PIPS - A Modern Day Ponzi
In the last few days, it has come to my knowledge the existance of a new investment scheme which would blush anyone. Any Banker, any investor, any trader.
This investment scheme is named PIPS, and it’s based in Malaysia. It now has members all around the world, with estimates running around 150 000 of them (according to the “Pipsters” in their own message boards).
The URL for the PIPS manager is www.pipsinc.com, and for the PIPS forum it’s http://forum.pipsinc.com/phpBB2/index.php.
Why is this Investment Scheme so impressive? Well, it’s simple, it’s because the promised returns are around 2% PER DAY, compounded monthly in the reinvested share (in reality, 1.9% daily after commissions). Such that the minimum investment of 472.5 USD would, if all reinvested daily, produce an account size of 19950 USD at the end of one year, or 42X the initial outlay.
Thus, at the begining of the 2nd year, the investor would have 19950 USD, over which he could start earning interest at 2% a day (1.9% net), and if he opted not to reinvest anything (so that he could withdraw) e would be able to withdraw 36118 USD that year, while still keeping na investment balance of 2075 USD. As such, after 2 years the investor would theoretically have spent 472.5 USD and withdrawn 36118 USD (to simplify), or 75.4X (times) the invested capital. In 2 years this is a annual compounded rate of around 775%.
It should be noted that in all the PIPS site and their message boards, people are always warned that there are risks, etc, etc, but meanwhile both the simulator and their site give these returns not as possible, but as mathematically accurate.
According to their authors and defenders, how is that possible? Well, supposedly, the money invested by the members is pooled together with the company’s own money (in a 60:40 company:member ratio) and used in trading mostly everything, also making use of a 12:1 leverage. Thus, to satisfy the 2% daily return for the members, it would really only be necessary toproduce 0.8% if taking into account the return from the company’s money, or just 0.075% taking into account that and the 12:1 leverage. This quickly brings an interesting question … the company is placing its own capital PLUS a 12:1 leverage at the members’ service, or put another way, less than 5% of the total capital is represented by the members capital, yet these supposedly have to be remunerated at 775% per year. Makes no sense.
Besides this leveraged trading, the returns are also supposed to be coming from 11 “real” enterprises, which would produce profits for the system (once again, the question beckons, since the members have no capital in those, why would they be sharing in the profits?)
So, Pureinvestor.com is assuming the payment of a yearly return of 775% to its PIPS members for their loans
There’s no economic rationality here. If a company has managed to build such a profitable scheme which enables it to make this kind of returns to its members, then this company would surely have access to cheaper capitalby way of bank loans or less greedy private investors. As such, they could easily finance their profitable activity at 10-15% a year instead of 2% a day.
For someone in Africa, or the USA, or Portugal, to think that the opportunity to pay them 2% a day would go around the world looking for them is clearly beyond reasonable. Probably, the same person would be the first to say that the big fish never let them participate in “no risk” 20% a year deals cause the big fish take those all for themselves, yet is here believing an opportunity to make 2% a day went around the world and nobody grabbed it. That’s not the way the economy works.
The return offered to the members, theoretically makes Pureinvestor.com the most sucessful investor of all times
That is, if they can promise 775% a year to anyone at all in a regular basis, then that is brutally more than the 30-35% a year managed by any of the biggest all time investors like Warren Buffett, George Soros, etc.
The margin by which Pureinvestor.com promises to beat these masters is large enough that, by itself, it can be considered a fraud. EVEN if Pureinvestor.com really could attain those kinds of returns in a year, it would never be able to promise them in a regular basis and have any kind of certainty that they could reach them.
The argument that the real returns are much lower is falacious, cause that’s the same as saying that all the Company’s capital as well as the leverage is used solely to be able to pay the return of the members, which makes no sense.
Being Pureinvestor.com the most successful investor ever...
One should find it strange that only when they decided to pay third parties (the members) these returns, were they able to achieve them. If they had used this capability for themselves during only a few years and with little capital, they’d have already built an impressive track record. For instance, if we think Pureinvestor.com could get 800% per year during 5 years with a starting capital of just 100000 USD, they would have amassed 3276 MILLIONS of dollars after just those 5 years, which would make irrelevant having or not having members’ money to invest, and wouldn’t make any sense to be paying them 775% per year when you already had such a huge capital basis (and neither would the ratio company:members would then be 60:40, either).
Thus, the only way of removing this doubt, is to think that Pureinvestor.com was only able to start “producing” these returns AFTER they started the programs where they supposedly give those returns to the members. Which, of course, also points towards a fraud.
By coincidence, the most successful investor of all times appears without a track record and in Malaysia
As we have seen, the promised returns place Pureinvestor.com as being the most successful investor in the world since they promise 775% per year to those that loan them money. By coincidence, these returns also were only made possible after Pureinvestor.com started asking for money.
Now, if a company from Malaysia, without a track record, was to promise that they’d remunerate your money at 20X above what Warren Buffett managed during his life, in a stable reliable manner (2% per day), what would you think of that company?
But they’re based on solid business, “brick and mortar”, and in speculative investments in a lot of markets. And not in the continuous entry of new investors, they don’t even ask us to get new investors.
I’ll ignore the fact that there’s a small and irrelevant reward for getting new investors (10 USD per month per each). Would it be that NOT getting new investors in a MLM (Multi Level Marketing) scheme is proof that this is not a Ponzi Scheme? The answer is NO. Not even Ponzi himself was based in a MLM scheme. Ponzi was supposed to make his money arbitraging stamps in different currencies. But of course, since he promised 50% a month, the only way he had to meet that promise was paying interest to some investors from the capital of the others.
Thus, Ponzi was also supposedly based in a real business to remunerate his investors, but the truth was different. Here, and with the promised returns, the only rational explanation is that the same is happening. And why is that the only possible explanations? Cause never in History did someone manage those returns in a consistent manner, much less a promised manner, and it would be an incredible coincidence that the first guy to do it would at the same time be an economic donkey that would finance himself at 775% per year instead of 10%.
But Bryan wants to spread the wealth, that’s why he pays the 775%.
Well, theoretically part of the returns from this scheme go to charity. But think a little, why would anyone rational be altruistic with part of those returns, and demand that for the most of the other people getting benefited they’d have to make themselves members and put up 472.5 USD each? Taking into account the capability of generating income in such a exponential rate, it makes no sense to ask for capital and then return it at such fantastic clip. If the complex explanation makes no sense, then the simple one does: that Capital is needed to keep the pyramid going, because the promised rates of return DO NOT exist.
But there’s no one complaining. Everyone has been paid.
No there isn’t. But in these kinds of schemes noone is ever complaining. All those that participate believe, and all the older members DO make money. And the scheme always pays in full and on time, until it blows up. And when it blows up, all those that have balances in the scheme then have zero, and those that didn’t withdraw money in excess of what they contributed, will lose. And there’s many more losing than winning, cause there’s a necessary exponential growth in members to sustain the pyramid (since the gains of the older members also grow exponentially).
Thus, paying in full and on time proves nothing.
And what leads will there be before it blows up?
It might happen that there won't be any leads. It can simply blow up from one day to the other, as soon as who is managing it notices that the daily intake of new cash is lagging the withdrawals.
If any leads do show up, they’ll fall into 2 categories:
1) Greater easy of depositing money, such as smaller and more accessible plans;
2) Greater difficulties in withdrawing, such as delays in withdrawing; new plans that freeze money for longer (5YTP), etc.
This said, is there ANY way that PIPS isn’t a Ponzi?
NO. PIPS is SURELY a Ponzi Scheme. The only way to believe it isn’t, is to believe that the greatest investor of all time, able to remunerate capital at 775% a year in a stable and consistent manner, has just emerged in Malaysia, and while having that incredible ability he has never used it for himself, and has no economic rationality as to financing himself at 10% a year instead of 775%, and yet he used leverage – thus financing – of 12:1 in his trades just to be able to satisfy the returns of third parties (members).
The probability that all of this is true is close to zero.
Conclusion and Prediction
PIPS is a Ponzi scheme and it will blow up in less than a year, possibly much less. Bryan will either disappear or face justice. Many members in other countries will have problems with justice for having promoted this activity through their own websites.
Author
Incognitus, 9/11/2004
Comments
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