Ponzi Scheme Case Study

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Case study on Ponzi scheme of a Non-Banking Finance Company COMPANY BACKGROUND Nidhi Aadhar was a NBFC based in Surat. It was incorporated four years ago in Jan 2012 and has now been a defunct company. Nidhi Aadhar was charged of initiating a Ponzi scheme that out busted all of a sudden and company was not in a position to return the money it had collected. The company was promoted by two brothers with a back ground of real estate business and had a strong backing of powerful political leader. Company initiated a deposit scheme to muster deposits from the public at large on the following attractive terms: 1) The rate of returns promised was more than those provided by any of the banks. 2) The rate of interest offered was 24 percent per annum.…show more content…
3) Thus a depositor who invested rupees `60000 was promised `120000 at the end of three years out of which depositors would receive `28800 in the form of dividend in 12 equal quarterly instalments and balance of `91200 would be paid after three years. Nidhi Aadhar maintained its current account in a reputed nationalized bank. It subscribed to cheque printing facility provided by the banker to print quarterly cheques to be issued to its depositors. Since these cheques were printed by its banker, it gave the impression that the deposits were backed by the bank. The company honored all quarterly cheques it issued from its current account. This created a sense of trust amongst the depositors and helped the company to expand its business. Nidhi Aadhar appointed popular cricketer and film star as their brand ambassador to endorse its business. In this way in a very short span of time mobilized huge deposits which was diversified into different fields like real estate, film production etc. Company was functioning smoothly during the first two years of operation. Afterwards, as the funds increased, the promoters of Nidhi Aadhar diverted the money and disappeared. What happened…show more content…
• The deposits collected by the company was invested in shell companies to make it appear that the company was into serious business • The promoter splurged money on personal use and invested heavily in real estate • Dividends were paid through rotation of capital i.e., deposits of subsequent customers were used to pay dividends promised to previous investors thus continuing the Ponzi scheme. Crores of rupees went into the pockets of the perpetrators who bought homes, hotels, recreational vehicles, and all other luxury items at the expense of the investors. The scheme lured more than 150000 investors across the state of Gujarat, MP and Maharashtra. Depositors had lost their life savings and many of these poor people ended their lives. RED FLAGS IN THIS CASE 1) The deposit scheme carrying returns of twenty four percent per annum repaid in the form of 12 equal instalments of four percent of amount initially invested as quarterly dividend and balance at maturity. 24% rate of return is too good to be real. 2) Organizing deposits through network
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