What Happens to the Money in a Ponzi Scheme?

Cash Plus was formally discovered to be a ponzi scheme by the Receiver that was appointed by the court. My recollection is that the Receiver said that approximately 70 % of the funds received were used to pay investors’ principal and interest. As in typical ponzi schemes there was little to no income generating activity.

Let us look at a simplified example of why when ponzi schemes fail there is typically very little money discovered.

Let us call our ponzi scheme Lose Our Shirt & Socks, Inc (LOSS, Inc).

100 investors invest $1,000 each on January 1 in LOSS, Inc for a total investment of $100,000.

  • LOSS, Inc has little to no actual income generating activity from FX trading or other legitimate business activity.
  • LOSS, Inc pays an average return of 10 % per month. We will ignore compounding to keep it simple. Compounding makes the situation worse.

On December 31, after 1 year, only half (50) of the investors have collected their monthly interest. The Other half (50) of the investors now request redemption of their principal and interest.

  • LOSS, Inc has collected only $100,000.
  • Total interest due for the year is $120,000. 

The first half (50) collected interest monthly for a  total interest of $60,000 for the year. That means that only $40,000 i.e ($100,000-$60,000) available in the fund.

Funds available now $40,000

  • The second half (50) investors now want their principal back ($50,000) plus interest ($60,000) = $110,000 due, but the fund only has $40,000.
  • LOSS inc. in trouble!!! It only has $40,000 to pay $110,000 and that is only for 50 investors.
  • If the other 50 investors wanted back their principal the situation is worse. LOSS inc would only have $40,000 to pay $160,000 ($110,00 + 50,000).

The fund is deficit, in the red for a total of  $120,000

As you can see in this basic example and we ignored compounding, most and probably all of the money will have disappeared to pay back investors. It is gone.

Consider that in our simple example we did not factor in such expenses as legal fees, employee salaries, rent, office expenses etc. Neither did we factor in money taken by the principals and or family members to purchase such luxuries as private jets, expensive homes and cars etc.

One can clearly see that the only way the ponzi can continue is if there is a continuing influx of new investors providing new funds and or the Principals can somehow keep investors from requesting redemptions. With the occurrence of one or both of these situations, the ponzi will terminate.

Please think and check before investing. If it turns out that you invested in a ponzi scheme it is very likely that most if not all of your money will have vanished. While losses cannot always be avoided in investing, observing many basic investing principles will aid in reducing the possibilities of loss.

7 Responses

  1. As a FX trader my self I was very impress by what I was hearing about DS and the rest of the fund managers out of jamaica until I look deeper And I became very alarm about what I saw.

    1 DS who was managing upward to over 100ml USD was using retail platforms like Oanda not an ECN ,2 no transparency in trading activities. 3)I have gotten to know some of those fund managers and I could not help but laugh at their boiler room operation.

    Most of these guy took an MTI course never traded live before but yet was handling accounts upward to the 100k’s. The question I have for all you who invested in these funds,did you do your due dilligences on your fund manager did he produce for you his pass trading records so you can see his performance. Did you and him came to an agreement to decide to up to what point he will stop trading your funds when the negative draw downs begains to appear.

    Just food for thought all Hedge fund always end up imploding,But most investors know that risk that is why it is a big boy game.If you have not been able to access your fund for over 7months 9out of 10 its a wrap D S jig is up. The Sadest part is I know people who are personally affected by this. I am not a hater but I must say when I heard DS interview that was it for me, I could not believe this is a man who was trading such a large fund coming up with such a lame excuses for not being able to meet his obligations to his investors.

  2. Is it that Blogs only feeds filth, and there is no room for the truth.

    Why start a thread IF there is no space for one to seek to find the truth.. OR to argue both sides with credibility?
    If Blogs only embraces VOMIT… Well remove all the responses then and DON’T Push the corruption trigger your self!

  3. Peace Bestill,
    I have no sympathy for you or your fellow “club members” you were warned and cautioned about these schemes. Now go pickup the pieces and stop getting upset with person who have done you no wrong. Get upset with yourself and/or Olint

  4. I know of no person experienced in trading who didn’t spot DS for a fraud from day one. All these “fx traders” have sprouted since he came along and “discovered” fx trading for Jamaicans.

    Confronted with trading screens and online trading algorithms all shiny and bright they bought what was being sold and paid a huge price. How could they know that they were buying trinkets and baubles? How could they know that they were catching the white man’s deseases which would wipe them out in two twos?

    It’s Christopher Columbus all over again except this time Columbus was one of us.

  5. .786 trader and Bob you guys are correct.
    The ” traders” that thought DS was real was the newly minted flock from MTI. Any trader with some experience could spot David Smith as a con man from mars without a telescope.
    Now these newly educated ones are waiting for assets to be unfrozen so Dave can pay them. These folks have just been wrong wrong wrong and will continue to be wrong.

  6. Let the spirits of poverty be broken in our Jamaica!

    DS, Your tongue may appear to be tied
    Your feet may appear to feel bound
    Your eyes may feel like they have become dim
    Your heart beating like its battered and bruised
    Let, you be Strong with pure heart
    If you find your self in hell! God shall be there!
    If you flee to the mountain top!
    God will be there to comfort and take you through!
    Keep alive the spirit of knowledge
    Wisdom and understanding within you
    Let the spirits of poverty be broken in our Jamaica!

    DS, get up, come on, and gather up your strength
    Let mouth be open and say!
    SSHHEE! SSHHEE! You Vultures of evil and whoredom!
    SSSSHE! SSHHEE! You Spirits of Poverty
    SSSHEE! SSHHEE! You life takers and extortionists
    SSSHHE! Money hoarders I fly ALL traps now!
    SSHHEE! Yes You, You with compasses to entrap and abort the mission
    SSSHHEE! You, SSHHEE! You, Decoying Spirits!
    But I tell you
    Let the spirits of poverty be broken in our land!

    Let ALL mouth be open and say
    SSSHHHE! Spirit of whoredom and adulterers’
    SSSSHHE! You, you, Rapers’ Satan you devils
    SSSHHE! For I must compete
    Missions and fulfil DREAMS
    God’s purpose for the poor of the land
    To break the backs of poverty and let God’s people go!

    Let Dreams and Missions position Jamaica as
    The PLACE on earth
    Without blood shed
    Let Jamaica be the Place
    Yes, let Jamaica be the Place
    Without every kind of oppression and extortion and life takers
    Let Jamaica the PLACE on earth
    Where the poor will be rich
    The sick become healed
    The homeless buy themselves homes
    The orphans and widows are loved and cherished
    The Jamaica
    The place, without
    Closet slavery and whoredom
    DS, Jamaica let the love of God surrounds you.
    The race is before you, the battles in God’s hands”
    Let the spirits of poverty be broken in our land
    Come on Dreamers D-r-e-a-m!, again
    Missionaries come on get on the battlefield
    We must restore our people
    God let the Glory be for you forever and Ever!

    Copy right: JEE

  7. Scoobie,

    I am not here seeking pity; But probalby you can help us find out the truth. THat is whether or not, DS did REALY and truly wire the US$200,000,000.00 and our Jamaica, faultlessand blameless, banks block it; or freeze it and then set up the overseas investigation , and then turn around and went to COURT to close the OL, DS account.

    While you are parting the vomit try find out IF the authority contiminate the Ol records and set up the email morass.
    No room for Pity party around here. People just want the truth and nothing but the truth so we can ALL blog base on the truth. Nuff Luv.

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