Listen to this articleTaking investors for a Ride with a false promise of lucrative returns is the main agenda of all investment scams.
It is the biggest nightmare in India. The problem is huge but the awareness is scratching the surface.
Though the Government is working to clamp down on dubious Ponzi schemes, we as investors should take cognizance of schemes/products before investing.
- Investment scam awareness in India is crucial for financial safety.
- Avoiding Ponzi schemes starts with understanding basic red flags.
This article will showcase one of the Investment scams, a mega fraud of ₹-6,000 crores which was detected in the state of Tamil Nadu.
We will also focus on the common mistakes by investors that lead to the LNS IFS Vellore scam & how to escape from this trap.
Table of Contents
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- LNS IFS Vellore scam – The Story Behind
- How did LNS International Financial Services, con people?
- Ponzi Scheme & The Idea Behind Investment Frauds In India
- Format of Investment Scams
- Aftermath Of The (LNS) IFS Scam Vellore
- Investment Frauds In India
- The Role of Regulatory Authorities in Combating Investment Scams
- Ponzi Scheme vs. Pyramid Scheme
- How to spot an investment scam / Ponzi scheme? – How do investors fall prey to this?
- High & consistent return
- Not revealing the basic info
- Rushing the investor
- How investors can escape from this trap?
- Verify the investment
- Read the Prospectus & other documents
- Understand the investment
- Role Of Financial Planners in Preventing Investment Scams
- Bottom Line
1.LNS IFS Vellore scam – The Story Behind
A Vellore-based LNS International Financial Services (IFS) has branches in more than 50 places in the northern districts of Tamil Nadu, Mumbai, Delhi, and Chennai.
The investments are collected through stock and insurance company agents.
It is said the company has collected thousands of crores of rupees from the public promising to give 8% profit per month on an investment of ₹- 1 lakh. And also, this 5-year-old company lends money at 2% interest to the people.
- LNS IFS Vellore scam – The Story Behind
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Tamil Nadu investment scam exposes the vulnerability of regional investors.
2.How did LNS International Financial Services, con people?
LNS International Financial Service in Vellore has more than one lakh investors and has collected nearly 6,000 crores as deposits.
Imagine how many people would have been assigned to bring a deposit of 6000 crores?
Police sources said that the company had appointed more than 10,000 agents to canvass investments
Fraudulent investment schemes in India often use a strong agent network.
But what made LNS IFS so attractive to the public? That made them invest ₹-6000 crores in a fraudulent company?
3.Ponzi Scheme & The Idea Behind Investment Frauds In India
LNS (IFS) was offering an interest of Rs. 8,000 per month for Rs1 lakh.
Yes, the people believed it!
And they also got the promised returns for some time, which created a sense of belief that helped them lure more and more customers.
Beware of high-return investments with no underlying asset or clarity.
“The secret of being a top-notch con man is being able to know what the mark wants, and how to make him think he’s getting it”.
-Ken Kesey
We cannot pass over this incident as just a group of people getting conned because they lusted for money! This is a sociological problem that needs to be addressed.
4.Format of Investment Scams
Everyone wants to become rich, it cannot be blamed as a reason for these scams!
But there is a character flaw that needs to be looked into. What is that? GREED!
And this is the tried and tested format for scammers, to bet on people’s greed.
Common investor mistakes include chasing quick profits without verification.
One piece of information that we get from the IFS scam Vellore proves this theory.
“The agents would convince the investors that Lakshminarayanan, one of the promoters was an expert in the stock market and would reap returns using his brilliance”.
5.Aftermath of The (LNS) IFS Scam Vellore
The Madras High Court intervened in the matter after one investor, P Karthik complained that he was cheated by the company.
Last year (2022) The economic offenses wing police booked cases under various sections of the Tamil Nadu Protection of Interests of Depositors (In Financial Establishments) Act, 1997; and Banning of Unregulated Deposits Scheme Act, 2019.
One more unfortunate event associated with the Vellore IFS scam is a tragic incident. An agent of the IFS company, Vinod Kumar (40) died by suicide after failing to repay the money that he had collected from several people to invest in the company.
In his suicide note, he mentioned that the depositors who trusted him should get their hard-earned money back at least after his death.
Impact of financial scams on families is irreversible and often tragic.
Click here to read how to safeguard yourself from fraudulent investment schemes
6.Investment Frauds In India
Investment scams promise a high rate of return with little or no risk.
The hallmark of a “successful” Ponzi scheme is that early investors will receive their pay-outs as promised.These schemes generate returns for earlier investors with money taken from later investors.
The agents focus all of their energy on attracting new clients to make investments, otherwise, their scheme will become illiquid.
They rely on a constant flow of new investments.
High-return, low-risk investments in India should raise immediate red flags.
It will eventually bottom out when the flood of new investors dries up.
Once the promoters run out of money, this is when the investment scheme is revealed as a scam.
7.The Role of Regulatory Authorities in Combating Investment Scams
In India, several regulatory authorities work tirelessly to protect investors from fraudulent investment schemes and scams.
Bodies like the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Ministry of Corporate Affairs constantly monitor suspicious activities to clamp down on illegal Ponzi schemes and other financial frauds.
These authorities issue warnings, conduct investigations, and take legal action against companies involved in scams.
However, despite these efforts, many scams still manage to lure investors due to lack of awareness and the promise of high returns with minimal risk.
Understanding the role of these regulatory bodies can empower investors to verify the legitimacy of investment products before committing their hard-earned money.
Staying updated with alerts from these agencies is one of the key ways to avoid falling victim to investment fraud.
8.Ponzi Scheme vs. Pyramid Scheme
Both frauds have a similar trait, investors getting fooled by the promise of extraordinary returns.
We have discussed the Ponzi scheme earlier. The Ponzi scheme is named after Charles Ponzi who conned people into his scheme by paying returns for earlier investors with money taken from later investors.
There is a slight difference in the pyramid scheme. The investors are recruited on the condition that they should bring someone new to the table. So there will always be money flowing because of new investors.
The structure is such that only a few at the top of the pyramid hold all the money and others would lose out unless they bring someone new.
Difference between Ponzi and pyramid schemes helps identify scam tactics.
9.How to spot an investment scam / Ponzi scheme? – How do investors fall prey to this?
10.How to prevent investment fraud? Identifying an investment scam is not rocket science.
Any individual who has common sense & some basic knowledge about investments can do so.
How to avoid investment scams in India? Be skeptical of easy money promises.
The following are the key elements of pyramid schemes and investment scams
High & consistent returnThese investments offer huge & immediate returns for little or no risk. They offer consistent cash flow regardless of market conditions. If somebody offers you something that sounds too good to be true, it probably is.
Everyone wants to be a successful investor. One might believe that high-return products can only make them successful investors. This makes them accept this offer.
Not revealing the basic info
The agent/broker will refuse to provide you the detailed information or how it works in writing.
He may say that “it is too complicated to understand” or “You need not worry about these aspects”, this is a warning sign.
Investors generally believe their neighbours & friends when it comes to investments.
They just are copycat & follow blindly without any knowledge about the workings of the scheme.
Rushing the investor
You may be offered an extra special benefit; this is a sure-fire way to close the deal on the same day.
The agents may repeatedly say that you should act quickly & invest or you will miss out.
Small discounts may persuade investors to act quickly. Acting on your feet will trap you & end up losing your money.
Did you come across any suspicious schemes like the Vellore IFS scam? Then click the below link to report the government immediately!
REPORT A SUSPICIOUS SCHEME
10.How investors can escape from this trap?
Verify the investment
Check whether the scheme is approved by any regulatory body.
If it is an Unauthorized scheme, then the answer is a “Definite No”.
Because unauthorized schemes do not have a proper grievance redressal.
Always verify SEBI or RBI approval before investing your money.
Read the Prospectus & other documents
Scrutiny the prospectus & other financial statements of the company that you are going to invest in. Get these documents from the sales agent or surf the net. If anything is fishy in the registration or legal formalities, one can avoid the scheme.
Understand the investment
Never invest in any product that you do not understand fully.
Educate yourself with the basics of financial instruments through online sources & webinars.
Do a proper analysis of the scheme & understand the working of the product.
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Role of Financial Planners in Preventing Investment Scams
Did any investor make an effort to find out whether LNS International Financial Services Vellore, is fake or real before investing?
Did anybody ask for the promoter’s credentials?
Consulting certified financial planners can prevent costly investment mistakes.
It would have saved them from the scam in the first place.
Suppose you have a problem with your heart, would you take the advice of a qualified doctor or your neighbour?
The same applies while handling money as well.
There are certified professional financial planners to find schemes and plans to invest that are reliable.
When are we, as a society, going to realize that short routes are always problematic in the long run?
11.Bottom Line
The only free cheese is only in the mouse trap.
You may receive calls/messages repeatedly to invest in their schemes. Do not close the investment deal over a phone call.
Never take investment advice from anyone other than professionals. Take time & do your research & analyze the scheme before investing.
Avoid unregulated schemes and focus on long-term financial planning.
There is a plethora of investment products & schemes in the market. Do not fall prey to the free cheese.
The onus is on you to make a proper investment decision. If you have any difficulty in choosing investment products, then seek professional advice.
A financial planner aids in becoming a successful investor by picking an appropriate investment product based on your profile.
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