Ponzi schemes & their regulations

Question 1

what is Ponzi Scheme?

Answer 1

A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.

The scheme leads victims to believe that profits are coming from product sales or other means, and they remain unaware that other investors are the source of funds.

Ex: Ebiz

Question 2

Banning of Unregulated Deposit Schemes Act, 2019

Answer 2

1. Substantive banning clause which bans Deposit Takers from promoting, operating, issuing advertisements or accepting deposits in any Unregulated Deposit Scheme.
2. Creation of three different types of offences, namely, running of Unregulated Deposit Schemes, fraudulent default in Regulated Deposit Schemes, and wrongful inducement in relation to Unregulated Deposit Schemes.

3.Severe punishment and heavy pecuniary fines to act as deterrent.
[HIGH FINE & PUNISHMENT]

4. Provisions for disgorgement or repayment of deposits in cases where such schemes nonetheless manage to raise deposits illegally.
5. Attachment of properties / assets by the Competent Authority, and subsequent realization of assets for repayment to depositors.
6. Creation of an online central database, for collection and sharing of information on deposit-taking activities in the country.