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Discussion on Pyramid/Ponzi Scheme(s) ROYAL MONETARY AUTHORITY OF BHUTAN R ESEARCH AND S TATISTICS D IVISION (F INANCIAL LITERACY PROGRAM ) M ARCH 15,

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Presentation on theme: "Discussion on Pyramid/Ponzi Scheme(s) ROYAL MONETARY AUTHORITY OF BHUTAN R ESEARCH AND S TATISTICS D IVISION (F INANCIAL LITERACY PROGRAM ) M ARCH 15,"— Presentation transcript:

1 Discussion on Pyramid/Ponzi Scheme(s) ROYAL MONETARY AUTHORITY OF BHUTAN R ESEARCH AND S TATISTICS D IVISION (F INANCIAL LITERACY PROGRAM ) M ARCH 15, GOPAL GIRI Research Officer

2 Outline Background Pyramid/Ponzi Schemes in Bhutan Implications Correctives Measures General tips 2

3 Background Pyramid scheme (also generally referred as Ponzi scheme)- named after Charles Ponzi (1882) Difference between Ponzi-Pyramid?? 3

4 Background How Pyramid/Ponzi works? Eight balls modal OR Airplane game The "eight-ball" model contains a total of 15 members. Note that unlike in the picture, the triangular setup in the cue game of eight-ball corresponds to an arithmetic progression = 15. The pyramid scheme in the picture in contrast is a geometric progression = 15. No matter how large the model becomes before collapse, approximately 88% of all people will lose. 4

5 Background Types of pyramid schemes 1. Sales or product-based schemes (Eg. Amway) 2. Financial-non-product schemes, variously known as cash only scams or “naked” pyramid schemes. (Eg. Skyquest Com, Internet scams) Many variations of the basic pyramid scheme and often try to pass themselves off as legitimate “multilevel marketing” (MLM) or "direct selling". 5

6 Forms of Pyramid/Ponzi Schemes List of Pyramid/Ponzi scheme banned in Bhutan * Basil International Limited* LIC * Skyquest Com* RCM * Goldquest* Royal networks * Dhealth* EVM * Sahara* Tainse * Rose Valley* Caniby * Suraksha* Biodisc * Astha* Vanson * Royal Vision Care * K-Link * Amway 6

7 Spread of Pyramid/Ponzi 7 Pyramid/Ponzi are illegal in the following countries: AlbaniaIceland Nepal Philippines Australia ItalyMalaysiaPoland BrazilGermanyCanada Colombia BulgariaHungaryPortugalThailand China Japan South AfricaUK FranceMexicoSri LankaUSA IranNetherlands New ZealandRomania Norway Switzerland BHUTAN

8 Targets of Pyramid/Ponzi Schemes Mostly in developing countries, where - People are unfamiliar of market economy - FIs are undeveloped and inefficient - Limited or no regulatory capability 8

9 Implications Affects banking system- operations and banks safety and soundness Currency drain and loss of savings Cases of violence, bankruptcy, divorces, loss of credit, ruin of relationships and even suicides 9

10 Promoters of Pyramids/Ponzis and their Strategies Great promises and fascinating success stories Brainwash on easiest way to make money and fortune- ‘Get-Rich-Quick’ schemes. The schemes works because “there are gullible people who want to make a fast buck without sweating for it.” Camouflaged in the language of religion, personal freedom, or fun and games- Only Winners TALK and Losers DO NOT 10

11 Corrective Measures Public education and awareness campaign - both Government and Media can play a vital role Call on Law enforcement agencies and Justice Department The RMA’s concern- A number of notifications has been issued in the recent past to general public and FIs. 11

12 General tips to public/businessmen Step 1 Beware of any scheme that requires you to invest money in a franchise that gives you commissions for recruiting other distributors. Any "job" that depends on your making money based on how many people you sign up is most likely a pyramid scheme and should be avoided. Step 2 Avoid any plan that requires you to spend money on high-priced products offered by the company which hires you. Make sure that keeping inventory of these products, beyond necessary items such as order forms or catalogs, is not a requirement. Step 3 Find out if the plan involves a training program. Legitimate companies offer training materials and classes. If the plan involves simply being handed a "kit" and having you start on your own, it most likely falls under a pyramid scheme. Step 4 Take your time when making a decision about getting involved in a plan. Do not be pressured into making an instant decision. Research the company involved before signing a contract, if one is offered. Step 5 Consult with the local authorities about the company offering this plan before engaging into such activities. If it sounds too good to be true, it usually is. 12

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17 Home To Take B EWARE! Public/businessmen/investors R EMEMBER all Pyramid/Ponzi schemes are considered illegal in Bhutan- subject to PERSECUTION for fraud under the Law of the Kingdom of Bhutan 17

18 Further Queries: OR dial it to: (218) 18


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