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I. INTRODUCTION

Simply put, a ‘Ponzi scheme‘ is a scam
investment purposed at cheating investors. It involves persuading
the public to invest in fraudulent, seemingly lucrative, schemes.
With nearly no real income, these thrive on a consistent
progression of new money to survive. When it reaches a point of no
new investors, or the existing one’s cash out, the scheme
collapses. On the face of it, its irrationality is evident. Yet,
the threat it has posed in domestic society is undeniable.

Resorting to investment schemes that offer high returns is not
uncommon. Undoubtedly, extraordinarily high returns to the tune of
100-120% are red flags. But this continues to remain a deeply
ingrained socio-economic problem.1

Charles Ponzi in the early 1920s notably duped thousands of New
England residents by having them invest in a certain postage stamp
speculation scheme.2 Engaged in an unlawful arbitrage
business, he promised 100% returns in 90 days on profits from
international reply coupons (these enabled a sender to pre-purchase
postage and incorporate it in the correspondence). The plan fell
apart in a year and caused a loss north of 20 million dollars to
investors.

Such schemes are largely in the form of ‘Collective
Investment Schemes
‘. That is, it attracts new investors
and uses these investments to repay the existing…

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