Comparative Legal Treatment of Ponzi Schemes

Abstract

Ponzi schemes are a problem all around the world. Singapore courts have identified the following common characteristics: (1) there is no genuine underlying investment; (2) early investors receive the moneys paid by later investors, which the scheme describes as profits; (3) to maintain the viability of the scheme, there must be a constant replenishment of moneys from later investors; and (4) the scheme eventually collapses when the moneys from later investors are insufficient to pay earlier investors. The difficulty for recovery is created by the boundaries of insolvency law even if fraudulent conveyance rules can strictly exist outside the insolvency regime. This article will contrast the slightly different positions in various Commonwealth jurisdictions and the United States and suggest some changes if it is believed that the current levels of recovery from the early investors are inequitable from the perspective of the later investors.

Keywords: Company, Insolvency law, Ponzi schemes, Fraudulent transactions, Preferences, Singapore