Lessons from a Ponzi scheme in Finland

In Finland, a company called Wincapita operated from 2003 to 2008 in Finland, defrauding more than 10,000 victims – about 0.2% of Finland’s population – of approximately 100 million euros.

Here is a post regarding the study conducted by someone on the scheme, seems like the first of its kind.

Some interesting findings and my views on the same are as under:

  • A specific feature of Wincapita is that investors could join only by invitation from a sponsor.
    • Many fall prey to such a scheme, as “exclusivity” is so tempting that the brain stops thinking.
    • We don’t want to lose out on such an “exclusive” scheme
    • The word “exclusive” along with invitation from someone you knew massages the ego and makes one feel special. Ego is the enemy
  • Rantala studied the relationship of personal characteristics between sponsors and invitees. He found that invitees invested more if their sponsors had higher income, were older or more educated.
    • Higher income, more education and old age are not equal to better financial decisions. I have come across many investors in India, too who think that such traits make one a better investor.
    • The Ponzi scheme operators rely on such behavioural traits of masses and employ employees that look educated, smart and are well-groomed and confident – traits many equate with financial savviness.
  • Rantala said. “When information comes from a friend, it overrides safety mechanisms.”
    • This can’t get more ridiculous
    • Trust is surely built on the integrity, but the other and equally important leg of the same is the ability or skills or competence. The best of the friends may be able to offer an honest opinion without any axe to grind, but will he or she be able to offer an informed opinion?
    • In any financial matter, remember while taking someone’s opinion – you need both integrity and competence.

The book’s chapter titled “The Pied Piper” starts with the following line:

“How easily the masses have been led astray” – wrote Charles Mackay in his 1841 classic, “Extraordinary Popular Delusions and the Madness of Crowds”

#RidingTheRollerCoaster – 223

 

 

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