On 1 July 2020, the BVI Financial Services Commission issued Advisory Warning No. 1 of 2020 (the Warning) to warn the public about pyramid schemes and other related investment scams.
The Warning noted that while there may be some legitimate uses of pyramid-like structures to sell products or other services, a pyramid structure can easily become a pyramid scheme that is used for illicit purposes and will result in financial loss.
A pyramid (or Ponzi) scheme is a fraudulent money-making scheme based on an unsustainable business model that involves the exchange of money primarily for enrolling potential investors into the scheme without a legitimate product and/or service to be delivered. In the current regulatory environment it is important that the public remain vigilant to these schemes and to conduct thorough due diligence before entering into any proposed arrangements.
Although the Warning seems to focus on smaller schemes designed to attract custom from local Caribbean markets, it should be recalled that the BVI FSC and the BVI legal system more broadly has been at the cutting edge of legal developments on some of the world’s largest Ponzi schemes. The most recent example of this was in the form of the 2014 Privy Council decision in relation to the “Fairfield Sentry” litigation. Fairfield Sentry was the largest feeder fund into the multi-billion dollar Ponzi scheme perpetrated by Bernard L. Madoff Investment Securities LLC in 2008.
Ponzi schemes come in all shapes and sizes.
A copy of the Warning can be found here.
For more on the Fairfield Sentry/Madoff litigation see our Offshore Litigation blog.