Ponzi Schemes and its Prevention: Insights from Malaysia

Abstract

"A Ponzi scheme is a fraudulent investing scheme which promises high rates of return with little risk to investors. The scheme has led to a substantial amount of financial leakages in recent years. Despite warnings by the law enforcement agencies and regulators, many have unfortunately fallen victim. Hence, the current measures are limited in preventing the fraudulent schemes. Therefore, the present study aimed to identify the influencing factors for joining Ponzi schemes by examining the modus operandi used, profile of victims and fraudsters and to investigate the current measures in preventing Ponzi schemes in Malaysia. This study employed a qualitative methodology with semi-structured interviews and document reviews to collect data. Interviews involving eight interviewees with regulators, enforcers, and victims revealed that prevention of Ponzi schemes should be addressed holistically by examining the modus operandi used, profile of victims and fraudsters. Findings further indicated that the prevention measures are led by three core elements consisting of education, regulations and enforcement. Additionally, education is the best approach to ensure an effective preventive strategy which needs to be supported by a specific regulations on Ponzi schemes. This study provides recent evidence on Ponzi schemes and valuable insights for future development of preventive measures. Keywords: Ponzi scheme, pseudo-investment, fraud, prevention measures, regulation, enforcement"

Uncovering the Dark Side of Ponzi Schemes Through Money Game

“…As a result, members feel disappointed and berate each other for the loss of responsibility from the upline or founder of HIPO. The dark side of HIPO is clearly described regarding the absence of accountability, responsibility and transparency from the founders or uplines of HIPO (Beek, 2020;Kasim et al, 2020;Wang et al, 2021).…”

“…It is very clear that the end of the Ponzi scheme is to take the money of investors or members away this is the dark side of the Ponzi scheme (A. Rahman et al, 2021;Fei et al, 2020;Harizan, 2017;Hidajat, 2018;Hidajat et al, 2020;Kasim et al, 2020).…”

“…This method is quite effective and efficient, in forming a very large scheme, patterns like this are followed by the community and informants with the aim of getting rich quick but the methods used by investment organizers deviate from investment ethics (A. Rahman et al, 2021;Hidajat et al, 2020;Kasim et al, 2020). Recruitment carried out by uplines is applied by downlines because by recruiting the bonus promised by HIPO is quite large than the daily points earned by members.…”

“…After HIPO managed to get enough members, HIPO slowly changed policies to reduce the expenditure of profits promised by HIPO under the pretext of updating the application or system. This pattern is a sign or a way for the founder to run away from members and investors (Akinladejo et al, 2013;Bartoletti et al, 2018;Hidajat et al, 2020;Janet & Murwadji, 2020;Kasim et al, 2020;Stefanescu & Dumitriu, 2018;Zhu et al, 2017).…”

“…Another study was conducted by (Kasim et al, 2020) which states that the lack of education, regulation, and enforcement in Malaysia has caused public interest in joining the Ponzi scheme. (Fei et al, 2020) stated that the occurrence of economic instability in the country such as inflation and the high cost of living expenses of the people tended to be enthusiastic about investing.…”