When Money Runs Dry, Frauds Come to the Surface

One of the sad truths of economic crises is that people first learn how they have been cheated out of their money when the economy collapses.

Why is this true in crises?

In good times, schemes can flourish because there is a lot of money floating around. The typical scheme is a pyramid arrangement. A businessperson convinces investors  that he can earn them great profits by investing. In fact, he does not earn great profits. What he does is take money from one investor and give it to another. That is why we call it a pyramid scheme.

But such schemes collapse when people withdraw their money, and when there are fewer people willing to take part in such operations.

What keeps these operations going year after is the hope of earning more money, the failure of regulators to catch the swindlers, and good times that keep the schemes afloat.

Suggestions for reporting

In the current global crisis, several of these pyramid schemes have surfaced around the group of investors who thought they were earning exceptional profits. The challenge for a reporter is keeping in touch the regulatory agency that might catch such schemes.  In most markets, companies’ profits do not go up at perfect angles or regular percentages. But swindlers mistakenly keep improving their results in the same manner.

Some questions you might ask:

Are there persons with a history of such frauds now selling stocks?

Have a great number of people lost large amounts of money from the same business person?

What were the promises that the alleged swindler made to the investors?

What were the relationships between the business and government regulators?

Is there a record of investigations that raised questions but took no action?

Are there any persons who were found guilty of frauds who now will talk about these operations?

What records do government agencies keep on such frauds? What are the international agencies that track such companies? Are there any agency officials who have retired or joined other organizations and how can you reach them? Before you do, make sure you know who they are working for now.

Are there news stories about investors that promise very high profits?

Did you draw a diagram to show who is linked to who and another diagram to show the flow of funds from investors and another to show the timeline of events?