Ponnzi Schemes
Sahara and Ponzi schemes: What are the parallels?
Dr KM Abraham, a former Whole-Time member of the Securities Exchange Board of India (Sebi) – the man whose original order led ultimately to a Supreme Court verdict forcing the Sahara Group to wind up two bond schemes and repay investors over Rs 24,000 crore – made a brief allusion to Ponzi schemes in his order.
While ordering two Sahara group companies, Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC) to return the money raised from investors in optionally fully convertible schemes (OFCDs), rejected the idea that just because there were no investor complaints, it does not mean there was no problem with the schemes.
In his order dated 23 June 2011, Abraham had said: “The Learned Counsel (i.e. Sahara’s counsel), at one point in the submissions before me, mentioned the fact that there are no investor complaints at all from any investor in the OFCDs ….raised by the two companies. Going by the history of scams in financial markets across the globe, the number of investor complaints has never been a good measure or indicator of the risk to which the investors are exposed. Most major ‘Ponzi’ schemes in the financial markets, which have finally blown up in the face of millions of unsuspecting investors, have historically never been accompanied by a gradual build up of investor complaints.”
A Ponzi scheme is essentially a fraudulent investment scheme where money brought in by the newer investors is used to pay off the older investors. This creates an impression of a successful investment scheme. Of course, as long as money entering the scheme is greater than the money leaving it, all is well. The moment the situation is reversed, the scheme collapses
So does that mean that Sahara is a Ponzi scheme where money is simply being rotated? While there is not enough information available in the public domain to come to this conclusion, nevertheless several interesting points can be
Dr KM Abraham, a former Whole-Time member of the Securities Exchange Board of India (Sebi) – the man whose original order led ultimately to a Supreme Court verdict forcing the Sahara Group to wind up two bond schemes and repay investors over Rs 24,000 crore – made a brief allusion to Ponzi schemes in his order.
While ordering two Sahara group companies, Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC) to return the money raised from investors in optionally fully convertible schemes (OFCDs), rejected the idea that just because there were no investor complaints, it does not mean there was no problem with the schemes.
In his order dated 23 June 2011, Abraham had said: “The Learned Counsel (i.e. Sahara’s counsel), at one point in the submissions before me, mentioned the fact that there are no investor complaints at all from any investor in the OFCDs ….raised by the two companies. Going by the history of scams in financial markets across the globe, the number of investor complaints has never been a good measure or indicator of the risk to which the investors are exposed. Most major ‘Ponzi’ schemes in the financial markets, which have finally blown up in the face of millions of unsuspecting investors, have historically never been accompanied by a gradual build up of investor complaints.”
A Ponzi scheme is essentially a fraudulent investment scheme where money brought in by the newer investors is used to pay off the older investors. This creates an impression of a successful investment scheme. Of course, as long as money entering the scheme is greater than the money leaving it, all is well. The moment the situation is reversed, the scheme collapses
So does that mean that Sahara is a Ponzi scheme where money is simply being rotated? While there is not enough information available in the public domain to come to this conclusion, nevertheless several interesting points can be