Non-resident Indian (NRI) investors continue to be tricked into parting with their money through investment in Ponzi schemes, despite many such scams being unearthed and the fraudsters brought to book.
Ponzi schemes were the subject of heavy media coverage in Dubai recently when three people were sentenced to 517 years in prison each for their part in a $200m (£154m, €175.6m) scam.
The company in question, Exential Group, took deposits from investors and promised huge returns from investing in the foreign exchange market. To begin with investors received money back on their investment, but these payments gradually these dried up.
Exential disguised the Ponzi scheme as a legitimate foreign currency trading programme, offering up to 120% annual returns on investments.
Following investigations by government agencies that found the Exential owner had transferred the money to an Australia-based brokerage firm owned by his wife, Dubai’s Department of Economic Development shut down the group’s office in July 2016.
A Dubai court convicted the trio earlier this year in the 515 cases filed against them and they were sentenced to one year in jail each for 513 cases and two years for the other two.
Bitcoin scams
Bitcoin is another example of a Ponzi scheme. Investors seldom understood this market, but they were tempted by business media reports suggesting that the cryptocurrency was paying out limitless returns in electronic cash, often vouched for by the peer-to-peer network. The returns remain cryptic, however.
The Bitconnect Coin scam that offered up to 120% returns is a case in point. The ‘financial re-engineering geniuses’ duped investors into believing that they were earning interest by holding their coin “for helping maintain the security of the network”.
The market still awaits guidelines from regulators on the conduct of ‘cryptic’ electronic cash deals. Until then fraudsters will continue to rob Peter to pay Paul.
Until such time, investors should remain alert.
Manish Sharma, partner of WellTh Advising Group, a Dubai-based auditing and investment consultancy, says: “Be wary of the schemes that promise a guaranteed and abnormally high rate of return. In a volatile market, high return and guaranteed return do not go hand in hand. Caution is the word.
“One should also realise that very few schemes give a guaranteed return. Never enter or put your money in a market that you don’t understand. And don’t get carried away by the promises offered by the so-called investment advisers.”
Small-time tricksters
There are also innumerable cases of small-time tricksters vanishing with substantial amounts of money collected from blue-collar workers in the labour camps of the UAE.
One common scheme is ‘chit funds’, a resources pooling scheme with specified sums collected every month and given to each member by turn.
These are not the usual fly-by-night operators. The scheme will run smoothly for a few years until a sizeable client base is built up. Then one fine morning the ‘operator’ will make good his escape with the proceeds. And, this is a recurring theme.
For example, there was a case where a group of more than 60 NRI investors filed police complaints against five members of a family who were alleged to have duped people in a Ponzi scheme.
Investors were told that their money was being invested in real estate in the Middle East and India and they were offered as much as AED12,000 (£2,518, $3,267 €2,868) per month on an investment of AED100,000. Attracted by this exciting offer, many borrowed heavily to invest in the scheme.
The scam came to light after 60 cheques issued to investors bounced, leaving many on the verge of bankruptcy.
Benoy Sasi, an international lawyer at the Dubai International Financial Centre, says: “Clear foolproof guidelines are essential, because fraudsters running the schemes have been exploiting the regulatory gaps and a lack of administrative measures to dupe gullible people of their money.
“Caution, extreme caution, is the only remedy.”
