When I first came to Bangalore, about 10 years ago, a couple of batch mates from my engineering college met me. They were among the brightest in college. They studied well and secured a job at Infosys. Besides the money earned from their salary, they also seemed to have found a way to make a lot of money real quick.
Since I was new in town, they were willing to cut me in on this novel investment scheme. I could buy a money tap. It was simple, I had to buy a gold plated watch for an obscene amount of money. The money would also be counted as an investment. I’d get a username and password using which I had to sell the same thing to two more people who would then sell to two more people each. The commission was to easily return my investment and then some.
Since I was poor and broke, I refused. Few years later, I learned that the tap had dried up. My friends had lost their money and a lot of credibility. The promoters of the company, who used to come to local area meetings in glitzy cars and tailored suits, were not to be found. This was my first brush with a pyramid scheme. After I found work as a journalist, I’ve kept a tab on such incidents, mostly out of curiosity.
It’s surprising how often, and how much, reasonably educated people get conned into such scams. Yesterday, the police revealed one such scam. A Noida based company has duped over 6 lakh people of Rs 3700 crore over a the last couple of years. It’s being largely dubbed as an internet scam or cash for clicks scam. But is it really?
Let’s take a look.
Modus operandi of Noida ‘Like’ scam: Noida based Anubhav Mittal ran a Ponzi scheme. The idea, like all Ponzi schemes, relies on a concept that is easy to believe. In this case, Mittal’s company Social Trade, promised people that they’d be paid for hitting likes on social media.
Why is it believable: Most people know that these days companies pay to artificially boost their social media profiles. So there are also these companies that provide such services. They operate like farms, where people are paid to hit likes. Social Trade posed to be one such company. This is all too easy to do and a nice way for someone to make a quick buck. But first, you have to invest, to get in on the game. This is how Social Trade duped people. They’d get people to invest anywhere between Rs 5750 to Rs 57,500 for a user ID and password using which they’d have to click links. Your earnings would go up if they brought in more subscribers. This is how they built the Ponzi scheme.
The arrest of Anubhav Mittal: Mittal and his aides, Shridhar Prasad (40) and Mahesh Dayal (25) were arrested by the police on Thursday. They operated from a 4-storey building in Noida’s sector 63, under a company called Ablaze Info Solutions Private Limited. According to official filings, the company was registered in September 2010. The company has another director called Ayushi Agarwal.
How much money was involved: In all, the police say that Social Trade scammed people of nearly Rs 3700 crores. They had also stashed away Rs 520 crore in various accounts. The company used to pay Rs 7 lakh as rent and Mittal and his aides took home a handsome salary. The TOI has a report if you want to read more.
The Noida SocialTrade scam, doesn’t look like an ‘internet’ scam or ‘cash for clicks’ scam to me. It is clearly plain old fashioned Ponzi scheme. If you want to be more specific, call it a pyramid scheme. For those who don’t know, Ponzi scheme was named after Charles Ponzi, one of the early perpetrators of such a scam. The broad idea is to sell something way above its underlying price to people and get those people to sell more in return for a cut of the sale. They all promise easy and above average returns. If there’s one thing you learn early on business journalism, it is that above average returns are almost always fraught with risks. Most of these scams are easy to identify. But somehow, they always find a way back.
Update (Feb 4, 2017. 11.25 AM IST) : This story has been edited for typos.