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Taking 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.

This article will showcase one of the Investment scams, a mega fraud of ₹.6,000 crore 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

1. 1. LNS IFS Vellore scam – The Story Behind
      
   2. How did LNS International Financial Services, con people?
      
   3. Ponzi Scheme & The Idea Behind Investment Frauds In India
      
   4. Format of Investment Scams
      
   5. Aftermath Of The (LNS) IFS Scam Vellore
      
   6. Investment Frauds In India
      
   7. Ponzi Scheme vs. Pyramid Scheme
      
   8. 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
   9. 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
   10. Bottom Line

   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.

   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 

   But what made LNS IFS so attractive to the public? That made them invest ₹ 6000 crores in a fraudulent company? 

   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.

    “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.

   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.

   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”.

   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.

   Click the below link to read in detail about how to safeguard yourself from fraudulent investment schemes

   How to protect yourself from misleading or fraudulent Investment Schemes?

   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 payouts 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. 

   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.

   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.

2. How to spot an investment scam / Ponzi scheme? – How do investors fall prey to this?

   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. The following are the key elements of pyramid schemes and investment scams
   
   High & consistent return

   These 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 neighbors & 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 surefire 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

   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. 

   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.

3. What is the Biggest Risk in Investing?

1. 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? 

2. 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 neighbor? 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?
   

   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. 

   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.