
money into the illegal scheme.
This means that when the scheme collapses, not only do the
investors lose their money, but relationships break down between
friends, neighbours or community group members.
Ponzi schemes targeting Thai communtities
ASIC Victorian Regional Commissioner Warren Day talks to
SBS about how members of the Australian Thai community are
falling victim to Ponzi scams operated through Facebook.
Warren Day interview
on SBS (23 mins)
How long can the scheme last?
If the promoter of the scheme is disciplined about how much
money is left in the account to pay 'dividends', the scam can go on
for many years. Ponzi schemes only require a few people in their
early stages to be successful.
How ponzi schemes work
An example of how a ponzi scheme works is shown in the table
below. In January, the promoter convinces Katie to invest
$100,000 in his scheme. The promoter then pays Katie $10,000 each
month using Katie's own money.
As Katie receives $10,000 each month she doesn't suspect
anything is wrong, and happily recruits friends and work colleagues
to invest, too. After 3 months, Katie's neighbour Adam
decides to invest $100,000 after hearing about Katie's great
After both Katie and Adam have invested their savings, the
returns continue to come in April. But in May they don't hear
anything from the promoter. They try to contact him but his
number has been disconnected.
The promoter has taken off leaving two devastated
people in his wake. Katie lost $70,000 and Adam lost $90,000. The
promoter got $160,000 out of the scheme.
This is example has only two victims but in reality
these schemes can have dozens or even hundreds of victims.
Katie and Adam invest in a ponzi scheme
What to do if you have
invested in a ponzi scheme
- Stop investing any more money
- Check if the company is on our list of companies you should not
- Check the company's licence number on ASIC Connect's Professional Registers.
- Report the scam to
ASIC may be able to prosecute the ponzi scheme operators if they
are operating in Australia. ASIC may also be able to issue an alert
about the scheme. You should also warn your family and friends, to
stop them from becoming victims.
The biggest telltale sign of a ponzi scheme is the suspiciously
high rate of return. That old saying applies here: if it
sounds too good to be true, it probably is.
Before you invest in any scheme, do independent
checks to see how the returns are really going to be made. Don't
just trust the word of the person selling you the scheme.
Last updated: 15 Mar 2019