How to Identify Companies Which Dupe Investors?

Hope all is fine and you have no outstanding from the Shardha Group of Cheating Companies. If yes than, my heartfelt condolences. Although the West Bengal politicians want that the residents of the state to smoke more (strong contender for case study at London school of Economics) and pay for lapses but all said and done it will be a long process by which you can get a part of your investment back.

One bad decision, one bad advice, one bad selection and one bad result. These so called investment avenues called by legal names and working under the legal framework of Collective Investment Schemes” such as Chit Funds, Multi-level Marketing or Deposit Raising companies have eroded the common man’s wealth and then also people fall prey… again and again.

How to Identify Companies Which Dupe Investors

Read – Speak Asia Online – Ponzi Scheme

Why does a scheme defaults?

1)      It is made to cheat and siphon off money from general public. The promoters of the company have no business plan but they know that if they can mock a business plan they can get investors and then they can exit taking cash and other assets.

2)      The company started with a plan but could not settle and planning failed. Promoters do not want to accept failure or they have their credibility, brand or other business at stake so they do not consider winding up legally instead prolong the affairs by window dressing books, media play and false commitments.

The type 2 is easy to know as they are established companies going a down fall. The information regarding these companies is wide spread as they have been operating for good amount of time. Sometime these companies have sister concerns listed in stock exchanges and the financial data is known to general public. By studying these data and a bit a research from market experts can be helpful to know about the real motives of the promoters.

How to identify a Runaway Bride?

It is tough to identify the type 1 companies. Although difficult but there are few ways and parameters to identify a scheme which is going to default or run away. These ways are:

1)      Over the market returns:

These companies offer over the market returns. Returns act as stimulus to greed. You offer a rate which is 4-5 % of bank fixed deposit rate, people find it attractive. Even the retiring uncle will be tempt to put 20% of his retirement kitty in these companies, explaining himself that the company won’t run and even if it runs away I will be ruined by 20% of net worth only and that will be a god willing event. Just ask question to yourself that when Banks are flooded with liquidity, why doesn’t the company take a bank loan and pay interest which will be less in comparisons to what they paying to public. The reason is simple that bank has access to financial information and credit worthiness of the company and they are not willing to take a risk. But public has high appetite of risk. Isn’t it?

Read – Double your money scam

2)      Over the market middleman’s commission:

These companies offer very lucrative commission ranging from 2-6% as per target achievement. The agents also get freebies like holidays on resorts, vehicles like cycles to car, gadgets and achievement awards nights (read: free alcohol drenched parties often presided by Bollywood’s B grade actresses, handing over shining trophies). Also in rural areas normally an influential person like teacher or village headman is appointed as agent so that people get influenced by the person also.

3)      Business Plan:

These companies normally do not have a business plan or may have one or two unit operating on small scale to cover up for the existing business. An upcoming  hotel & resort chain, a media house, a precious commodity which only few can bring underneath the land, a thousand of acre of land near Mumbai, sudden demand of some green herb in US or Europe are some examples of the business objective that are displayed in general public. The idea will be that the line of business will have low awareness, so most people believe what is told since they lack questions and facts. Sometime play is made around cost also that company is making and X product in 50 percent less cost in comparison to competition hence benefit is passed to the stakeholders. As Warren Buffett said, do not invest what you don’t understand. Stick to this basic rule.

4)      Strong nonexistence guarantees:

When an investor question the risks involved the agent or the company lay false guarantees in form of cash reserve, gold reserves or the land bank in the name of the company. They make the size of your investment to peanuts and make you believe that company has lakhs of depositors investing crores of rupees and they are paying each one of them since so many years. Guarantees are often perceived guarantees when celebrities are brought (read: bought) in to inaugurate the company offices. Respected people or politicians are used as board members or called chief guest in functions. The brochure and wall of the company offices will full of such photographs specially clicked for these purposes.

5)      Dubious in where about:

When you ask about the company office the first response is that company has offices in every main city of the country. The address provide are either nonexistent or belong to group companies. The real promoters do not come in open very often and let key employees handle the affairs. There addresses and verifications are usually wrong and sometimes foreign addresses are provided so that it becomes difficult to trace. Even the assets which company says belong to them are not specified. The promoters also may have shoddy past and seem to be changing business very frequently. After Shraddha instance, my eyes too blinked when I came to know that promoter’s father also ran same kind of cheating business and to avoid connection he went for a plastic surgery!

6)      Modus operandi:

The business starts with full fanfare. No stone is left unturned- glossy brochures, website, employees all things are lined up. Initial investors and agents are rewarded in ceremonies. The big cheques of interests and commissions are paid in front of media to establish a brand. Big advertisements appear to appoint agents and franchisees. Company pays dues for few years through the Ponzi mechanism and they wait till the debt book swells to millions. Then all of sudden the cheques are dispatched late, then they are dishonored by the banks for insufficient payments. And before media and public make noise, the promoters get themselves under ground or leave India. Agents surround offices to shift blame of their foolishness and greed on company only. The investor as usual cribs on his luck (not on his irrationality and ignorance). Finally the lawmen arrives and a long legal battle starts to get the money back,  or at least a part of it.


Returns are dependent on Risk taken. But is the risk of this nature worth to be taken to earn a some more returns?

Share your views what you think of these duping companies and did you have any encounter with these companies. May be we can save few investors in future.


  1. Very good article Hemant!

    Went for plastic surgery…its outrageous and we thought this happens only in movies 🙂

    The golden rule to be kept mind…’If it is too good to be true, then its not true’…but who listens to it 🙁

    • Hi Shilpi,
      In today’s local newspapers there were lot of stories of Ponzi victims – someone sold his house to invest, another guy took loan & invested…….
      Nothing in this world is more seductive than the dose of money ;(

  2. Hi Hemant,

    Nice article… but this not only happens with Chit Funds, MLM or deposit schemes… but also with many small and mid cap listed companies… there are many well known companies which are almost 95% down within few years… don’t you think the promoters play a major role in cheating investors…

    It will be really helpful if you can come-up with a similar checklist to identify those companies with promoters having vested interests… we know its not an easy task…


    • Hi Chandra,
      I agree with you but how many investors do their due diligence before investing in direct stocks??

  3. Hi Hemant,

    Yes, such fraud events takes place every now and then. Here I would like to give an example of jewellery fraud case near our house where the jeweler came up with a scheme of doubling the gold jewellery in 2 years and he was able to convince those lower middle class people. He collected some Rs. 4 crore within just 2 months and ran away. Poor people kept on crying near that jewellery shop when they came to know about this incident. But it was too late. Sometimes I feel that financial education is more important than regular education that people commonly come up with in the environment. I just hope that this financial subject needs to be taught to the children right from their primary school days and have this subject in their syllabus so that they become more sharper as they grow.

    • Dear Manoj,
      A very good point to suggest, when people know the ground reality (right from childhood) no one can Lure them into such useless schemes…..
      Financial education is a must for every one, why can’t Govt or NGO’s work on this, because this is the most proeblematic area in India now a days.

      Hat’s off to Hemant for yet another wonderful and important article.

  4. Hi,

    Can a minor have 2 PPF accounts held individually by both the parents?
    Also what happens if the accounts are alrady opened in 2 separate Banks.

  5. Hi

    Really good article … and have been enjoying your articles since two three months .. I just wanted to ask – I handle one inhouse magazine of our small organization .. Can I use your some of the interesting article in that magazine in your name of in the name of TFL guide … or in my name with certain manipulations in article in context of our staff ?
    I really feel sending your messages in different forms to our staff, any way I will use it after your kind permission …
    and ya .. the magazine is not commercial .. it is just informative and little portion of knowledge ….

  6. Dear Mr.Hemant,
    Very nice article. If I had info on this PONZI scheme, and weighed , I would not have lost few lakhs of my money and my friends money, which we collectively invested in stocks through another friend. He did not promise high returns but said will get consistant small returns. All went down the drain. It was a good lesson. I am connecting it to PONZI scheme now.
    Thanks for the post,

  7. Hi Hemant,

    Nice consolidated information on Ponzi schemes. But people entering into the business are lured by the fellow promoters more than the blogs like this. That is becoming the sad truth.

    Most people involved in here don’t really understand that its a Ponzi scheme until the company is closed. They always believe in words from other investors (Are they?) from those schemes and wait for their turn for a long period.

    The sad truth is these schemes ruin many people’s wealth and make a small number of people (read promoters) really wealthy.


  8. It is not only the chit fund or sponzy schemes but the discount offer or so called SALE by well known brands and stores they sell only left out you can say rejected products. some one will raise the price and than offer discounts they say up to 40-70 % discount when you visit the shop will offer the product at 60-70% discount which you may not like to take free of cost. people should not go for branded product instead for example you should buy good fabric and get it stiched that will very cheaper yet of good quality and will have good fitting more over the tailor will get the work. even in real estate you must be careful.As far as possible buy the property which is ready to occupy. “Har Saakh pe Uloo baithe hain Chaman wale sambhal jao”

  9. Hi Hemant,

    my friend has invested in PANCARD india wherin they are assuring triple in 9 years which i felt a bogus company, it deals in chain of hotel and also gives high comm to agents.
    I was of view even with coupounding 10% the amt cant be tripled in 9 yrs, so how they are paying the agents and then return to investors

    it will be helpful if u suggest on the same, my friend has invested but let other ppl money be safe

    pls help me if i shld say my friend to withdraw the money

  10. Dear Mr Hemant,

    20 years ago when I had just started working and investing in IPOs, I received a private placement offer sent to my address by Soya Goodrich Ltd. I invested Rs5000 (about 3 months salary at that time) thinking I was doing the right thing by investing. They sent me back my share certificates. After that I did not hear from them at all for many years. No Annual reports, no dividend, no correspondence at all. Then around 10 years ago I wrote to them stating I wanted to withdraw as they were not listed in any stock exchange. They wrote back saying I should send the original share certificate to their Shimoga address. I did not feel confident of sending my only proof to them so I did not. I have tried to locate them on the internet also. If I get their website on any day, it will definitely go down the same day and not be accessible for a couple of days after. They do not reply to their emails. I have written to SEBI also but to no avail. I have written to some consumer forums also again no response. I wish to get my investment back with a nominal interest. Please can you help me.

    Thank you

  11. Hemant want to express our thanks and sincere appreciation for the efforts that you and your staff put forth in helping us in financial awareness I extend a heartfelt thank you to you


  12. Very well explained about fraud way of investments ruining and many of them are much tempted as their money gone. People always interested and not well thinking before depositing their hard earned money. High Interest rates alone not an factor previous number of years they run their company trust worthy is also matters. But nothing can be done, Government should take severe actions and politicians also included in this, but they calmed down.

  13. Honorable Sir ,

    2 month ago I suggested u 2 write a blog on shara scam x ray report ….

    But after this post u have covered nt only sahara scheme …….All scam covered in this post .hats off sir .I am addicted ur all post .
    This post is indicate …

    Dont fall into much profit. it indulge many risk ….profit are Just upto10% more than bank fd….but 90% ur principle are associate with default risk.
    A good proverb in hindi-
    Aadhi ko chod puri ko dhave puri naa mile or aadhi bhi jave ..
    The people belive in tab. for illness. they dont pay attention on thier health ….means they dont do yoga ,jogging,take nutrician..these things can prevent illness.

    Financial literacy r missing in the society who r not reading tflguide or et wealth.:-)

  14. This is a very good article Hemant. My parents themselves had a close shave with one such Ponzi scheme. Although they are very cautious investors, a Mango plantation company manged to get them into a scheme wherein the investors had to pay money to the company, using which the company would plant mangoes on a particular piece of land, and later on the profit made from the mango sales would be given to the investor. Initially the company even showed the investors land in outskirts of Mumbai which it claimed o have brought for this scheme. eventually after a year when the investors went to collect the mango sales proceeds, the company turned out to be a fake. My parents undertook lengthy legal battle, and after a couple of years through consumer court, we were able to recover a sizable amount of our investment. Its very important that every investment we plan to do is double and triple checked by us for genuineness and stability.

  15. Hi All,

    I knew all of you are very wise people and must aware about all the ponzi schemes…but still wanted to introduced you one mor eponzi scheme niw a days working at many CCD’s. they called this as QNet India where you need to purchase some products from their Site, and in return you get holidays of malesian hotel, and in addition you need to search some more BAKRA’s like you to continue this chain and get earn the commision and lots more bla, bla , bla

    First of all i would like to know a brand like CCD how they can support such ppl in their cafe, when they can see a group of persons gathering togethere and cheating innocent people. If you are staying in Mumbai then beware your friend and relatives not to visit Mulund R-Mall CCD or the another one near to mulund stations. You can find lot of fraudsters working from these 2 locations.

  16. The Only Culprit who takes us into all types of PONZI Schemes is “OUR OWN GREED”…Also when we see 12% PA, Fancy Names, Suit-Boot Babu Photos we tend to get into the illusion quickly. We are so so ‘DESPERATE’ to invest our hard-earned money, our parents/in-laws RETIREMENT KITY that we really become blind until we get a BOOT-KICK.

    “Lalach Sahi Mein Bhaut Buri Balaa Hai” (GREED is our own Enemy)

  17. Hi I have been a victim myself whereby I have lost more than 25 lacs by becoming an investor in one of the funds run by a very big group Piramal’s They promised me superficial returns at the end of 7 years but now it is 9 years plus over and we have been returned hardly 30-40 % of funds.
    Had I invested in stock Market or real estate by now my returns would have definitely doubled.this crook has cheated many investors and taken huge management fees. They have invested in investee companies assuring us that the growth was tremendous and they have ran away with our media and socially he is known to make money. Yes I agree by duping investors like us. I am retired and I put paint of my savings in it . No one to listen to us . He is worst than Malaya’s who is around showing himself as the best businessman. How can ethical groups like Tata’s also have him on board . Hope mr tata was going through the this. I have been told by my counterparts that They have a ttrack record of 4-5 funds where more than 2000-5000k investors are duped but no money has been paid not Gen full principal.when can we have justice in a place like India .

  18. Another modus operandi – When the debts mount, the companies come up with Right issue of shares. The Right issue will be for a face value and premium. They make tall claim that within a certain period of time, the company shares will be listed and those who participate in right issue will make huge money! Investor conferences made, target given to employees. The right issue has an option of renunciation and through this shares are sold to many new gullible investors. Huge amount is collected which is used mainly to pay off the debt accumulated due to indulgent lifestyle of promoters and bad business decision.

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