In today’s Finshots, we tell you about how a Chartered Accountant allegedly defrauded thousands of investors across the world.

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The Story

Sometime in the middle of March, 55 investors marched into a police station in Mumbai. They had a common complaint — a man named Amber Dalal had duped them out of crores of rupees.

Now 55 people all saying the same thing was a massive accusation. So the Economic Offences Wing (EOW) decided to take matters into its own hands. And pretty soon, the numbers shocked everyone — Dalal seemed to have taken at least 675 investors for a ride and pocketed a gargantuan sum of ₹400 crores!

It was crazy!

So, the EOW went after Dalal. And on 26th March, Dalal was picked up by the authorities in Uttarakhand.

But how did Dalal cheat all these investors, you ask?

It’s still early days, so we tried to piece together bits from various media reports. And the allegations are that it’s a classic pyramid scheme or a Ponzi scheme. And there are 5 steps to this charade.

Step 1: Promise an insanely high return that would get anyone drooling. In the case of Dalal, it seemed that he told investors that he would pay out 1.5% as interest every month. So if you invested ₹10 lakhs, you’d get ₹15,000 into your bank account without fail.

Step 2: Cook up a story of your prowess. Because if investors question how you’re doing this, you need to seem smart. For instance, when Charles Ponzi (after whom these pyramid schemes are named) devised his nefarious plan in the 1920s, he told everyone that he would make money through arbitrage by buying postal stamps from abroad and selling them at a profit in the US. In the same way, maybe Dalal told people that he would do some “commodity futures” trading. It had to seem smart and believable at the same time.

Step 3: Once you get the first investor to give you ₹10 lakhs, you can take their own money and start returning bits of it to them. Once they see that ₹15,000 hit their account the first few times, they’ll tell their friends about this fantastic investment opportunity. Make everything as genuine as possible with the promises listed out on an “official” stamp paper, humans can’t help but boast a bit and pat themselves on the back. So the key to a good Ponzi scheme is to make them feel like they’ve hit the jackpot, and they can’t wait to tell everyone — friends, relatives — how smart they are.

Step 4: Let word of mouth do its job for you. There’s nothing like a good reference to build trust. If a friend recommends their good experience, you’ll be more likely to be a little lax when doing your own due diligence. But, pick out folks who don’t have much financial awareness or ones who don’t have the time and patience to figure out how to invest their own money. You don’t want people asking questions. And as each new investor comes, the fresh money will be used to repay the old investors — both interest and an exit when they want it. No one will be the wiser.

Step 5: Don’t do anything stupid that’ll draw attention to yourself. Don’t lead a flashy life that’ll make the regulator train its eyes on you. Stay under the radar of journalists who’ll poke their noses into your affairs. And let Step 4 work its evil magic for you.

This, folks, seems to be how Dalal ran his Ponzi scheme too for around 14 years under the garb of “Ritz Consultancy Services Company”.

But not every investor is convinced that this is a scam yet. Here’s a bit from the Indian Express.

A Pune investor said Dalal did not use the Ponzi scheme to do so. “People didn’t invest in Ponzi schemes. They invested money with Dalal with full faith in his investment management ability. After all, for over 20 years he has been in the business. He dealt in arbitrage commodities offering a 22 per cent interest, which went down to 18% after the Ukraine war. Unlike Ponzi schemes which generally last a maximum of 4 to 5 years, Dalal was making regular payouts to investors for years until February 2024 when first-time payouts to some investors were delayed,” the investor said.

A maximum of 5 years?

Maybe the investors hadn’t heard of Bernie Madoff who ran a Ponzi scheme for over 40 years (Madoff says it was closer to 20)! All that Madoff did was talk a big game about an investment strategy, but, in reality, he was depositing investors’ funds in a Chase bank account and paying off old customers with funds from new customers. But that Ponzi scheme meant he kept generating consistent returns and pulled the wool over the eye of Hollywood personalities, Nobel Prize winners, and regular folks for years and years.

So yeah, Dalal being able to do it for 14 years is a very real possibility.

And what’s next for investors?

Well, the entire fiasco is still unravelling so we’ll have to wait and watch. The EOW is also asking SEBI how on earth was this missed for so long. Because for starters, Dalal already had a run in with the regulator earlier. A decade ago, the regulator had found that Dalal's coterie was involved in rigging the price of a stock called G-TECH Info-Training. So why didn’t the regulator keep on eye on Dalal's various exploits?

We don’t know. But for now, investors will be hoping that they’ll be able to get at least some part of their hard-earned money. Apparently, the authorities have already invoked the Maharashtra Protection of Interest of Depositors (MPID) Act. And that could mean that his properties will be taken over and auctioned to pay back the investors.

Until then…investors will be keeping their fingers crossed.

And don't forget share this story on WhatsApp, LinkedIn, and X. Maybe it'll help others avoid a Ponzi scheme in the future.

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