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 our case study on a ponzi scheme to
see how Maria loses her money.
Read ASIC's media releases about the conviction of ponzi operator Chartwell
Enterprises, and a penalty and ban issued to ponzi 'Mastermind' David
Where do ponzi schemes
Fraudsters and operators of unlawful investment schemes
sometimes target community groups such as churches to find victims.
In some cases, members of the community group have innocently
encouraged each other 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.
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
Here is an example of how a ponzi scheme works and it 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
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 you should 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
Last updated: 27 Nov 2015