Con artists of all eras: The Ponzi scheme never dies

The voice my relative still echoes in my ears as he recounted how my dad fell victim to the notorious pyramid schemes led by figures like El-Rayyan and El-Sherif, who swindled him out of his savings with glittering promises.

The El-Rayyan brothers and Ashraf El-Sherif built Egypt's most devastating financial deception that bankrupted thousands with impossible promises of 25% monthly returns in a time when risk-free yields hovered around 9%. Wrapping their fraud in the cloak of halal investments, they amassed fortunes before their house of cards collapsed in 1989, leaving a trail of financial ruin.

Despite all the evidence laid out by my relative, an economist, my father remained unconvinced that it was a scam. He clung to a conspiracy theory that claimed these companies were targeted solely for their Islamic identity.

He even attributed the crackdown on these businessmen to their long beards and religious looks, not to their illegitimate practices.

The classic Ponzi con

My generation first encountered the concept of a Ponzi scheme through Egypt’s infamous 1980s investment companies that drained people’s life savings.

Naively, I believed we wouldn’t fall for the same trick twice—until the phenomenon of con artists resurfaced across Egypt in recent years.

These schemes hinge on two core elements: trust in the fraudster and the victims’ desire for outsized profits far exceeding bank interest rates. That trust is often cultivated through religion, social status, personal charm, or even a slick digital platform.

The fraud operates through a self-sustaining cycle, where early investors receive 'returns' drawn from the money of newer investors. This loop continues until it inevitably collapses and the scammer vanishes with the funds.

Some fraudsters maintain the illusion by running real businesses, such as butcher shops, farms, or gold trading to build trust. Others dabble in genuine investments like the stock market, prolonging the scheme's lifespan before the inevitable crash.

A century after Charles Ponzi debuted his infamous scheme, its spirit lives on in ever-evolving forms, aided by new technologies and shifting economic conditions.

The scam of the week

Online platforms have become a natural extension of these scams, using sophisticated digital tools to build trust. These schemes often lean on the allure of past successes, much like the crypto-fueled scams that surged in recent years.

Working in tech, I've lost count of how many friends have asked me whether they should invest all their savings in some new cryptocurrency, dreaming of becoming the next Bitcoin success story.

Frankly, I’m not interested in dissecting the mechanics of the latest scandal involving the FBC platform or calculating the total losses. While I sympathize with the victims, my concern lies in the conditions that make these schemes so easy to repeat.

In an article published by the World Bank, Indian economist Kaushik Basu describes what he calls "camouflaged Ponzis," as more sophisticated and harder-to-detect forms of fraud than classic Ponzi setups. While traditional schemes are relatively easy to spot, thousands still fall victim to them.

The more advanced versions take on new forms, like companies deducting part of employees' salaries in exchange for fake shares or launching bogus crypto ventures.

Several social factors fuel the persistence of such schemes, chief among them being public distrust in formal financial institutions. This was starkly evident during Egypt’s recent currency crisis, when citizens avoided depositing their U.S. dollar savings in banks. Meanwhile, high inflation continues to erode the value of savings, pushing people to chase high-return investments, even if they come with high risks.

As long as these conditions persist, scams like FBC will continue to surface. Regulators will keep racing to identify the latest forms of camouflage, in what has become a constant cat-and-mouse game between fraudsters and watchdogs.

Why regulators exist

With the rapid boom in FinTech tools, ranging from digital payment systems and stock trading apps to installment plans, the global market is teaming with electronic platforms, not just in Egypt but worldwide. Yet none of these platforms can legally operate without approval from the appropriate regulatory authority in their respective countries.

In Egypt, this role falls to the Financial Regulatory Authority/FRA, which oversees the safety and stability of all financial entities operating in the local market. Its oversight extends beyond digital security to the integrity of the investment itself. No platform can legally launch in Egypt without passing rigorous tests that verify the soundness of its operations.

Still, there are warning signs every investor should look out for, though in today’s world, common sense often feels like a scarce resource. For instance, if a venture promises returns far above what banks offer, why haven’t banks themselves rushed to invest in it? The reality is, any 'investment' that claims to be risk-free is almost certainly a disguised scam.

At the very least, investors should always verify whether a platform is registered with their country’s financial regulator. If it’s not, they should reconsider before becoming the next victim, whether the scheme is dressed up as a cutting-edge app or run out of a butcher shop boasting astronomical profits.

The recurrence of such scams isn’t just a result of individual naivety. It reflects a broader economic structure that cultivates the illusion of quick wealth in an unequal financial system.

Tackling this pattern won’t be the job of regulators solely. It will require a collective awareness of the need to build fairer, more resilient economic systems, so people no longer feel forced to chase after illusions to secure their financial future.

A version of this article first appeared in Arabic on February 25, 2025