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ISSN 2278-2540 | DOI: 10.51583/IJLTEMAS | Volume XIV, Issue X, October 2025
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“The Evolution of Investment Scams: Selected Comparative Case
Studies on Traditional Frauds and Digital-Era Vulnerabilities”
Sumuna Lama
Department of Commerce, Gurudas College, Kolkata-700054
DOI:
https://doi.org/10.51583/IJLTEMAS.2025.1410000169
Abstract: This paper explores how investment scams in India have evolved from traditional schemes to modern online frauds
utilizing digital platforms and social media. It compares the operational methods of past and current investment scams and explains
the reasons behind this shift, including digital expansion and easier access to online investment opportunities. Based on secondary
data from academic journals, reputable news sources, and government reports, the study uses a case-based comparative approach.
It emphasizes the need for stronger regulation, better financial literacy, and increased investor awareness to safeguard individuals
from financial fraud in the digital age. Overall, the analysis demonstrates that although scam methods have changed, ongoing gaps
in regulation and investor awareness still facilitate investment scams.
Keywords: Investment scams, India, traditional investment schemes, online fraud, digital platforms.
I. Introduction
Fraud arises when intent meets opportunity (Fisher, 2015), and detecting it increasingly requires advanced financial expertise rather
than basic money management skills (Engels et al., 2021). According to ISA–240, “fraud is defined as an intentional act by one or
more individuals among management, those charged with governance, employees, or third parties, involving the use of deception
to obtain an unjust or illegal advantage”. In simple terms, fraud means purposely deceiving someone to gain unlawful access to a
victim’s personal details. In contrast, a scam is a specific type of fraud that involves tricks and manipulation to obtain a victim's
personal information. Investment scams in India have existed for decades, evolving from paper-based methods to advanced online
platforms. Over this period, India has transformed from a largely closed economy into an important hub for global investors.
Economic reforms, government policies, a regulated financial system, and digital technology have created many new opportunities
for both domestic and foreign investors. Despite significant progress, India’s investment environment still faces many challenges
that need attention. Investment scams such as Chit funds, Ponzi, and Pyramid scams have long existed in India for many years, but
the rise of digital platforms, mobile apps, and social media has significantly changed the scenario. This paper highlights the
connection between historical investment scams and today’s digital frauds, showing regulatory gaps and social vulnerabilities across
both periods.
Objectives Of The Study
1. To examine the historical evolution of investment scams in India from traditional to online.
2. To identify and compare the mechanisms and tools used in traditional and online investment scams.
3. To examine the key factors contributing to this transition.
4. To assess the impacts of investment scams on individuals.
II. Methodology
This study relies entirely on secondary information obtained from academic journals, SEBI reports 2024-25, RBI Financial
Inclusion report 2019-24, and reputable news sources. The data is analyzed through selected case studies along with comparative
analysis. Since the study uses secondary data, some information may be biased or incomplete. Nevertheless, this approach provides
a base for examining how investment scams have evolved and adapted with changing technology.
Conceptual Framework
Traditionally, scams depended on personal trust and social networks, where scammers used persuasion to deceive investors. With
the growth of digital technology, financial inclusion, and online investment platforms, these fraudulent activities have moved online.
The framework links four key elements: evolution, mechanisms, key factors, and impacts. By analyzing these interconnected
elements through secondary information, the study aims to understand how digitalization has transformed fraudulent investment
practices in India and what preventive measures could help reduce future risks.
Early investment scams included Ponzi schemes, Pyramid schemes, and the misuse of chit funds, leading to online fraud. Ponzi
schemes, named after Charles Ponzi’s infamous 1920 fraud in the U.S., gained prominence in India during the 1990s and 2000s,
with notable cases like the Saradha and Rose Valley scams. In these schemes, returns to early investors are paid using funds from
new investors, rather than actual business profits. A Ponzi scheme is an economic crime involving false promises of large profits
and low risk to attract investors (Madhavan et al., 2024).
INTERNATIONAL JOURNAL OF LATEST TECHNOLOGY IN ENGINEERING,
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According to the Chit Funds Act 1982, “a chit fund is defined as a transaction where a group of people agrees to subscribe a certain
amount of money in periodical installments over a period, and each subscriber is entitled to the prize amount in turn, determined
by lot, auction, or tender”. While many chit funds are legal, some have been misused for fraud, as seen in the Saradha Group and
Rose Valley Group scams.
Pyramid schemes are scams where participants mostly earn money by recruiting others, rather than through genuine business
activities.
Online scams use social media, fake apps or websites, and hidden identities to trick people into giving away their personal
information and money. The increase in online scams is driven by widespread internet use, social media promotion and investor’s
growing desire for quick profits. These scams were further accelerated during the COVID–19 pandemics by the increased adoption
of digital platforms.
Case-Based Comparative Analysis Of Investment Scams In India
The table below presents a few selected traditional and online investment scams in India, highlighting the interrelations among their
evolution, operational mechanisms, key contributing factors, and impacts.
Table 1: Traditional Investment Scams
Scheme
Timeline
Types / Mechanisms
Key Factors
Impact
Saradha Group
Chit Fund
Scam (West
Bengal)
2008–2013
The Ponzi scheme operated
through over 200 private
companies, falsely promoted
as chit funds in Eastern India.
High promised returns, low financial
literacy, exploitation of trust, vast
agent network, violation of SEBI
regulations, Companies Act
Around ₹4,000 crores
involved; Million investors
defrauded (mostly rural)
Rose Valley
Group Chit
Fund Scam
(Tripura-
based)
2005–2015
Chit fund / Ponzi scheme in
Eastern India
Real estate investment; Promised
ownership of lands or high returns
with interests ranging from 11.96% -
17.65%, violation of SEBI
regulations
₹17,520 crore involved;
millions of small investors
affected; restitution of
funds
PACL Scam
(Pearls Group)
1996-2014
Real estate-based Ponzi
Promise of high returns, substantial
returns within 90 – 270 days, land
ownership promised, regulatory
oversight, vast agent network to lure
investors
Around ₹ 49,100 crore lost;
5.5 crore investors
defrauded; ongoing refund
process
(Source: Compiled from India Today, The Indian Express, The Economic Times, Lawful Legal, ISFM & Wikipedia)
Table 3: Online/Digital Investment Scams
Scheme
Timeline
Types/ Mechanisms
Impact
Gain Bitcoin
Scam
2015-2017
Ponzi-style
cryptocurrency
investment
Estimated ₹6,600 crore lost;
innocent investors affected;
erosion of investor trust in
crypto
Fake crypto
exchange
websites scam
2022
Impersonation of legit
platforms
Indian investors duped of
more than ₹1,000 crore,
according to cybersecurity
firm CloudSEK
Online Trading/
Investment
Scam (Assam)
2023-2024
Glam-lifestyle
marketing, Fake
companies
Massive loss of
₹2,200 crore, many investors
duped
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West Bengal
crypto app fraud
2024
Fake cryptocurrency
investment app
A student was duped of ₹2.3
lakh; multiple other victims
duped
Zerodha
Trading App
Scam
(Hyderabad)
2025
Fake Trading App
impersonating
₹72.55 lakh lost by one
individual
Online share
trading scam
(Pune)
2025
Fake trading app
showing fictitious
profits and
withdrawals blocked
₹3.66 crore lost by one IT
professional; another man
lost ₹ 2.10 crore in a similar
scam
(Source: Compiled from India Today, The Indian Express, The Economic Times, The Times of India, NDTV & IICA)
Traditional investment scams such as Saradha Group, Rose Valley Group, Pearls Group were prominent during the 1990s, 2000s,
and early 2010s, when India had limited digital infrastructure. These scams primarily involved physical assets. People in India often
invested—and continue to invest—in small, community-based schemes for festivals, weddings, or medical emergencies, relying
solely on trust. Therefore, laws are necessary to protect these vulnerable communities from scams that can wipe out their lifelong
savings (Prema et al., 2023). The operational methods of traditional investment scams relied on face-to-face interactions through
agents who persuaded individuals and built trust among investors. Key factors included promises of high returns, often targeting
small investors or those in semi-urban and rural areas with limited financial knowledge and awareness of investment risks. As a
result, lakhs of people suffered severe financial losses and social distress, leading to long-term financial struggles. Schemers often
exploit highly trusting individuals who are less inclined to question information or verify legitimacy, making them particularly
vulnerable to fraud (Carey et al., 2017). These schemes thrived due to widespread financial illiteracy, trust exploitation, weak
regulatory frameworks, inadequate investor protection measures.
In contrast, digital or online investment scams emerged more recently during the 2010s, alongside the rise of cryptocurrencies,
online trading platforms, and social media marketing. They gained prominence from 2015 onward. These developments allowed
scammers to reach a global audience with minimal effort. While social media has made investing in the stock market more
accessible, it has also created new opportunities for fraud (Subhash et al., 2024). Online scammers now use fake websites, mobile
apps, social media promotions, fraudulent trading platforms, and online influencers to appear trustworthy and attract victims.
Modern Ponzi and pyramid schemes further exploit complex cyber infrastructures, making tracking and investigation very difficult
(Madhavan et al., 2024). Due to this anonymity and technological complexity, identifying scammers involved in digital investment
fraud has become more challenging. Despite shifting to online platforms, the core factors remain unchanged—promises of high
returns, financial illiteracy, and regulatory gaps. In mid-life, people often seek extra income to improve their lifestyle or save for
retirement, leading to riskier investments (Jain et al., 2018). As a result, mid-life investors are especially vulnerable to deceptive
online investment offers. The impact of digital scams goes beyond financial loss, including identity theft and data privacy breaches,
since victims often share personal information online during investments. These breaches, combined with financial losses, have
caused long-term emotional and psychological trauma. Such scams harm society by causing financial and emotional distress and
eroding public trust in digital communication channels (Kolupuri et al., 2025). Existing cybersecurity vulnerabilities and weak
regulatory measures give online scammers a significant advantage. Combating digital Ponzi schemes remains difficult because
regulatory frameworks have not fully kept pace with rapid financial and technological advances (Dewi et al., 2025). According to
the chart below, incidents involving data exfiltration and ransomware account for the highest number of reported cyber threats.
Chart-1: Type of Cyber Incidents reported to SEBI, 2024-25 (Source: SEBI Report)
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Findings
From various case studies, it can be observed that across both traditional and digital eras, investment scams predominantly relied
on the Ponzi structure. The transition from physical to digital platforms has enabled scams to reach a wider, more tech-savvy
audience, including young professionals, urban and semi-urban populations, and digitally literate individuals who actively use
smartphones, online banking, and social networks. This shift has removed regional boundaries, allowing fraudsters to target victims
nationwide or even globally.
Both traditional and digital scams have significant financial, psychological, and social impacts on their victims. Digital scams, in
particular, are especially damaging due to their ability to exploit personal data and online trust. In both cases, strengthening financial
literacy, improving regulatory frameworks, and enhancing digital security are essential to protect investors from future scams.
Although fraudsters have been arrested, assets seized, and refunds processed in some cases, investors must remain highly aware
when engaging with investment opportunities and be cautious about the potential use of AI and deep fakes for deception.
III. Recommendations & Conclusion
Based on the analysis of traditional and digital investment scams in India, the following evidence-based recommendations are
proposed to mitigate risks and protect investors:
Enhance Financial Literacy and Awareness
As investment options and digital trading platforms grow more complex, consumers must possess strong financial knowledge to
make wise and effective decisions. Case studies like Saradha Group, Rose Valley, and Pearls Group show that low financial
knowledge and over-reliance on trust made rural and semi-urban populations very vulnerable. Educational programs, workshops,
and awareness campaigns should focus on explaining investment risks, detecting scams, and encouraging responsible investment
practices—especially in regions with a history of frequent scams. According to the 2024-25 SEBI report, SEBI conducted various
programs such as SMARTs, RISA, initiatives by AMFI, AMCs, and IAs, as well as visits to SEBI to improve investor education
and outreach. These programs were offered in regional languages in addition to Hindi and English. 50,789 investor awareness
programs were conducted across 36 States/UTs during 2024-25. In addition to physical programs SEBI has launched a SAARTHI
mobile app, maintains a dedicated website https://investor.sebi.gov.in., online SEBI investor awareness test and NFLQ as a digital
platform to further enhance its investor education and awareness initiatives. The National Strategy for Financial Inclusion (2019–
2024) by the RBI focuses on ensuring affordable access to formal financial services, expanding and deepening financial inclusion,
and enhancing financial literacy and consumer protection.
Strengthen Regulatory and Enforcement Frameworks
Traditional scams thrived because of weak oversight and regulatory gaps, while digital scams take advantage of online investment
loopholes. Although cryptocurrencies are still unregulated in India, the RBI’s previous bans on crypto transactions have led
stakeholders to push for a formal regulatory framework. To address these issues, authorities should implement stricter licensing,
conduct regular audits, and require timely reporting for both offline and online financial schemes. Better coordination among
regulatory agencies would also help speed up detection and action against fraud. In this evolving landscape, forensic accounting
plays a vital role in identifying and investigating financial fraud, however, the field is still developing in India, and many individuals
and businesses remain unaware of its full benefits (Akshaya et al., 2025).
Develop Robust Cybersecurity Measures
Digital scams, such as fake trading apps and cryptocurrency frauds like the West Bengal crypto app and Zerodha impersonation
scams, show how vulnerable investors are to cyber theft. To tackle these risks, investment platforms and regulators must adopt
advanced cybersecurity measures, continuous monitoring, and a secure verification system to prevent identity theft, unauthorized
access, and data breaches. Recognizing these challenges, SEBI has taken proactive steps to enhance the cybersecurity framework
for the entities it regulates.
Promote Responsible Digital and Social Media Practices
Online scams heavily rely on social media promotions and influencer marketing to build credibility. Checking online investment
ads more carefully, making people aware of the risks, and running public campaigns about online scams can help people avoid
online investment scams. Social media platforms should actively monitor and remove fraudulent content.
In conclusion, the shift from traditional to digital investment scams represents a change not just in how they operate but also in their
size and complexity. While technological progress has greatly improved financial inclusion, it has also brought new risks and
vulnerabilities. Therefore, reducing these threats requires a comprehensive approach that includes education, regulatory updates,
and technological innovation to build a safer, more transparent, and more resilient investment environment.
Abbreviations:
SEBI – Securities and Exchange Board of India
SMARTs – Securities Market Trainers
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RISA – Regional Investor Seminar for Awareness
AMFI – Association of Mutual Funds in India
AMCs – Asset Management Companies
IAs – Investor Associations
NFLQ – National Financial Literacy Quiz
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